Hey, Michael Godwin here with The Benefit Company. And today I want to talk to you about PEO’s or professional employer organizations. So we’re seeing a lot of activity in the marketplace from employers that utilize a PEO that are growing and considering making a transition away from them. And so we wanted to address this in a little bit more detail.
So first off, what’s a PEO so a PEO takes on the HR payroll and that fits administration for our clients, which are typically smaller employers that don’t have internal HR expertise they don’t have their own HR Team, that type of thing. And so in these arrangements, the client will enter into a co-employment relationship with the PEO and the PEO becomes the employer of record for tax compliance purposes.
And this allows the small employer to outsource their HR Functions such as employee benefits, comp benefits, and payroll administration, worker’s comp employment, taxes, those sorts of things. And so for a small employer, there can be significant advantages to this approach. You know, it allows them to latch onto the PEO utilize them to keep the business functioning from a benefits and and payroll standpoint and remain compliant and, and very challenging compliance environment.
And so, however, you know, as companies grow and take on their own identity, their own culture, the one size fits all approach of the typical PEO starts to make less and less sense for employers. And furthermore, from a cost standpoint, again, as employers grow the fee model of a PEO starts to make less and less financial sense as well.
And so this is an important issue that we’re seeing a lot of activity in the marketplace around. And so again, in our next video, we’ll dig deeper into the reasons why an employer would consider moving away from a PEO and the optimal timing of that decision. And then we’ll wrap up with a video on a deeper dive into best practices for making that transition.