Is Professional Employer Organisation (PEO) a Smart Investment for Start-up?

The most common challenge faced by startups is insufficiency of talent. Experts say, small and mid-sized startups and businesses could benefit here by partnering with a PEO.


Starting up a new business is no easy job! From building a team from the scratch to market your product or service -there’s a lot in the plate for a start-up owner. And then many of them fail too. So, what’s the solution? Some studies state that PEO increases the survival ratio by 28%

A report by IBM Institute for Business Value and Oxford Economics found that 90 per cent of Indian start-ups fail within the first five years. The main reason being lack of innovation. So, what is holding back businesses from innovation? Many studies and surveys have revealed that the top challenges faced by start-ups are the insufficiency of talent. Although there is no shortage of skilled talent in India, start-ups struggle to attract, hire, and retain the top talent in their initial years of operations.

While many start-ups fail because they can’t market their product or run out of money, the most common challenge of insufficiency of talent can be easily solved. 

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A PEO or a professional employer organization offers comprehensive HR solutions like payroll benefits, tax administration, and other regulatory compliance assistance for businesses and start-ups.

What can start-ups do?

Apart from having realistic goals and understandings, start-ups need to have a thought-through strategy to recruit their key people. They need to have short term and long-term hiring strategy in place. Apart from having the right technical talent, start-ups also need to focus on soft skills and behavioural traits that they want to have in their candidate.

Understanding the right mix of talent and hiring them is a crucial factor for any start-up’s success. Unfortunately, many start-ups don’t realize how to cope with such dilemmas. In such scenarios, PEOs can plug in to bridge the gap.

Research conducted by NAPEO revealed that small and mid-sized start-ups and businesses could benefit by partnering with a PEO. Companies can expect higher growth rates, lower attrition rates, and an overall higher business survival rate, not to mention higher growth rate.

What is a PEO? Does my business need a PEO?

A PEO or a professional employer organization offers comprehensive HR solutions like payroll benefits, tax administration, and other regulatory compliance assistance for businesses and start-ups. It has been noted that companies that work with a PEO can grow 7 to 9 per cent faster with 10 to 14 per cent lower employee turnover rates. In case you are considering expansion across geographical boundaries, a PEO can help navigate the complexities of the processes like overseas hiring, adhering to compliance regulation of the land, managing payrolls, etc.

The Benefits of PEO

What can a PEO do for you?

It can offer a plethora of services like payroll, HR administration, risk and compliance management, employee benefits, training, compensation policies, etc.

HR administration

With a trusted PEO by your side, you can free yourself from managing all HR administrative tasks and outsource them to it. For example, employee recruitment and onboarding, regulatory compliance, workforce management, employee termination, and dispute assistance can all be managed by this organisation. From policy development to drafting an employee handbook, a PEO can help with all HR administration tasks, including behavioural assessments, employee termination, resolving disputes, conducting return-to-work programs, job description drafting, and so on.

Employee benefits

A good PEO company can help with employee benefits like health insurance, retirement plans, commuter plans, and similar other Fortune 500 employee benefits that is otherwise difficult for a start-up to offer. Such lucrative benefits definitely help to attract the top talents for the start-ups.

Employee training and development

PEOs can also help in shouldering the responsibilities for employee training and development.

Tax issues

The most significant benefit of having a PEO is PEOs are responsible for managing payroll and filing payroll tax returns. However, if there are any errors you need to bear the obligations as well since you will be in a co-employer agreement.

Risk and compliance

When you plan to expand your business internationally, you need to comply with the local laws and regulations. A PEO can help you stay up-to-date with laws and regulations through its risk and compliance measures. For example, it can help you comply with the safety training measures or workers’ compensations and so on.

Payroll processing

The PEO’s software comes in handy to keep track of the employee payroll information, workforce management, expense reports, paid time off, etc.

Benefits of using a PEO

PEOs save your time and energy by handling your employer’s responsibilities. But that’s not all that a PEO does for you. Apart from saving your time and headache, it saves cost, helps you adhere to HR-related compliance issues that can otherwise lead to fines, help you hire better and faster, and much more. Highlighted below are some of the key benefits of investing in a PEO.

Employee Benefits

As a co-employer, a PEO can offer a wide range of employee benefits to your employees. For example, through PEO sponsored benefit plans, it can offer vision and dental coverage as medical benefits, or a flexible medical expense spending account, life and disability benefits, and so on. The PEO’s role will be to enrol employees in these plans, negotiating insurance deals, etc.

Payroll

Working with a PEO can also help you save costs in payroll processing of your employees. It also helps to automate the payroll process without much hassle.

Pro tip: While hiring a PEO, look for one that has a simple, straightforward fee.

HR Compliance

HR laws and regulations are complex and dynamic. Do you know that non-adherence to these laws can lead you to hefty fines? At the same time, how familiar are you with the local HR laws of all countries/states/cities you operate in? Know that you need to comply with the local regulations even if you have one employee operating remotely from a particular country or a city. That’s why, HR compliance becomes a complex issue for organizations that are expanding businesses in new territories. Collaborating with a PEO comes in handy in such scenarios.

Recruitment

The biggest challenge of startups is hiring the ideal candidate in a fast turnaround time. This means there is not much time to build an employer brand to attract talent. Additionally, you need to spend a lot of time and money creating job ads, posting them, interviewing and screening, shortlisting candidates, background verifications, and finally retain them. A reputed PEO can offer recruitment assistance so that you can hire the right candidate in no time. An experienced recruiter knows how to read people for a specific role. For example, they can analyze tone in a phone interview, ask the right questions and assess the emotional intelligence to determine the candidate’s suitability for the job.

Minimize legal expenses

The biggest threat for any business operating overseas is facing legal lawsuits for noncompliance. So, keeping a tab on your employer liability is essential. Thankfully, PEO shares liabilities with employment-related claims and help in risk mitigation until you gather expertise in the area, which is one more reason to invest in a good PEO.

Investors love PEO

Investors love it when they see your business growing, and you need to expand your team. And when it comes to expanding your team, PEO is the first choice for entrepreneurs because there are multiple benefits under one umbrella. Starting from healthcare benefits, worker’s compensations, recruitment assistance to employment tax management, EPLI insurance, employment law compliance, and more. In short, a PEO is a one-stop solution for entrepreneurs who don’t have time to run the HR functions.

PEOs save money

PEOs help you save money, and investors love it when you go frugal with your business expenses. Saving money is one of the utmost priorities for start-ups, and PEO fits in well here.

PEOs help to hire the best

The biggest challenge faced by entrepreneurs is hiring the right talent, not to mention retaining them. What start-ups need are attractive benefits to attract, engage, and retain their top talents. PEOs can chip in here because they can offer precisely what candidates need that start-ups can’t afford to provide – benefits. When you have the right talent on board, the bottom line keeps growing, and a growing bottom line always keeps the investors happy.

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PEO is a great benefit to have as a start-up but it is also important to be aware of some of the barriers you might face while taking it on to make an informed decision.

Disadvantages of having a PEO

While PEO has many benefits, it is also essential to highlight some of the disadvantages of having a PEO.

1. As a co-employer, there will be relinquishing some control over your business.

2. The PEOs usually manage HR functions for different organizations, so your business might not have exclusive and in-depth attention.

3. Since you will be in a co-employer agreement, you need to burden equal responsibilities with the PEO if any dispute or issue arises.

4. Know that PEOs just support you in administrative and HR tasks and do not replaces your obligations.

What to look for when selecting the best PEO

It is evident from the above discussion that having a PEO has numerous benefits for a start-up. However, it is an important decision because you need to have a co-employment agreement with the PEO. Additionally, you need to find the right PEO service with operational existence in your industry and in countries where you are expanding. Here are some pointers to look out for when selecting a PEO.

1. Find a PEO that is trustworthy and reliable. To ensure, choose an IRS certified PEO.

2. Look for a PEO that offers scalable solutions so that you need not worry when you scale your operations.

3. Many PEOs offer self-onboarding and online benefits enrolment. This can save all the concerned stakeholders enough time and money. If you’re hiring a large number of candidates, this can be an effective solution.

4. Choose a PEO that offers attractive benefits for your targeted candidates.

5. If the PEO is partnering with any third-party vendor to offer a particular benefit, for example, dental insurance, ensure the vendor is registered in your state.

6. Look for PEO that offers specific benefits that can benefit your business. List down the services you want to have in your PEO, for example, HR services, employee benefits, etc.

7. It is always a good idea to look for a PEO that has an easy-to-navigate employee-facing interface.

PEO

The bottom line

A PEO can be a start-up’s best pal, helping you with all the support you need so that you can scale up your operational efficiencies. However, you must choose the right PEO that you’re working comfortably with because you will be co-employers with your PEO. If you have any doubts or questions, reach out to your PEO immediately. Ensure your employees are comfortable working with the PEO if you want to retain them in the long run.

Chayanika Sen
Chayanika Sen
Over a decade of experience in Corporate Communication Chayanika writes on Human Resources, Recruitment, Marketing, Employer Branding and Thought Leadership.

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