Professional Employer Organizations: What Are They and How Can My Business Benefit?

The primary distinction from other HR service providers is that the PEO actually becomes the legal employer of your workers and thus takes on the accompanying legal liabilities.

For a

fee typically ranging from 1.5 percent to 8 percent of your payroll, the PEO "coemploys" your workers. (The fee depends on a number of factors, including the number of employees and the average salary level of your employees.) Coemployment means that each party is solely responsible for some aspects of employment while sharing other aspects. PEOs can handle the whole gamut of HR responsibilities, including benefits, payroll, taxes, workers' compensation, and regulatory compliance.

Because they take over most of the headaches of being an employer, PEOs are ideal for small businesses. In fact, most PEOs target companies that have 150 or fewer employees; the average client has 17 employees.

Frequently a PEO arrangement is the only way a small business can offer benefits such as health insurance, dental and vision care, life insurance, retirement savings plans such as 401(k), Section 125 cafeteria plans (flexible spending accounts for health care and child care), job counseling, adoption assistance, and educational benefits. Most small businesses could neither afford nor manage these benefits on their own.