The Pros and Cons of PEOs for Payroll Management

Companies today are increasingly turning to Professional Employer Organizations (PEOs) to handle their payroll and other HR tasks. But while PEOs offer numerous benefits, they also come with limitations that can pose challenges for businesses.

Unpacking PEOs

A PEO is an organization that provides comprehensive HR solutions to businesses, including payroll administration, employee benefits, workers’ compensation, and HR management. By outsourcing these tasks to a PEO, companies can reduce their administrative responsibilities, lower costs, and improve compliance.  However, PEOs are not without their drawbacks, especially when it comes to offering benefits that are not part of their standard offerings.

The Limitations of PEOs

A significant challenge faced with a well-known PEO was their inability to add a stipend for employees not taking health care through their payroll. This lack of flexibility affected their company’s ability to attract and retain top talent, as today’s employees value unique and customized benefits. This issue isn’t isolated. Many businesses have found that PEOs often limit customization options and require companies to use their benefits providers.  This can limit a company’s ability to provide the specific benefits their employees want or need.

Another limitation with PEOs is the lack of control over employee data. A PEO owns your loss run and payroll information.  This can become particularly problematic if a company decides to switch PEOs or bring HR services in-house.  Lastly, businesses using a PEO give up the ability to choose their preferred vendors for services like health and workers comp carriers. This lack of choice can be a significant disadvantage for businesses seeking the best solutions for their unique needs.

PEO vs. Payroll Providers

Compared to PEOs, payroll providers like APlus Payroll don’t share liability for HR-related issues or employee claims. This means the client company retains full control over their data and decisions related to their employees.  While many payroll providers may not offer the extensive HR services that PEOs do, they provide greater flexibility and control. They allow businesses to customize their services, choose their vendors, and retain ownership of their data. Thus, for companies looking for more control and customization, a payroll provider would be a better choice.

So is a PEO Worth It?

While PEOs can offer significant benefits in terms of reduced administrative responsibilities and improved compliance, they also come with notable limitations. Businesses considering using a PEO should carefully weigh these pros and cons to make an informed decision that best suits their needs.