Millions of workers in the U.S. are co-employed under a professional employer organization, and PEOs have been making huge annual gains in recent years.
Of the approximately 700 PEOs in America, the average growth rate has been more than 20% per year for each of the previous six years, according to the National Association of Professional Employer Organizations. Gross annual revenue for the PEO industry is about $68 million, and between 2 million and 3 million employees are involved in a PEO arrangement, the NAPEO found.
“This is a very significant issue for those of us who deal in the employee benefits realm,” said Marcia Wager, president and founder of the Boston-based Wagner Law Group.
Generally, PEOs act as intermediaries between the workforce and its long-term employer, Wagner said recently at the ASPPA Annual Conference in National Harbor, Md. The PEO can handle tasks such as regulatory compliance, risk management, employee benefits, payroll and workers’ compensation.
So, why would a business want to use a PEO? There are plenty of reasons, said Jim Kais, senior vice president of Transamerica Retirement Solutions, at the conference. The benefits of a PEO include:
- The employer can focus on revenue producing tasks, and leave everything else to the PEO.
- Achieve buying power. The purchasing power of a PEO can be a big advantage, he said.
- Mitigating tax risk.
- Assist with recruiting and succession planning.
- Job costing.
- Tax reporting.
But, not every employer should consider a PEO, Kais said, and consultants should be certain it’s the right move before recommending it to a client.
Some examples of poor candidates for a PEO include:
- Rate shoppers. “You can’t run away from your experience,” Kais said.
- Employers who place no value on strategic HR.
- Employers who are unwilling to make the investment to outsource the tasks that PEOs handle.
- Financially unstable companies.
- Employers with prior medical shock claims or employment practices liability claims.
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