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Professional Employer Organization Pros and Cons

August 22, 2023

professional employer organization pros and cons

There is a common misconception that a business owner gives up control of their payroll by bringing in a professional employer organization. In truth, a PEO like SPLI actually empowers you further. Not only will you maintain worksite control, but PEOs have a broad bandwidth to write multiple types of risks and offer financial strength with the capability to say yes fast. A PEO brings stability, durability, and expertise to the table so that your focus can stay on the actual operation of your business. 

Here’s a closer look at a few of the pros and cons of working with a professional employer organization vs. working with a staffing agency:

PEO vs. Staffing Agency

A PEO’s goal is to help set you up to run your business your way. Unlike a staffing agency, a PEO adds to your capabilities and does not take away any control. In fact, when you work with a PEO, you will often have more time and resources than before to devote to controlling financial and employee needs.

  • The PEO: Taxes are filed under the PEO’s federal tax ID #, but PEO employees are only under the PEO FEIN for tax and employment purposes — control of your staff remains solidly in your hands. Business owners working with PEOs still make all hiring decisions and decide how to compensate their employees. The bottom line is that the employees you lease from a PEO are controlled by you, not the PEO. While the PEO handles the payroll paperwork, you’re still the one setting your own wages as appropriate and maintaining full control and direction of the worksite. By having the PEO take payroll and tax filing off of your plate, you can enjoy greater freedom to control the high-level strategic details that matter to you most.

  • The Staffing Agency: A staffing agency, by comparison, is an entity that takes over control of not just payroll, but the employees as well. If you need to hire a new worker, the staffing agency handles that process from top to bottom and provides you with the personnel. If a need arises to dismiss or fire an employee, you would also need to handle that process through the staffing agency. It is the agency that pays the employees and handles their compensation and benefits. Essentially, you pay the agency for the service they’re providing, and they pay the employees. 

Handing everything off to a staffing agency may seem an easy way to go, but the loss of control you suffer can be a huge trade-off that deserves consideration. At SPLI, we’re a step beyond a staffing company — we’re a step up.

Professional Employer Organization Pros and Cons

A PEO can improve benefits, maintain compliance, and save time and money. On the other hand, it’s possible that some PEOs may require you to use the PEO’s network of resources, limiting your ability to elect other options. At SPLI, you can always opt out of our plans and retain your own.

Employee Benefits and Pay

It is vital to offer solid benefits and good pay to attract top talent, and PEOs like SPLI can help you assemble and manage comprehensive benefits packages like health care, life insurance, retirement plans, PTO, and many other benefits that are difficult for a small business to facilitate alone. Your PEO service provider makes it possible to identify and deploy attractive benefits packages at an affordable cost to your business.

Time and Money Savings

Managing your own benefits means additional staff, mountains of paperwork, third-party negotiations with health care and benefits providers, and dealing with overall plan compliance issues. By using a PEO to give attention to these things, you save time and money. You also streamline your hiring process, lock in good rates, and eliminate overhead.

Simplifying Federal and State Taxes

Your PEO has the ability to handle many state and federal taxes for you, simplifying the tax filing process for your business. This can reduce headaches and take work off of your team’s plate while helping you maintain confident compliance with all applicable tax filing laws.

Loss of Flexibility

For some PEOs, you may lose flexibility as you must use the PEO’s healthcare and insurance providers rather than negotiating your own agreements in a truly open-ended fashion. At SPLI, our clients have the option to maintain their current plan with SPLI doing deductions. For major medical, we make it possible to adopt our CAF125 whether it’s on your existing plan or ours. 

Regardless, your business benefits from our solid relationships with some of the best providers on the market for everything from hiring to insurance to PTO and beyond. The money you save and the quality of benefits you receive are a strong value-add to your PEO relationship.

When it comes to a staffing company vs. a professional employer organization, the pros and cons are clear, and SPLI offers benefits a conventional staffing company does not. To learn more about what we can do for you, get in touch with us to request a quote today.

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