PEOs provide full-service human resource outsourcing to startup companies. Often called a co-employer, a PEO can take on most of your HR functions and typically adds all of your employees to the PEO’s payroll. That allows economies of scale that are an asset in providing benefits. Most insurance companies view PEOs as large companies, giving PEOs access to better and often less expensive insurance plans.
Co-employment arrangements preserve the employer status of client companies. However, the PEO also becomes the employer of record to the client company’s employees, and is legally able to perform tasks associated with employment, and handle sensitive payroll and benefits information. For example, employees will receive annual wage and tax statements (IRS Form W-2) from the PEO, not the client company.
PEOs perform various employee administration tasks, but there are differences between providers, so founders should research each PEO they’re considering and compare their services. In general, PEOs offer assistance with:
As a small company grows, supporting your employees becomes increasingly important. A PEO provides your company with high-quality HR services and benefits, while improving costs and streamlining processes. You’re free to focus on developing your business, with the flip side being possibly slightly higher overall cost and less flexibility on the particular benefits you offer. This is often a great tradeoff for high-growth startups that are adding a ton of employees across state lines. Our current favorite PEO providers are Trinet and JustWorks, which we review in more detail on our startup payroll provider page.
If you have questions about PEOs or how they can work with your startup, please contact us.