A professional employer organization (PEO) manages important human resources, payroll, benefits, and compliance tasks for other companies.
Say you’re a business owner, and you’ve already got a lot on your plate trying to make the business profitable. That’s where a PEO comes in. This third party takes care of all those time-consuming tasks like managing human resources, sorting out payroll, making sure you’re offering great benefits, and keeping everything compliant with the law.
In the Philippines, over 175,000 smaller and mid-sized businesses are already using PEOs. But what’s the secret behind their operation?
How a PEO Works
Here’s how it works: Your company and the PEO contract, typically on a co-employment agreement. This means PEO employees come and work at your (the client’s) location, but the PEO is the one handling their payroll, taxes, insurance, and human resources tasks. They do the heavy lifting on administrative tasks while you keep running your business operations.
In turn, you pay the PEO, and the PEO pays the staff they employ.
Key Benefits of Using a PEO
Partnering with a PEO to handle HR needs has many benefits, such as:
Access to Big-Company Benefits
With a PEO, you can offer your team the kind of top-tier benefits usually reserved for big corporate players. This makes your company a hot ticket for attracting and keeping great talent.
Cost Efficiencies
PEOs are great at economies of scale. What this means is that they can get deals on important things like business insurance, thanks to their bulk buying power. This means cost savings for you, plus you get a streamlined HR process.
Compliance Expertise
Moreover, keeping up with employment laws can be a headache, especially if you’re employing talent across jurisdictions with differing rules — like the Philippines. PEOs are pros at this, handling all the legalities and keeping you in the clear without needing an attorney on your payroll.
Enhanced Productivity
With PEOs owning time-consuming payroll, compliance, and other administrative burdens, your team can focus on the big picture and things like innovation and strategic growth.
Considerations Before Hiring a PEO
While PEO services are certainly useful, some downsides exist.
Transition Process
Firstly, switching over to a PEO model can be a bit bumpy, especially if job roles overlap or there is no clear delineation between existing staff and PEO workers. These are expected growing pains, but clear communication can minimize, or sometimes outright eliminate, these issues.
Customization Constraints
PEOs tend to standardize things like pay structures and HR policies across their client base (mostly to simplify things for them). This might mean less wiggle room for custom solutions. In these cases, you, as the client, need to be clear and upfront about what kind of HR management you need.
Loss of Control
Finally, you’ll be handing over some control to the PEO, especially in daily workforce management. If you like more granular control over handling your human talent and acquisition, a PEO may not be for you.
The Future of PEOs
Looking ahead, PEOs are becoming a popular choice for many businesses. They offer a neat package—such as managing HR tasks and providing big-business perks at small-business prices—and their popularity is only growing.
In today’s fast-changing business world, PEOs are helping leaders stay focused on their main goal: driving their business vision forward.
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