Some companies choose to work with Professional Employer Organizations (PEOs) to handle their HR activities. Under the arrangement, the PEO becomes co-employer with the organization and takes responsibility for payroll, benefits and tax functions, and often also other main HR tasks.
Because PEOs group employees from several different companies together, they are often able to secure lower rates for benefits coverage, such as health insurance, reducing costs for the companies. It’s an attractive deal for employers, with between 14 and 16 percent of small businesses with 10-99 employees using PEOs last year, according to the National Association of Professional Employer Organizations. But, there are also drawbacks to the arrangement.
Let’s take a closer look at whether your organization has outgrown its PEO.
PEOs typically cater to small businesses as the arrangement helps ease financial burdens for cash-strapped companies while also outsourcing time-intensive HR tasks. However, as a company grows, more employees sign on with the PEO, which means a larger pool and a greater risk for insurance premiums to increase. If your company has plans for future growth beyond its current size, it should consider returning benefits and payroll control back into its own hands.
“Modern HR encompasses much more than payroll and other administrative tasks.”
Missed strategy insights
Modern HR encompasses much more that payroll and other administrative tasks – it’s focused on strategy. There are so many insights companies can glean from their benefits, recruitment, payroll, tax and other HR functions that may be missed if they outsource these functions. By having a comprehensive view of all of their HR activities, organizations can have a clearer understanding of what works and what doesn’t and chart more informed strategies for future success. If your company is looking for ways to improve employee productivity and engagement, monitoring your own HR activities may be vital.
A current focus of employers is to improve the employee experience, and a primary way to achieve this is through a company’s culture. Organizations that take the time to review and tweak their processes so that they better reflect their missions and values and create an environment of authenticity can benefit from increased employee engagement and loyalty. By outsourcing core HR functions that have a direct impact on employees, companies give up control of how those functions are branded and administered to workers. If your company wants to strengthen its corporate image across the board, consider taking HR activities into your own hands.
While working with a PEO can be the right fit for some companies, it’s not always the best solution. Maintaining your own payroll, benefits and tax functions with a Cloud-based HR platform can help your organization improve strategy and employee engagement.