The Truth Behind 11 Common PEO Misconceptions

PEO MISCONCEPTIONS 2If you research the PEO topic online you will find no shortage of information and advice. You’ll find some information that is accurate and some that is not even in the ball park. Today we are going to clear up a few common PEO misconceptions that we have run into over the years.  As we chat with business owners on a daily basis, we find that those who believe in any of these myths suffer from a simple misunderstanding of the PEO concept.

Myth #1 : When you’re a small company it’s not smart to use a PEO.

Truth:  Actually, smaller firms most often realize the greatest return on their labor budgets by using a PEO.  The economies of scale, or buying power of being in a large network, qualifies smaller companies for preferred group discounts, big-company advantages and employee perks not typically available to smaller firms on their own.  Most smaller companies (and even larger ones in this downsized economy) don’t have the luxury of a dedicated HR infrastructure or the strategic performance advantages and risk management safeguards it provides.  More importantly, partnering with the right PEO helps small businesses compete more effectively with the bigger players for top talent, and provides access to training and resources to develop that talent to its fullest.  This helps level the playing field with those larger firms who once held a monopoly on these advantages.

Myth #2 : Office admins or managers can do the work a PEO will do.

Truth:  Keeping current and maintaining compliance with increasingly intrusive government regulations has made full compliance a very risky and time-consuming process for small businesses.  Even the best of employees wear too many hats to be able to keep up effectively.  Every labor dollar is critical for smaller firms and should be focused on increasing business, not the maze of government paperwork.  A good PEO will provide an expert team with specialists in all areas of HR, Payroll, Employee Benefits, Workers’ Compensation, Safety and Human Capital Management.  So, no – office managers cannot do what a PEO does – at least not safely.

Myth #3 : PEO = Payroll Company

Truth:  Payroll is a very small, but critical, component of the total services a good PEO provides.  Payroll companies offer no HR administrative support or liability protections for anything other than payroll.  PEOs provide admin support in Workers’ Comp and Safety, Employee Benefits, Labor Law and Government Compliance, Employee Performance Management, all of which should be customized to the unique needs of each individual business.  Payroll service is a commodity…an expense, whereas the services a PEO provides should be considered an investment designed to increase the bottom line.

Myth #4: When you work with a PEO you are giving up control.

Truth:  PEOs provide not only more control, but actually more effective control.  By taking non-core and non-revenue generating functions off the business owner’s plate, management has more time, energy and money to devote to growing their business, being more proactive regarding growth strategies, and less reactive to outside distractions.

Myth #5:  You can’t fire or hire your employees when you partner with a PEO.

Truth:  PEOs serve as administrative co-employers, providing outsourced HR support and a big company infrastructure to support management and staff.  The day-to-day management (including hiring and firing) and establishing the corporate culture remains with the business.  A good PEO is there when you need them and “back office” when you don’t.

Myth #6:  A PEO is only a good option when you can’t find Workers’ Compensation insurance.

Truth:  Many PEOs do not want the unnecessary risk and will not accept companies with poor workers’ comp experience as that can be indicative of deeper underlying operational and management issues.  However, PEOs can be invaluable in helping rehabilitate these companies with customized safety programs and incentives.  Businesses with good workers’ comp histories, however, will benefit from better rates and some PEOs offer periodic rebates for those with fewer claims.

Myth #7:  Since we have fewer than 50 employees we don’t need to worry about Affordable Care Act Changes.

Truth:  Even now, with thousands of pages of modifications and revisions, no one really knows the full impact of the Affordable Care Act and the eventual rules regarding small business participation.  In fact, some of the qualifications will be judged retroactively.  The possibility of fines resulting from confusing and ever-changing guidelines might well be the norm, not the exception.

See also: What is a PEO and What it Means to You

Myth #8: We have in-house HR employees that can do what a PEO can do.

Truth: Same as #2. And when you outsource your HR services, you’re also outsourcing much of your employer liability and risk.

Myth #9: All of my employees will be considered temporary – this comes from the belief that a PEO is a staffing agency.

Truth: Same as #5. PEOs serve as administrative co-employers, providing outsourced HR support and a big company infrastructure to support management and staff.  The day-to-day management (including hiring and firing) and establishing the corporate culture remains with the business.  A good PEO is there when you need them and “back office” when you don’t.

Myth #10: My employees won’t like the change.

Truth:  Working with the right PEO will provide personalized support to enhance the employee experience.  PEOs provide access to better benefits and the latest employee assistance programs designed to improve the lives of employees at work and at home, increasing their productivity.  Most business owners say partnering with their PEO was the single best thing they were able to do for their employees.

Myth #11:  PEO’s are too expensive.

Truth:  They don’t have to be.  In fact, with the economies of scale and liability protections a PEO provides, in most cases the total costs are typically cost-neutral (and in many cases less expensive) to the business owner.

Learn more about PEOs and access other useful resources at our Employers Resource Center

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