By paying the employees, paying employer taxes, and assuming other administrative duties, the PEO becomes a co-employer. This relationship enables firm principals to enjoy the freedom and satisfaction of being in business for themselves while enjoying the security and benefits of a large corporation.
In the role of co-employer, the PEO secures the right to include all of the employees under a single application for group health, life, dental, and disability insurance. Specifically, the size of the PEO group determines the employee population viewed by the insurance company as the eligible group. Frequently, this number is in the thousands, and in the case of some national PEO companies, the employee population is in excess of 100,000 strong.
Retirement plans, flexible spending, employee assistance plans, and a whole menu of voluntary benefits are frequently offered to the employees of the PEO. If the plans currently in place are something the firm does not wish to change, the technology behind the employee administration allows deductions and credits to be reconciled on one system.
Workers’ compensation coverage works in a similar way. Put simply, more employee payroll leads to more workers’ compensation insurance premiums, which in turn results in higher volume discounts. The employee leasing companies are incentivized to prudently manage their workers’ compensation insurance programs and thus encourage good practices within their client companies by providing proactive safety training, OSHA compliance assistance, and thorough claims processing.
Many PEO companies provide their client firms with an improved level of professionalism for their human resource functions. Internet-enabled information systems can be highly sophisticated with time and attendance features, employee self service reports, and benefits communication. Practice management professionals can utilize the system for a myriad of administrative functions, such as issuing continuing education reminders, communicating vacation requests, and tracking equipment for cell phones and laptops. Standardized forms, policies, and procedures can be provided and most PEOs make professional human resource specialists (PHR) available to assist their client companies. Employer practices liability insurance is frequently provided for a very low cost.
There are an estimated two to three million leased employees in law firms, bakeries, welding shops, shoe stores, and so on nationwide, according to the National Association of Professional Employer Organizations (NAPEO).
Understanding the relationship between the PEO, employer, and employee is crucial in evaluating the cost to benefit ratio under such an arrangement. All PEO companies are not alike, and understanding the measurable differences is just the first step for a firm considering employee leasing.