What Are the Pros and Cons of Professional Employer Organizations?

Professional employer organizations (PEOs) enter into joint employment relationships with employers by leasing employees to them.

Naturally, some good things and some bad things can arise from such a partnership.

This article will explore the benefits and drawbacks that professional employer organizations bring for the clients that choose to work with them.

Let’s get started with some of the advantages…

Administration of payroll and benefits

More companies are increasing employee benefits to attract the best talents.

This can be challenging for a small business to keep up with as they typically don’t have the financial resources to attract skilled workers in the market.

Since professional employer organizations have joint employment partnerships with many companies, they can harness the resources reserved for big and established organizations to give access to better benefits for employees of small businesses.

What this does is grants them access to the top-tier talent employees at costs that are affordable.

Some of the services that professional employer organizations provide include:

• Disability and life insurance
• Worksite benefits
• Healthcare plans
• Commuter benefits
• Retirement plans
• Dependent care
• Mental health support services

Ultimately, by providing employees with benefit packages that are able to match those of the biggest companies, start-ups and small businesses can compete favourably in the market.

 Compliance assistance

Federal employment laws are dynamic and complex.

Failure to follow them might lead to heavy penalties for your business.

According to the IRS, the amount of penalties collected from small businesses that fail to comply with employment laws accounts for roughly 40% of the total money collected each year.

Furthermore, the aforementioned percentage is expected to rise as the number of remote workers grows, since many employees are hired worldwide.

Now, a professional employer organization will relieve your worries about staying compliant with matters such as federal employment laws and employee liability.

This will streamline operations in your company and give you the peace of mind that’s needed to focus on other core areas of your business and strategic goals.

Some of the compliance tasks offered by professional employer organizations include:

• payroll compliance;
• benefits compliance;
• employment compliance services; and
• out of state compliance.

Conversely, professional employer organizations do have a few drawbacks that need to be mentioned.

 Marginal loss of control

Using professional employer organization services in your company means that the professional employer organization company takes over the entire employee hiring process.

They also assume responsibility for the daily tasks of workers in your company.

As a result, you might lose some degree of control over your workforce.

Workers may also feel disconnected from the company, which can lead to a lack of motivation in accomplishing the strategic goals of your business.

External influence on the company’s culture

Another disadvantage that comes with a professional employer organization taking over the entire hiring process in your company is the external influence on your company’s culture.

Although they try as much as possible to recruit employees that align with your organizational culture, it is challenging to be 100 percent accurate.

As a result, there is a dilution of the company’s values and culture, which may create a different perception of the market than the one you intended.

 Reduces the value of the internal HR department

 Using professional employer organization services entails hiring an entire human resource team from another organization to work for your company.

If you have an existing internal human resource department, this might evoke different reactions as they will feel replaceable.

Before opting for professional employer organization services, you might want to discuss the matter thoroughly to avoid such reactions and sentiments from your internal human resource team.

Other associated drawbacks of using professional employer organization services include:

• Security problems with the service provider’s systems;
• Employee resistance and conflicts;
• Lack of privacy over employee information and paperwork;
• Loss of organizational knowledge.

Summary

Professional employer organizations offer a lot of positives for companies.

They help administer payroll and benefits to full-time employees, part time employees and contractors, as well as assist with compliance support.

On the flip side however, professional employer organizations do come with a couple of drawbacks, such as partial compliance assistance, marginal loss of control and the loss of organizational values and culture that’s been discussed in the article.