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How professional employer organizations (PEOs) can help with HR compliance challenges

It is the rare small or mid-size business that has expertise both in its industry segment and in handling the demands of employees. It is a professional employer organization's business to be an expert as to all aspects of employment.

Over the past year, I have co-authored a series of columns providing insights into human resource issues employers face, including diverse subjects such as compliance with conflicting state minimum wage laws, compliance with the ever-changing Affordable Care Act (Obamacare), and even things to watch out for in planning the company holiday party.

Each article invariably reached some type of situation where the only possible guideline was to consult an HR expert "if this is you."

HR consultants come in many different flavors. There are human resource generalists (often with PHR or SPHR designations), employment attorneys, and HR outsourcing companies, just to name a few.

One solution to compliance challenges that small and mid-size businesses are increasingly adopting is a professional employer organization (PEO).

Every company has an area of business expertise, ranging from practicing law, to building homes, to managing properties, to serving food. Regardless of the specific business focus, every business has one thing in common — they all have employees. It is the rare small or mid-size business that has expertise both in its industry segment and in handling the demands of employees. It is a PEO's business to be an expert as to all aspects of employment.

Handling employment issues

The true value proposition of a PEO is to enable a company to focus on what they do best, or more properly, what they need to do to survive and hopefully succeed, and to let the PEO handle the business of employment.

PEOs come in many different forms as well. Full-service PEOs provide solutions in four core areas:

  • Payroll, technology and tax administration
  • Employee benefits and benefits administration
  • Workers' compensation, safety and risk management
  • Human resources and compliance

The PEO becomes a "co-employer" (expressly recognized by the laws of most states) or administrative employer of the employees and, by doing so, can bring best practices, efficiencies and savings through aggregation. Most importantly, a PEO can provide guidance that keeps its clients in compliance with the labyrinth of employment laws and regulations, and even has skin in the game.

Growing field

There are roughly 900 PEOs operating in the country today. The National Association of Professional Employer Organizations estimates that between two and three million American workers are currently covered by a PEO relationship. This number is growing annually by over 15 percent. The value provided by these organizations is real and being embraced by more and more companies. In fact, on December 16, 2014, Congress passed the Small Business Efficiency Act, providing federal statutory recognition of PEOs and the value they bring to small businesses.

The Employers Service Assurance Corporation(ESAC) serves as an industry watchdog, similar to the FDIC for the banking industry. PEOs that are ESAC-accredited are audited on a quarterly basis. Accredited PEOs are each backed by assurance bonds in excess of $15 million protecting the PEO's clients. When deciding on a PEO, add ESAC accreditation to your checklist.

In a post-Affordable Care Act environment, there are a plethora of burdens faced by employers who provide and administer employee benefits. Partnering with a PEO can provide affordable solutions to many compliance challenges today's business face, from regulatory duties to time consuming employment and tax-related reporting. Furthermore, business owners have access to additional resources to help legal challenges, risk management and more.

Jay Starkman is the founder and CEO of Engage PEO. Engage provides HR services and counsel to help clients minimize costs and maximize efficiency through a full range of health and worker’s compensation insurance products, payroll technology and tax administration, risk management services and best-of-breed technology as part of an extensive suite of HR services. Starkman has a law degree from the University of Miami.