PEO MythBusters #5: PEOs Are the Same as Payroll Processors

PEO MythBusters #5: PEOs Are the Same as Payroll Processors

by on 23 Mar, 2022

Almost 40% of companies around the world delegate payroll processing to third-party service providers. While the popularity of this option grows, relatively few companies explore all available payroll outsourcing opportunities.

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The myth about PEOs (Professional Employer Organizations) being the same as payroll processors stems from the fact that PEOs also handle payroll processing.

In reality, payroll processing is only one small part of what PEOs do. They also take care of many other HR functions while helping companies cut costs, gain access to Fortune 500 benefits, and become employers of choice.

Let's take a closer look at debunking another PEO myth.

What Services Do Dedicated Payroll Processors Offer?

Dedicated payroll processing is a common type of HR outsourcing service. Since payroll is one of the most time-consuming and error-prone HR functions, many companies prefer to delegate it to a team of experts.

Payroll processors take care of such administrative functions as:

  • Calculating payroll
  • Preparing employee checks
  • Handling wage garnishments and 401K deductions
  • Setting up employee direct deposits
  • Providing electronic payroll records
  • Ensuring compliance with state and federal laws related to payroll

A reliable dedicated payroll processor offers a variety of benefits for a company. However, payroll is the only aspect of HR this outsourcing solution can help with. Meanwhile, any mistakes made by the payroll processor remain your company's responsibility.

What Services Does a PEO Offer?

A Professional Employer Organization offers all the services that top dedicated payroll processors provide. Additionally, it can handle an impressive variety of services that include filing payroll taxes on your behalf and:

Access to Fortune 500-tier Employee Benefits

Many small and midsize companies can't afford top-notch health benefits for their employees. High premiums make it nearly impossible. PEOs leverage economies of scale to give their clients access to Fortune 500 employee benefits, including:

  • Major Medical Plans
  • Dental, vision, and Life Insurance Plans
  • Disability Plans

Each PEO client's employee becomes part of a large pool that allows companies to gain access to lower premiums and better benefits.

When you start taking advantage of better employee benefits, you become more attractive to top talent while beefing up your current employee retention efforts.

Access to Low-Cost 401(k) Retirement Plans

Many companies choose not to implement 401(k) plans for two reasons: complex administrative burden and high premiums. A PEO can solve both.

If you are using a PEO's 401(k), it acts as a third-party sponsor to ensure compliance, handles all administrative burden that comes with these retirement plans, and takes on fiduciary liability.

Just as with health benefits, PEOs use economies of scale to get better rates, helping you cut HR costs.

HR Compliance

Dedicated payroll processors can keep you compliant with payroll-related laws. Meanwhile, the rest of the HR compliance issues remain your company's responsibility.

The most common non-compliance problems that companies face are related to:

These violations often occur due to human errors because internal HR departments simply don't have time to handle compliance.  A PEO monitors all local, state, and federal HR laws to ensure full compliance with all HR-related legislation.

HR Administration

While internal HR teams usually handle many administration tasks, delegating some of them to an outsourcing solution can save a significant amount of time. A payroll processor doesn't handle HR administration while a PEO can:

  • Create, update, and maintain employee policy handbooks 
  • Write job descriptions 
  • Arrange manager and employee training 
  • Provide performance management support 
  • Assist with new hire onboarding 
  • Provide employee relations support 
  • Help with employment verification 

By taking advantage of a PEO's HR administration services, you can optimize performance, improve the workplace environment, and raise employee satisfaction levels. 

Risk Management

A PEO can help with risk management by:

  • Implementing and managing proper workers' compensation plans.
  • Designing a risk management plan.
  • Implementing safety programs.
  • Arranging safety training.
  • Distributing safety documents.
  • Arranging drug testing. 

High-quality risk management assistance is crucial for the success and reputation of any company. Since risk management requires substantial attention, outsourcing it to a team of experts can save time, cut costs, and prevent mistakes.

Workers Compensation and Claims Management

Depending on the state you operate it, a PEO can help you cut costs on workers' comp insurance by providing access to its claims history. Regardless of your location, a PEO can reduce workers' comp claim costs by:

  • Setting up a return-to-work program. 
  • Ensuring the validity of workers' comp claims. 

Additionally, if an employee files a workers' compensation claim, a PEO can represent your company at the hearing.

Myth Busted: PEOs Go Beyond Payroll Processors

While working with a payroll processor may be beneficial, the services you can get are limited. Partnering with a PEO is a superior choice for small and midsize businesses that need assistance with numerous HR tasks. This outsourcing solution can provide a custom-tailored service package for each client.

Unlike a payroll processor, a PEO doesn't just help you save time. It allows you to cut HR costs, improve your retention efforts, and become an employer of choice for top talent.

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Disclaimer: this article does not represent expert advice and is provided for informational purposes. Please get in touch if you would like expert HR advice.

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