What is a professional employer organization?
A professional employer organization (PEO) partners with your business to provide various human resources (HR) and administrative services. Some PEOs also provide strategic services. Using a PEO to manage HR and administrative processes allows team leaders to concentrate on essential areas, such as product development, marketing, sales, branding and company growth. Establishing a co-employment relationship with a PEO can help streamline and automate administrative and HR-related tasks, including:
- recruiting and hiring
- payroll
- benefits administration
- tax filing
- employee data tracking
- time and attendance management
PEOs and your business
Small- and mid-sized businesses across most industries benefit most from partnering with a PEO. They can also help larger organizations reduce administrative costs. When partnering with a PEO, your company retains complete control over decision-making and daily operations.
A Canadian PEO is not the Employer of Record (EOR) and does not take on the legal burden of employment. The business is responsible for compliance with federal or provincial employment laws.
When to use a PEO
As your company grows, HR and administrative costs increase. Using a PEO can provide the necessary support if you lack in-house HR expertise or a dedicated HR team. They can be a cost-effective solution for time-consuming administrative tasks like payroll, benefits administration and compliance. Here are some other reasons to use a PEO:
- Talent management: providing end-to-end talent services, like recruitment advice and strategic hiring guidance, employee training and engagement, employee assistance programs, and performance management.
- Scalability: helping manage a fluctuating workforce, making it easier to scale your business up or down as needed.
- Competitive benefits: managing payroll and deductions, providing guidance on competitive salary, vacation and benefits, including creating employment contracts to offer candidates, negotiating better rates for benefits and insurance, and offering RRSPs.
- Risk management: help mitigate risks related to federal or provincial employment law and workers’ compensation claims.
- Global HR support: manage HR complexities associated with remote and international employees.
Common services a PEO provides
In a co-employment relationship, the business and the PEO share specific employer responsibilities. Most often, PEOs process payroll, withhold and pay payroll taxes, maintain workers’ compensation coverage, administer employee benefits and provide human resources guidance.
Some PEOs offer data analytics and benchmarking services, providing insights into your workforce to enable a company to adjust business practices and resolve anomalies as required. This can help management understand how much certain employees are paid and how it compares to the market, which skill sets best match an available job opening, the departments requiring more employees, and how turnover rates compare to businesses in the same sector.
Services PEOs do not perform?
A PEO manages HR and administrative tasks, but your organization remains accountable for HR compliance and the direct day-to-day employee activities, such as establishing pay rates, working hours, employee scheduling and tracking performance. While a PEO may offer guidance for compliance with federal or provincial employment law, the company is ultimately responsible. Additionally, PEOs do not make final hiring decisions.
Pros and cons of using a PEO
There are pros and cons of using PEO, and researching and comparing services, fees and reputations is essential to finding one that best fits your needs.
Pros
PEOs provide a wide range of services that can benefit a company. They can act as your HR team or augment your existing team to attract and retain talent and streamline workforce growth. PEOs increase your access to HR resources and experts and help your business comply with labour laws. Using a PEO frees up critical time and resources.
Cons
PEOs often offer standardized services, which may not always align perfectly with your business needs. The fees they charge can add to your overall costs, and if you are not satisfied with their services, it can be difficult to switch providers.
How to choose a professional employer organization
If your business is looking for a PEO, finding one that fits your strategic business needs is essential. To mitigate compliance risks, ensure the PEO employs certified payroll professionals and provides clear, detailed agreements outlining shared responsibilities.
Here are some other attributes of a potential PEO partner:
- strong track record and fiscal stability
- meets the unique needs of your business and employees
- can supply references from other clients in your particular industry
- provides comprehensive support and compliance expertise
- offers provincial expertise in each province where you operate
How do PEOs charge?
PEOs typically charge fees as a percentage of payroll or per employee. While additional services like workforce analytics may increase costs, they can deliver significant ROI by optimizing HR operations. Reputable PEOs offer cost analyses, breaking down payments to show how your investment will be allocated.
By partnering with a trusted PEO, your business can unlock access to professional HR expertise, reduce administrative burdens and focus on growth. Taking the time to evaluate providers ensures you select the best fit, empowering your business to thrive in today’s competitive landscape.
Related articles:
