Professional Employer Organizations And Employee Leasing
One crucial aspect of any professional organization is the human resource department
. Human resources is responsible for a variety of important functions, including payroll, workers' compensation, and employee benefits. The purpose of human resources is to manage and improve the quality of employer-employee relationships and to maintain employee satisfaction.
The particular challenge of human resources in most organization is that the department often functions separately from other departments within in the same organization. Because human resources is often removed from the everyday responsibilities and functions of other departments, many companies find it difficult to manage human resource departments in a way that's affordable and effective. For instance, companies may not always have enough time or knowledge to find the optimal ways to carry out human resource functions and other administrative activities.
Many companies faced with this problem find a solution in partnering with a professional employer organization. What this means is that the original organization essentially outsources all human resource functions and responsibilities to another company. The obvious benefits being that the company hired usually specializes in human resource functions and is more likely to have clear and effective methods of carrying out all human resource responsibilities such as payroll services, workers' compensation, and so on.
The practice of a professional employer organization (PEO) is often called co-employment, staff leasing, or employee leasing. These organizations provide human resource services to other companies by actually hiring the employees of the client company, so that the PEO is the official employer of record for all tax and insurance purposes. The PEO then leases the employees to the original employer and performs all administrative personnel-related activities for a fee of roughly two percent to eight percent of the total payroll. And this entire process functions under a legally-binding contract.
In the United States, employee leasing began in the 1940s, but it didn't become widely popular until the 1970s. By the mid 1980s, about 275 employee-leading companies were in business in the United States, and in the 1990s, the National Association of Professional Employer Organizations reported that the industry was growing by thirty percent. Today, the PEO industry involves approximately $185 billion in revenues and over nine million employees.
Employee leasing arrangements are particularly popular among small- and mid-sized businesses that do not have the means to effectively handle their own human resource needs. And PEOs have proven to provide a number of valuable benefits to these small- and mid-sized companies. For instance, because PEOs often handle more than one organization's payroll, they can qualify for great discounts on group health insurance, life insurance, and dental insurance; hence, they can increase and improve the benefits that the employees receive without dramatically increasing employer cost. This is a particularly valuable advantage for small businesses that may not be able to otherwise afford worker benefits and allows them to better retain employees and attract new ones.
PEOs can also provide payroll services and solutions, medical benefits, workers' compensation, unemployment insurance, and retirement plans at discounted rates. In fact, several studies suggest that small companies can save between twenty-five and forty percent on the costs of these benefits by using a PEO.
And PEOs can also take care of time-consuming paperwork, which allows companies to streamline their work and spend their time on more crucial aspects of their business. And all of these services that PEOs offer allow businesses to better focus on their industry and not on tedious administrative costs. Many small businesses need all of the time and cost-saving solutions as possible in order to be successful, which is why so many have turned to professional employer organizations and employee-leasing programs to find help.
Although a PEO is considered a co-employer, the original company still retains ultimate control over their business. The PEO takes care of the human resource and administrative needs, but the original company is still responsible for all major decisions in how the company is run.
But perhaps the greatest advantage that an employee-leasing organization can offer is expertise in human resources. Because human resources is their main industry (and not just a department on the side), they have the means to employ experts in the field and perform many complex duties. They have researched the human resources industry and usually know which best practices would most benefit companies.
Of course many are distrustful of employee-leasing arrangements and are hesitant to enter into a contractual agreement with a PEO, and understandably so. By leasing employees, a company no longer has complete control over all aspects its business, and many fear potential fraud and corruption will go undetected. While these fears may not be wholly unjustified, people can take some comfort in the fact that associations, such as the National Association of Professional Employer Organizations, monitor the industry and PEOs, ensuring that they follow credible and legal practices. The NAPEO also accredits firms that meet its standards, and business owners who are wary of using a PEO can use the NAPEO to find a historically reliable and credible firm.
Professional employer organizations and employee-leasing programs offer many benefits, particularly to small and mid-sized companies. And as the industry continues to grow, it is becoming easier and easier to find a trusted and reliable PEO. For instance, in Tennessee, Chattanooga employee leasing and other payroll and human resource services across the state are widely available.
Human resources can take up a lot of a company's time and resources. But with a professional employer organization, a company can refocus its efforts on more appropriate parts of its industry, save money, and ultimately become more successful.
by: Art Gib
Few Things To Consider When Organizing An Event