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What is a Professional Employer Organization?

This article is written by our friends at Justworks.


As their businesses grow, many entrepreneurs start to see the value of outsourcing specific tasks to third-party solutions. When things get busy, it helps to bring in some specialized support. That’s why many small businesses work with a Professional Employer Organization (PEO).

A PEO can help take on many of the tasks related to managing payroll, benefits, HR, and compliance, freeing up your time to focus on business growth and profitability. Here, we’ll dive into the specifics of a PEO, so you can learn what they are and how they can help small business owners (and their companies) thrive.

What is a Professional Employer Organization?

First off, what is a PEO? The acronym stands for Professional Employer Organization, and generally, they provide comprehensive HR solutions for small businesses.

PEOs offer HR expertise and work closely with small businesses to help them manage payroll and payroll-related taxes, like a payroll provider. But unlike a standalone payroll tool, PEOs also provide access to benefits and handle certain human resources and compliance functions and other employer-related administrative tasks.

By taking on these time-consuming HR functions, a PEO can help business owners make better use of their time. PEOs can also provide guidance on the trickier parts of running a company, which means more time to focus on growing the business.

How does a PEO work?

PEOs can manage these tasks for employers because of something called co-employment. The National Association of Professional Employer Organizations (NAPEO) defines co-employment as “a contractual allocation and sharing of certain employer responsibilities between the PEO and the client.”

The contract between your business and a PEO allows for the employer responsibilities to be distributed. It also allows the PEO to provide HR support, access to benefits, payroll administration, and related tax filings. The PEO also shares some of the liability and risk in certain situations.

It’s not all hands-off: your company is still responsible for the day-to-day operations and management of employees, but the PEO can help you take on many tasks. Let’s further break these PEO services down and highlight some of the benefits of each.

Simplify payroll administration

Factoring in different employee types and pay frequencies can get pretty complicated pretty quickly. However, a PEO makes payroll processing easy, reducing errors (and risk of fines) in the process.

PEOs help handle the nitty-gritty of payroll administration — things like automated deposits to full and part-time employees, one-off payments to vendors or contractors, and payroll tax filings.

With a PEO, calculating special payments by hand is a thing of the past, which means less heavy lifting for business owners. Financial data can also be more accessible, making it easier to put time and energy toward financial and business decisions.

Find better employee benefits

It can be challenging for small business owners to offer their employees competitive benefits packages—it takes a lot of time to find the best plans for their needs. It can be even more difficult to afford the healthcare insurance your team deserves, but joining a PEO can make this prospect a lot easier.

Small businesses are often left to shop for health insurance on the small group market, which doesn’t offer the same richness of benefits found in the large group market. With a PEO, your business will have access to big-company employee benefits and large group health insurance plans, even if you’re a small business with just a few employees.

PEOs also support employers and their teams through the process of selecting and enrolling in health insurance coverage. If you want to make things even easier, be sure to select a PEO that has a single platform that facilitates both.

Between tackling benefits onboarding, insurance claims, and other related paperwork, administering benefits can be a job on its own. An all-in-one solution that helps manage admin tasks like these can save time (and headaches) for employers and employees alike.

Offer competitive perks

When it comes to perks, small businesses are sometimes at a disadvantage. It can be harder (and more expensive) to offer the kind of compelling incentives that many larger companies can afford.

Luckily, PEOs also help employers access some seriously attractive perks. These can include Employee Assistance Programs (EAP), life insurance, commuter benefits, family planning, on-demand primary care, access to 401(k) and retirement plans, discounted gym and bike-share memberships — the list goes on.

Working with a PEO means access to perks and benefits that can give you a competitive advantage in attracting top talent and reducing employee turnover. Improved employee retention means you can shift your time and resources from recruitment and hiring to invest in growing your business.

Streamline human resources admin

Human resources tasks can be overwhelming for any business owner. Some PEOs use a tech-forward platform to ease that burden by automating several HR and onboarding-related tasks. PEOs with platforms like these use their robust software to streamline tasks and often help manage new hire onboarding, harassment and discriminiation training, and benefits administration.

Some PEOs also offer support from HR professionals. These representatives can provide guidance and best practices on HR topics relevant to small businesses. In the absence of in-house HR services, this offering can be helpful for smaller companies or those who need to fill a gap in a specific area. Instead of hours spent working to find an answer, you can get guidance quickly and allocate that time elsewhere in your day. If this is important to you, look for a PEO that offers access to Certified HR Consultants.

Support with compliance

Employment laws frequently change, which means ensuring your business is in regulatory compliance can be an overwhelming task. PEOs can support employers with this task too.

A PEO helps maintain employer-related compliance needs for new hire reporting; withholding, reporting, and remitting payroll taxes; filing W-2s and 1099s; managing unemployment claims; providing access to Employment Practices Liability Insurance; and more.

Risk management is an essential (but complicated) aspect of running a business. PEOs are experts in things like payroll taxes and workers comp—their expertise can help companies stay compliant with employment regulations as they grow over time. A PEO can help provide employers with some much-needed peace of mind that their business is managing risk appropriately.

Access expert support

When choosing a PEO, it’s important that you (and your employees) feel supported. Between compliance and payroll issues, there’s a lot of ground to cover, and you may not have all the answers on your own. Having experts in your corner can make a big difference.

PEOs often have customer service teams available to provide support when you or your team needs it—some PEOs even have reps available 24 hours a day, seven days a week. When you or your employees have an important question, being able to reach someone for assistance right away can be greatly beneficial.

When comparing PEOs, ask about the support model. Some PEOs may even offer dedicated points of contact who will get to know you and your business and provide personalized guidance.

How Justworks + Bench Can Help

At Justworks, we know how small business owners’ responsibilities and priorities are constantly changing, and there’s never enough time in the day to tackle them all. That’s why our all-in-one platform for payroll, benefits, HR, and compliance support can provide the support you need to focus on what matters most — growing your business. Bench customers are eligible to receive one month free of Justworks’ administrative fees. Try Justworks today.

What's Bench?

We're an online bookkeeping service powered by real humans. Bench gives you a dedicated bookkeeper supported by a team of knowledgeable small business experts. We’re here to take the guesswork out of running your own business—for good. Your bookkeeping team imports bank statements, categorizes transactions, and prepares financial statements every month. Get started with a free month of bookkeeping.


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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