What is it PEO (Professional Employer Organization), and how can PEO help your business?

A Professional Employer Organization (PEO) is a comprehensive HR outsourcing service operating under a co-employment model. In this setup, the PEO handles numerous employee administration tasks, including payroll and benefits management, for a business. While some PEOs offer strategic services, each one is unique, making it essential to research and compare providers to find the right fit.

Why Use a PEO?

Leveraging the expert, strategic guidance of a Professional Employer Organization (PEO) can help you grow your business while ensuring better protection and peace of mind. PEOs typically assist with:

• Payroll and Tax Filing: PEOs handle payroll processing and, in some cases, can pay employment taxes. Many PEOs also integrate payroll with time and attendance systems to minimize duplicate data entry and reduce errors.
• Benefits Administration: A co-employment arrangement with a PEO often includes access to high-quality, cost-effective health insurance, and other employee perks. The PEO usually manages employee enrollment for these benefits and processes claims on your behalf.
• HR Compliance: PEOs generally employ compliance experts who help protect your business from fines and penalties. Their expertise may cover payroll tax law, reporting requirements, unemployment insurance, workers' compensation, hiring practices, and HR compliance.
• Risk and Safety: In addition to providing workers’ compensation insurance, PEOs sometimes offer safety audits and training programs to help reduce claims.
• Human Resource Support: Many PEOs have HR professionals who provide a range of HR services and support. If you already have an in-house HR team, the PEO can partner with them both strategically and administratively.
• Talent Management: Some PEOs offer comprehensive talent management services, including recruiting, strategic hiring, employee training and engagement, and performance management.

PEO for Small Business

Small and midsized business owners often turn to Professional Employer Organizations (PEOs) for critical and strategic HR management support, allowing them to focus on their core competencies, such as creating, enhancing, and selling their products and services. Below are the benefits of engaging a PEO:

• Help Reduce Your Employer Liability: By partnering with a PEO, you can mitigate some of the liabilities associated with being an employer.
• Go Beyond HR Administration: Some PEOs offer data analytics and benchmarking services that provide insights into your workforce. This information can help you realign your business practices to improve employee retention and reduce turnover.

How PEOs Work

In a co-employment relationship, both the business and the PEO share certain employer responsibilities. The PEO typically handles payroll processing, payroll tax and payment, workers’ compensation coverage, employee benefits administration, and provides human resources guidance. This allows you to manage regular business operations, such as providing products and services to customers and making decisions about hiring or terminating employees.

How to Choose a Professional Employer Organization (PEO)

To find the right Professional Employer Organization (PEO) for your business, approach the co-employment market as you would any other strategic business need. Look for PEOs that:

• Have a strong track record and fiscal stability
• Can meet the unique needs of your business and employees
• Supply references from other clients in your industry
• Provide comprehensive support and HR compliance expertise
• Offer services and coverage in your business locations

What Kinds of Businesses Benefit from PEOs?

While small and midsized businesses often engage in co-employment arrangements, larger organizations can also benefit. PEOs are suitable for almost all industries, including but not limited to IT and technology, real estate and property management, Engineering services, health services, legal services, management consulting services, business advisory services, accounting, auditing, and bookkeeping, manufacturing and etc.

What a PEO Does Not Do

Although a PEO handles HR administration, you retain ownership and control of your organization. A PEO will not:

• Make decisions regarding your business
• Assist with marketing, sales, or product distribution

What Do They Cost?

PEOs typically charge based on a percentage of payroll, though some may base their fees on the number of employees. When looking for a PEO, you'll often need to provide information about your workforce and existing or desired benefits to receive a price estimate.

Consider the following when evaluating PEO costs:

• Reputable PEO providers usually include a cost analysis to show how your payments will be allocated to payroll, benefits, workers' compensation, etc.
• You may pay more for in-depth services, such as data insights or talent management, but these features could improve your return on investment.
• Your time is valuable. Managing HR on your own may divert your focus from business activities that generate revenue.

PEOs and Other Categories of Outsourcing

PEOs are a type of HR outsourcing, but they are unique due to the co-employment arrangement. Other outsourcing services that are similar to or sometimes mistaken for PEOs include:

• Employee outsourcing company
• Staff outsourcing company
• Human resources outsourcing organization (HRO)
• Managed payroll

PEO FAQs

See what other employers are asking about PEOs:

Q: Who is the employer in a PEO?
A: In a co-employment arrangement, the PEO is the employer of record for tax purposes, while the client business maintains full authority over its workforce.

Q: What is the benefit of a PEO?
A PEO partners with you to navigate HR, risk, and compliance, helping you protect and grow your business.

Q: What does PEO mean?
A: PEO stands for Professional Employer Organization. They help small and midsized businesses manage HR responsibilities and risks through co-employment.

Q: How does a PEO make money?
A: PEOs charge a fee for their role in co-employment. The cost usually depends on the number of employees and the breadth of services purchased. PEOs offering basic HR administration, like payroll and benefits, may be less expensive than those offering a full suite of services.

Q: What is the difference between a PEO and a staffing company?
A: Staffing companies lease employees to other businesses and remain the sole employer of those workers. PEOs do not supply a workforce but share certain employer responsibilities with their partner organizations through co-employment.

Q: Does partnering with a PEO affect my company culture?
A: A co-employment relationship does not necessarily affect your organization’s culture unless that is one of your desired goals. Some PEOs can recommend strategies to shape your culture and brand according to your vision.

Q: By partnering with a PEO, do I also become a co-employer of other companies’ employees?
A: No contractual relationship is created between all of a PEO’s clients. You are only responsible for your own employees.

Q: What is the difference between a PEO and HR outsourcing?
A: In a co-employment relationship, you share certain employer responsibilities with the PEO that typical HR outsourcing does not provide. For example, a PEO usually offers access to robust health insurance and other employee perks, while an HR outsourcing company may simply help administer your existing benefits, HR, or payroll.

The complexity of Malaysia’s HR management and tax regulations means it may be advisable for foreign businesses to engage PEO provider who possesses extensive HR experience. As one of the leading PEO service providers in Malaysia, Corford Solutions offers comprehensive PEO services for your Malaysia businesses. Feel free to check us out at www.malaysiapayroll.com.