Pros and cons of a professional employer organization (PEO)

Professional employment organizations explained.

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A professional employer organization (PEO) provides HR services to small and mid-size businesses that may not have the staffing and resources to have in-house departments. With this professional assistance and guidance, business owners and managers can offload payroll, benefits, tax administration, and compliance and shift their focus back to day-to-day operations and attending to customers’ needs.

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Professional employer organization pros and cons

As with any major business decision, there are some benefits and drawbacks to a PEO arrangement. Some organizations want to or need to keep HR services in-house, while others may want or need outside help. 

The pros of a PEO

The benefits of consulting with a PEO run deep, but let’s start with the top three:

  • Time savings: Managing HR in-house is time-consuming and becomes even more demanding as your company grows. Relying on a PEO to handle these essential tasks can give back a lot of valuable time. 
  • Cost savings: Calculate the cost of hiring, retaining, and managing a dedicated HR staff. Now, compare that number to bringing a PEO on board. You’re likely to find that a PEO is much more affordable. This is in addition to a PEO’s ability to score you more competitive rates on workers’ compensation insurance, health insurance, and other common HR-related expenses. 
  • Peace of mind: It’s easy to feel overwhelmed from an HR perspective. Are you up to date with the latest tax laws? Are you familiar with all compliance and regulatory issues? You can’t place a value on peace of mind. You either have it or you don’t. And if you don’t, it can quickly bog you down. 

Additionally, research from the National Association of Professional Employer Organizations (NAPEO) reveals that businesses that take advantage of these services experience benefits ranging from faster growth and less turnover to a greater likelihood of surviving in the marketplace.

The cons of a PEO

Despite the many benefits of a PEO, there are some potential downsides to consider:

  • Local entity requirements: To use a PEO, you’re often required to set up a legal entity in the country you wish to hire employees. If you have international employees or are considering global expansion, the costs can quickly add up. 
  • Legal liability: A PEO takes on many important financial obligations to support your employees, but you will still have legal obligations as the business owner. It’s still your responsibility to hire and manage your workforce within the limits of the law. 
  • Possible service limitations: While a PEO is a good choice for general HR tasks, they’re not always able to help with more advanced circumstances. For example, potential concerns regarding data protection and intellectual property (IP) rights generally fall on your company. 

How to select a PEO

Are you on board with the idea of hiring a professional employer organization? If so, it’s time to choose the right PEO for your organization’s needs. Answer these three questions to narrow your options:

·         Are they a member of the National Association of Professional Employer Organizations (NAPEO)?

·         What type of services and support do they offer? Do they align with your needs?

·         Can the PEOs on your shortlist provide professional references?

Answering these questions will guide you toward the PEOs with the most to offer. You can then consult with each one individually for more detailed information on their services. In addition to understanding the level of service they provide, it’s worth considering personal rapport so it’s easier to communicate with your points of contact within the organization.

Lean on Oyster's global employment platform

After weighing the pros and cons and scheduling a few consultations, you may find that a PEO doesn’t align with your needs and goals. That’s okay—there are other options, such as Oyster's global employment platform.

You’re no longer limited to hiring talent in your local area or home country. We make it easy to hire and manage employees based on talent, not location.

Our platform enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.

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