The manufacturing sector has continued to see steady growth, despite disruptions caused by the COVID-19 pandemic. According to a recent report published by The Balance, manufacturing production in the United States is the largest in the world and is responsible for producing an estimated 18.2 percent of all global goods.
To keep up with continuous changes in the industry, many manufacturing companies rely on the experience and expertise of third-party professional employer organizations (PEOs).
What is a PEO?
A PEO is a type of organization that allows businesses to outsource their human resource functions, such as payroll, training and employee benefits. PEOs also help small- and mid-sized businesses maintain compliance with state and federal labor and employment laws to avoid hefty penalties.
When a manufacturing company and PEO enter into a contract, it is known as a client service agreement (CSA). A standard CSA stipulates that the client company maintains the responsibility of hiring and managing employees and handling nonemployee-related tasks, such as marketing, sales and customer service.
Under this arrangement, the PEO acts as an administrative employer and the client retains the role of the worksite employer. Hired PEOs are responsible for processing employee wages, withholdings and benefits. They may also be tasked with reporting taxes to the proper authorities and assisting in other aspects of HR, such as the development of an employee handbook.
While partnering with a PEO can be highly beneficial for manufacturing companies, it is important to understand what limitations exist. A PEO will not take control of the business or make hiring or firing decisions on behalf of the employer. PEOs also do not supply labor to worksites.
Benefits of a PEO
Many businesses struggle with the decision to trust a third party with valuable aspects of their operations. However, more and more employers are realizing the incredible benefits that come from hiring a PEO. Whether they are providing ongoing training to employees or handling unemployment claims, companies can trust these external organizations to provide them with much-needed administrative relief.
Here are some of the top benefits that manufacturing companies can enjoy when they partner with a PEO:
- Cost Savings – Businesses are always looking for new ways to cut costs and increase their bottom line. While hiring a PEO is an investment, many companies find that they actually save money in the long term. PEOs can help employers avoid costly pitfalls, such as overlooked compliance issues or hiring the wrong candidate.
- Positive ROI – Partnering with an experienced and reliable PEO can result in a positive return on investment for growing businesses. According to the National Association of Professional Employer Organizations (NAPEO), the annual ROI from working with a PEO is approximately 27.2 percent.
- Time Savings – Businesses not only save money when using a PEO, but can also save a significant amount of time. When time-consuming manual HR tasks are taken over by a PEO, employees have the opportunity to focus on core business operations. Productivity can dramatically increase and employees can enjoy a more challenging workload.
- Better Benefits – Businesses that partner with established PEOs often gain access to better employee benefits and health insurance. This is because PEOs can leverage their purchase power and negotiate attractive and affordable benefits for the businesses they serve.
- Improved Functions – HR departments can easily become overwhelmed when there is too much to do and not enough people to perform daily tasks. Allowing a PEO to step in and take over some of these administrative functions can often lead to improvements in the workplace, development opportunities and reduced risks.
- Greater Compliance – It is critical for businesses in the manufacturing sector to remain up-to-date with business regulations to reduce the risk of penalties. Unfortunately, many businesses do not have the time to keep up with compliance changes. PEOs can help ensure companies remain compliant and avoid fees.
- Retain Employees – Turnover is often higher among businesses where employees feel overworked and underappreciated. When employers take the initiative to partner with a PEO and take some of their employees’ workloads, staff members often feel happier and less stressed.
- Gain Peace of Mind – Employers must make difficult decisions every day on behalf of the business. One area where employers can feel confident is in their decision to hire a PEO to help handle employment-related aspects of the job.
Request a Consultation
When searching for a solution to better manage HR and payroll processes, businesses may come across PEOs. It is important to understand the benefits that a PEO can provide to determine if hiring an external organization is the right choice for your business.
To learn more about how manufacturing companies can benefit from partnering with a PEO or to request a consultation with an experienced employee benefits and HR consulting firm, contact the experts at New City Insurance.