PEO’s often position themselves in the market as a service where you can entrust them to do everything for you. However, that is not the case.
For example, while using a PEO you still need to handle leave of absences (e.g. customizing a leave letter), prepare for involuntary separations, develop a parental leave policy, set up harrassment prevention training, and even set up certain employer tax accounts (i.e. Client-reporting states).
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Peos Offer Better Healthcare for Small Businesses
One of the benefits of a PEO for small businesses in the U.S. is access to better healthcare plans. Since the PEO is an employer of record, they have many employees which improves their buying power when negotiating plans. A small business on their own does not have many employees to negotiate better rates.
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The US Is the Only Country That Recognizes Co-Employment
Professional employer organizations rely on co-employment to share responsibilities with their customers. A company enters into an agreement with a PEO where the PEO is responsible for statutory requirements (remitting payroll taxes and compliance with labor laws) and the company acts as the workplace employer that hires, terminates, and supervises. (Interestingly, PEOs also have the power to hire/fire, but it is seldom, if ever, used). Each state recognizes co-employment (to some degree).
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PEO Has a Market Size of $56 Billion in the US
The overall opportunity for PEOs is $56B (source: JP Morgan) which represents 21.5 million SMBs with 10-99 employees. However, in the US, workers are increasingly working for larger enterprise companies and those enterprises have the resources for in-house employment.
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Peos Kick You off If One Employee Overutilizes Insurance
A business can get kicked off of their PEO or unable to use a PEO if even a single employee “overutilizes” insurance benefits. When it comes to health insurance this can mean one person has a severe illness or medical condition.