What is a PEO?
PEO is an abbreviation for the “Professional Employer Organization.” A PEO provides administrative and HR assistance as well as employee management services to businesses. Simply put, it acts as an employer for the employees of a client company.
The PEO acts as the “Administrative employer” and the client functions as the “Worksite employer”. This relationship is based on a true partnership. Because of the PEO structure, a PEO company can help small- and medium-sized businesses achieve economies of scale that they may not be able to achieve on their own. Partnering with a comprehensive PEO company can help your business succeed with improved efficiency and reduced liability. Outsourcing PEO is a viable option to hire administrative support for start-ups as well as companies considering the expansion of their operations. You may ask – how does it work? So, let us find out together.
Benefits of hiring a PEO
There can be several advantages of hiring a PEO, especially when it comes to small and medium-sized businesses. You must determine specific duties you expect the PEO to perform in this partnering relationship. Most PEO’s offer the following core services:
- Human Resources Administrative Services
- Payroll Administration & Taxes
- Access to Master Healthcare Plan (if available)
- Employees’ benefits administration, such as workers’ compensation, health insurance, retirement plan, etc.
- Essential taxes such as tax compliance and payroll taxes
- Access to an exclusive MEP 401k Plan (if available)
In addition to the responsibilities mentioned above, you can add a range of other services in your PEO services agreement such as Recruitment Services and specialized consulting services and projects over and above the base offerings if necessary.
Let’s talk a bit now about how a PEO handles the recording of wages.
How are wages recorded when in a PEO relationship?
From payroll to comprehensive reports, the PEO handles each and every record. It is not only time consuming but also quite costly for many business owners considering that they don’t get enough time to allocate their effort, time and money to other valuable and core aspects of running their business.
However, when your organization decides to partner with a PEO, you can sit back and relax. In this partnership, the PEO will handle the payroll responsibilities, including proper record-keeping of wages.
A PEO makes sure to keep track of expenses, dates, and taxes as well. As with any payroll processing service, the PEO will record how much money each employee makes within the designated accounting period.
The PEO also performs necessary employee classification. This is based upon whether they are salaried or hourly-rate workers. When it comes to payroll calculations, a PEO not only ensures that employees are properly classified but also if they receive the right amount of money on the expected date.
And for hourly employees, PEO makes sure they are in alignment and comply with federal and state rules related to minimum wage and overtime policies.
Furthermore, the PEO will take care of all mandatory paperwork related to payroll. This includes W-2s and W-3s forms as well as 940 and 941 form filings and accurate tracking of all new-hire onboarding forms.