Companies in today’s fast-paced world are constantly seeking new ways to make their business processes more efficient and cost-effective. This is especially true of small organizations that begin to grow at an extremely rapid rate and that have few employees to carry out their essential operations. Fortunately, there exists a valuable resource that businesses can use to perform these functions: Professional Employer Organizations (PEOs), but how does a PEO operate?
What Is A PEO?
A PEO is an organization that contractually assists a small business with several employee and human resources-related functions such as managing payroll-related taxes, access to benefits, recruiting and hiring, and several other administrative tasks. A PEO will not replace a business’s internal HR staff or take complete control of an organization. According to the National Association of Professional Employer Organizations (NAPEO), there are 907 PEOs in the United States, and these organizations offer assistance to 175,000 small and mid-sized businesses.
What Does A PEO Do?
PEO’s provide many different types of services. These services and the advantages they bring can be classified into three distinct categories: streamlining HR processes, managing payments, and helping small businesses concentrate on growth. Here is a close look at each of these three objectives.
Streamline HR Processes
Human resources managers and executives are typically responsible for handling several tasks, including HR planning (recruitment, training, promotions, etc.), employee compensation and benefits administration, employee relations, and performance management. A PEO can help streamline these processes by using its outside perspective to identify and resolve any inconsistencies they may contain. Streamlining can then, in turn, potentially lead to significant time and cost savings for your business. (According to a 2015 study by Business Insider, 33% of small businesses get fined each year for payroll-related errors).
Additionally, a 2012 survey conducted by the Society for Human Resource Management revealed that 20% of respondents said one of the greatest challenges facing HR executives over the next 10 years is “creating smooth and efficient HR processes that ensure a good employee experience.”
Help To Manage Payments
In addition to streamlining HR processes, a PEO can help manage your organization’s important payments such as payroll-related taxes, rent and utilities, outstanding debts, and key vendors and suppliers (if applicable). A PEO will help your organization prepare for a cash flow issue in advance by setting aside enough money to pay all expenses and creditors, especially during times of financial hardship. It can thus help your business mitigate risk by devising a strategy to keep its debt-to-equity ratio low (at or below industry average). If your company has shareholders, a low debt-to-equity ratio may entail a reduced likelihood of bankruptcy when an economic downturn occurs.
Allow You To Focus On Growth
In a more general sense, a PEO can help your small business focus on short-term and long-term growth. There are several ways you can help your company grow. You can build a sales funnel, research competitors in your industry, create a customer loyalty program, form strategic partnerships, or build passive income streams.
An organization’s growth can also be measured using several metrics, depending on the industry it belongs to. For example, growth may be determined based on sales growth or overall employee productivity. However, it can also be estimated by calculating your business’s book value (assets minus liabilities) or its market capitalization (the product of your current stock price and the total number of outstanding shares).
Ultimately, it is important for your company to identify its priorities upon entering into a contractual agreement with a PEO. Once you have pinpointed all of your objectives, your company and your PEO operate may develop a plan to help make your HR processes and other business operations more efficient and to spur more growth.
Work With Experienced PEOs
Reach out to the professionals at New City Insurance in San Diego for more information about PEOs and how PEO operate and how they operate. Since our founding in 2008, we have been dedicated to providing our clients with high-quality insurance solutions and to reshaping the insurance industry as we know it.
At New City Insurance, we understand that as companies grow, the responsibilities of their HR departments also grow. A Professional Employer Organization can help streamline your company’s processes and centralize your standard core business services via a co-employment relationship. There are several notable benefits to working with a PEO, including access to better employee benefits, legal protection, and stronger retirement plan management. A PEO can help your business shift its focus to what matters most while taking on responsibility for many administrative tasks.