Any business may find it overwhelmingly complex managing the many employee and HR administration duties while ensuring legal compliance. They may lack the in-house resources to handle them. That is where Professional Employer Organizations (PEO) come in. Let’s see what is a PEO and why a growing number of companies have decided to outsource some of their vital HR functions.

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What is a PEO?

PEOs are companies that help other companies save money and time on their HR operations. It becomes the co-employer of its client’s employees and takes over several personnel duties like handling the contractual relationship and paying taxes, payrolls, and benefits. They are responsible for doing so on time and accurately.

A PEO is an “in-between,” as it becomes the employer of record (EoR). It pays the employee’s payroll and taxes under its own tax identification number. The client company continues to manage the employees in their daily activities.

What is difference between a PEO and a staffing agency?

The difference between a PEO and a staffing agency is the hiring and the employee status. Staffing agencies allow companies to outsource temporary employees’ hiring and contracting processes. With a PEO, you outsource the personnel tasks of permanent employees, not necessarily the selection and hiring.

There are different names to refer to Professional Employer Organizations, such as Employee Leasing or Staff Leasing companies or Insourcing companies. In the UK, people usually use the term Umbrella companies. However, those latter primarily act as an employer of record, mainly for independent contractors.

Professional Employer Organizations are a cost-effective alternative to tasking your existing HR department with additional burdens.

Many companies have found that outsourcing some human resource functions makes less administrative and paperwork fall on your shoulders every month! PEOs can help them focus on what they do best: running their business.

For example, a company might outsource its payroll processing because it doesn’t want to spend time on this task or does not have in-house expertise in payroll processing. Another company might hire an outside firm for employment law compliance because it doesn’t want to risk getting sued by employees.

Questions and answers about the PEO service

The PEO industry has been around for more than 30 years, and here’s what you need to know about it.

What does a PEO Do?

The PEO manages all employee human resources, benefits, payroll, and tax needs. It leads with employment contracts, payroll, expense reimbursements, benefits, immigration, work permits, etc.

Professional Employer Organizations are co-employers of your workforce. Typically, they assume many employee-related responsibilities on behalf of an organization.
- Payroll – A PEO manages all aspects of payroll administration for your company’s employees according to the applicable labor laws. They process wages and deductions from employee payslips. The service provider ensures that workers can access their earned wages every month and when they leave your company.
- Benefits – It administers the benefit plans of your employees at the correct cost. It can include health care coverage (medical, dental, vision, life), retirement plans, profit-sharing, defined contribution plan, etc. Here, the service is à la carte, according to your needs.
A PEO can help you ensure compliance with regulations and national laws governing employment practices such as hiring and firing, disciplinary action, sexual harassment prevention training, sick-leave usage guidelines, termination notice requirements, or background checks.

What does a PEO do NOT, and what are the risks to consider when contracting such a service?

You may be wondering what a PEO doesn’t do, then. It does not take control of your business nor make hiring and firing decisions for you.

There are a few risks to using a Professional Employer Organization. The first is that the contracting company loses control of employee paperwork, probably leading to a loss of institutional knowledge. The second risk is related to the level of security involved in the PEO system and processes related to treating your employees’ personal information.

What are the benefits of a PEO?

Opting for a PEO allows you to:

Ensure timely and accurate payroll.
Reduce HR costs: PEOs provide an option to gain economies of scale with more benefits options, sometimes at lower rates. For example, if you have 50 employees in your company and need to purchase life insurance, it will cost you much more than a Professional Employer Organization that has negotiated prices for the 1000 employees it already covers.
Increase Employee Satisfaction: Recognition usually improves employees’ efficiency and productivity. Many companies offer employee incentives such as gift cards or cash prizes for various achievements throughout the year. A PEO can help your company craft the most appropriate incentive program that includes the right mix of financial and non-financial rewards.

Reducing Human Resources costs while improving employee satisfaction seems to be a winning equation!

Should your company hire a PEO service provider?

Let’s set an example in Egypt. Any company that wants to set up an Egyptian company or use local talent should first consider PEO.

For example, such service is a way for international companies to:

Hire Egyptian employees without establishing a legal entity in Egypt.
Send expatriate employees to Egypt for a short or medium-term project, like testing the market. For the employees, it is a safe way to work in a foreign country while ensuring compliance.

Reasons to use PEO services in Naos:

And for local Egyptian companies too, using a PEO service to outsource their contractual relationship with their new employees allow them to:

Sustain rapid growth while maintaining HR fixed costs
Cope with seasonality
Ensure compliance
Access an extensive catalog of HR benefits for their employees

There are plenty of good reasons to start considering a PEO: global mobility, cost saving, employee satisfaction, and compliance.

Conclusion

PEO services are a great, nontraditional way to help manage an organization’s administrative and compliance work. It contains costs, staffing structures, and risks. Though the PEO model has existed for years, it’s only in the past that they’ve seen considerable growth. Perhaps the time has come to give such service providers a try.

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