A PEO Can Be Good For Business.

• Author: Anderson, David Poole
• Position: Professional employer organizations

More than ever before, top financial managers in corporate America are turning to outsourcing as a way to control costs and improve efficiency. Bottom-line-conscious executives are finding that outsourcing can cover a broad range of business operations, not just production-related areas. Payroll and human resources are two areas in which companies have traditionally maintained close internal control. But, over time, businesses have begun to outsource payroll to service bureaus and turn over more employee-related responsibilities to professional employer organizations (PEOs). Financial executives whose employees do not presently use PEOs should understand how they work -- and how to select the right one -- so they can decide whether a PEO is a good route to take for their company.

PEOs specialize in human resources (HR) management. They can handle a wide variety of functions and tasks -- including payroll and related tax management, benefits design and administration, and compliance with state and federal workplace legislation. PEOs also take responsibility for developing and administering lawful employment policies and procedures, employee recruitment and disciplinary actions, background checks and drug testing, record-keeping, unemployment, workers' compensation and claims administration. They also help establish viable risk management and safety programs, and much more.

PEOs aren't new. It's estimated that there are more than 2,000 across the country, covering some 2 million employees, with collective payrolls of $18 billion. Not surprisingly, most are in place at small to mid-sized companies that don't have the infrastructure and resources of huge multinationals.

The advantages of using PEOs cut across industry lines. With the number of employees working for PEOs projected to grow at 30% per year, more and more top business managers are recommending that their companies consider using PEOs as their HR departments. The reasons for these decisions are many and varied. Business executives know that workforce-related matters take up an inordinate amount of time -- time that would be better spent in a productive capacity.

Managing complex issues like payroll and tax reporting, loss-control and safety, on-the-job injuries and workers' compensation, regulatory compliance, and employee health and retirement benefits programs can drain a small or medium-size company of valuable resources. The drain is significant: The Small Business...