Historically speaking, the idea of a PEO was born out of the frustration of many small business owners with high workers' compensation costs and high medical costs. Back in the 80's a group of business people got together to identify how they could solve this problem. Initially the solution was insurance arbitrage, where the employers would group together for buying power and lower costs of insurance that would have been higher if they remained separate. So, they formed a company and that became the first PEO.

Large Group Buying Power

The PEO model offers the buying power of a large group. This affords small through midsize businesses benefits packages like those of a Fortune 500 company. As an added inclusive service, the PEO becomes responsible for many of the compliance issues that small through midsize businesses now face. From the new benefits rules, to accurate and timely employer wage tax filings. The PEO has the ability to save your company money while shifting liability.

Human Resources

Generally speaking, PEO's not only offer economies of scale as they did in the initial days but they also offer a complete HR branch of services. The Human Resources industry recommends for every 100 employees at a company, an employer should have 1 certified HR specialist to meet the needs of those employees. This does not match up with the reality of many small companies not being able to afford a full-time HR staff person. In addition to this, if you have less than 100 employees it doesn't mean you shouldn't have any HR help. With a PEO, no matter the size of your company, you have the ability to share an HR specialist's advice along with with on-site capabilities with your employees.

Medical Benefits

A PEO offers a lot more than just a cookie cutter insurance packages. It offers an insurance package along with the requirements to maintain those packages and make sure they are compliant with all the new regulations.

Workers' Compensation

Since a PEO shares the risk with the business owner, they have an incentive to make sure you have a safe work environment. This means supplying safety training and safety manuals. They can also provide access to risk managers who will stop by your office or your shop as often as necessary to give advice.

EPLI

In addition to the core offering, many PEO’s offer Employer Practices Liability Insurance (EPLI) as part of their inclusive service. In today’s litigious environment all employers should have this coverage. EPLI covers employers for wrongful termination, harassment and discrimination lawsuits.

While partnering with a PEO, your company will enjoy the benefits of larger companies. In addition to Health, Dental, Vision, Long and Short Term Disability, and Life Insurance, your company will be able to participate in affordable retirement plans.

Summary

A PEO is a single source provider that provides employee benefits, human resource advice, payroll processing, workers’ compensation coverage with risk management services along with compliance consultations. The PEO’s support services are provided to small through midsize companies through the use of a co-employment relationship. The PEO processes your employees’ paychecks through the PEO’s Federal Employer Identification Number (FEIN). This affords the client companies buying power in the areas of employee benefits, worker’s compensation coverage and payroll processing. This relationship saves thousands of companies millions of dollars every year.