With unemployment hitting record lows, many employers are struggling to fill key positions in their organizations. If you’re dealing with just such a problem, remember that hiring isn’t the only way to find skilled workers — there’s also outsourcing. And if it’s jobs in human resources (HR) that you’re having trouble filling, engaging a professional employer organization (PEO) could be a feasible solution.
Not a provider, a co-employer
Most PEOs market themselves as “co-employers.” That is, they partner with an employer to provide a broad slate of HR services rather than simply offering help with staffing or payroll.
By signing a contract with one, you won’t need to hire HR staff. The PEO will handle tasks such as recruiting and training, payroll management, benefits administration, and regulatory compliance. You may even be able to reduce the size of your HR department or redeploy those employees to more strategically focused duties.
PEOs offer other advantages as well. Overworked HR staffers might struggle to keep up with the ever-changing trends and regulations related to employment. The built-in expertise of a PEO can help ensure compliance and help prevent costly penalties.
Further, because PEOs typically work with multiple clients, the cost to engage one can be lower than hiring more HR employees. Partnering with a PEO enables an organization to focus on its core mission while it gains access to HR know-how, technology and administrative services.
For example, many PEOs can recommend best practices for functions such as onboarding new employees. And some provide an HR information system that allows your organization to use the latest technology to track recruiting, payroll and benefits data.
Finally, long-standing PEOs often have established relationships with multiple health insurers. This enables you to shop for a greater number of policies at more competitive rates than you might be able to obtain on your own. A good PEO can also educate employees about the benefits available to them, which tends to boost participation, morale and retention.
Not always the right move
To be clear, a PEO isn’t right for every employer. You’ll incur a substantial cost in engaging one and you’ll need to be prepared to manage the relationship. From a benefits perspective, some PEOs work with a limited number of health insurers whose policies might be no better than coverage you can find on your own.
It’s also possible that your in-house expertise isn’t that far off from a PEO’s. A little more training or continuing education could get your HR staff up to speed and negate the need for investing in outside help.
The contract is key
When you partner with a PEO, your organization and the PEO enter into a legal co-employment agreement. Typically, the employer remains responsible for strategic planning and business operations, while the PEO takes on specific HR-related services outlined in the contract.
It’s important to thoroughly understand the co-employment agreement. Often, the employer engaging the PEO continues to pay employment taxes and file tax returns. Under some agreements, however, these responsibilities shift to the PEO. Assess the contract carefully with your leadership team and ask an attorney to review it.
Far from easy
Partnering with a PEO may be a way to sidestep today’s tight job market. But deciding whether to do so is far from easy. Our firm can help you assess the feasibility of such an arrangement, including forecasting the costs involved.
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