Employee targeting When exploringPEO solutions, two of the most important characteristics to lookfor are ESAC Accreditation and IRS Certification, or CPEO status.(Photo: Shutterstock)

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With HR administration growing much more complex and associatedcosts increasing, more business owners and brokers are turning toprofessional employer organizations (PEOs).

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A study from the National Association of Professional EmployerOrganizations (NAPEO) found that from 2008 to 2017 alone, thenumber of worksite employees (WSEs) employed by PEOs grew at acompounded annual rate of 8.3 percent. This percentagegrowth in the PEO industry is 14 times higher than that ofemployment in the United States economy as a whole.

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As PEOs have grown in popularity, the number of mythsassociated with them has increased, too. However, the majority ofthese myths have been proven to be false, including these 5 mostcommon examples:

Myth 1: Business owners lose control of their business whenworking with a PEO

Perhaps the most common myth that exists today about PEOs isthat by working with one, business owners will lose control oftheir business and employees. Even NAPEO has mentioned this concernas a barrier to PEO use among small employers.

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Related: 4 ways a PEO can improveemployee benefits for small employers

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However, business owners don't lose any control when partneringwith a PEO. In fact, business owners maintain full control of allday-to-day business decisions, including over personnel matters.This means that owners and leaders would continue to make allhiring, firing and other talent management decisions.

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All the owner would need to do is inform their PEO of anyemployee-related decisions so that all HR and employmentdocumentation is taken care of properly to ensure compliance.

Myth 2: Co-employment and employee leasing are the same

Besides losing decision making, perhaps the next most popularmyth about PEOs involves the relationship between a client'semployees and the PEO.

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Some believe a PEO relationship to be employee leasing. However,this is not the case. Instead, when a client decides to partnerwith a PEO, their workers become co-employed.

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While there are many differences between co-employment and employee leasing, the biggestis that PEOs do not lease out employees or provide staff to theirclients. Instead, the client keeps control over all hiring andother employee-related decisions.

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It's also important to know that in a co-employmentrelationship, employees have two employers – the clientcompany and the PEO (the employer of record).

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Some PEOs do offer recruiting services to their clients, helpingthem to attract and hire new team members. But the decisions tointerview and ultimately hire a candidate stay solely with theowners, not the PEO.

Myth 3: ESAC accreditation and IRS certification do notmatter

When exploring PEO solutions, two of the most importantcharacteristics to look for are ESAC Accreditation and IRSCertification, or CPEO status.

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In 1995, the Employer Services Assurance Corporation (ESAC) wasformed to become the official accrediting agency of theprofessional employer organization industry. PEOs that areaccredited by ESAC meet the gold standards for industry bestpractices and financial reliability.

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Then in 2017, the Internal Revenue Service (IRS) begandesignating select PEOs as Certified Professional Employer Organizations(CPEO). This established another benchmark for PEOs to reach, andanother assurance to companies who partner with PEOs that they areworking with a best-in-class organization.

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These distinctions let business owners know they are workingwith a best-in-class PEO while providing additional financialassurance and peace of mind.

Myth 4: PEOs don't reduce HR costs

One reason why some business owners choose not to explore PEOsis the thought that they are too expensive and won't help reduce HRcosts.

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However, NAPEO reports have revealed that working with a PEO cansave employers 35% on HR administration costs, while also helpingto reduce employee turnover by 10% to 14% (which helps to savecosts associated with recruiting and hiring new team members).

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Additionally, a PEO can help employers save on their healthcareofferings while gaining access to higher quality, modern employeebenefit packages that help boost retention and recruiting.

Myth 5: My business is too big/small to benefit from a PEO

According to NAPEO, the average PEO client has 23 employees. Andsome owners believe that only companies around this size can gainfrom PEO services.

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But most PEOs will work with businesses of all different sizes.While the exact number of employees will differ depending on thePEO, some will work with start-ups who have just 1 full-timeemployee to medium-sized companies with upwards of 1,000workers.

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In some cases, PEOs will even work with employers who have morethan 1,000 employees.

Don't believe every PEO myth

Over the years, many of the most popular PEO myths have beenproven to be false. That's why it's important for business leadersto research PEOs and work with their brokers to find the one thatis best-suited for the specific needs of their business.

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Jan Kaupas is the seniorvice president of sales at Extensis Group, a regional professionalemployer organization headquartered in the NYC area. Youcan learn more about these and other popular PEO myths bydownloading our new eBook Busted: 12 Common PEO Myths Debunked.


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