The gig economy continues its rapid growth, with nearly 35 percent of today’s workforce consisting of nonemployee workers as of 2015. The fast-paced growth of these non-traditional workers has businesses scrambling to develop strategies to manage them — and much of the responsibility has fallen on the desks of HR workers. However, there are efficient ways to manage these atypical workers without overburdening the HR department with more paperwork.
Enter PEO, or Professional Employer Organization, a growing trend in which businesses partner with a third-party service to outsource a lot of the maintenance work that can come with employees. The theory is that PEO systems can free up HR to spend time on developing company culture, fostering engagement and moving the company forward. “PEO systems allow small and midsize companies to access technology that would normally be cost prohibitive for companies that are not larger enough to support an IT budget,” says Andee Harris, chief engagement officer at HighGround, an employee engagement provider.
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What is PEO?
PEO, in the simplest sense, is a human resource model that relies on “single-source HR service providers offering comprehensive employment services, such as payroll and benefits administration, HR management and assistance with employer compliance,” according to Jackie Breslin, director of human capital services at TriNet, a company dedicated to providing PEO systems for companies and other HR related services. That means, businesses can take away a lot of the grunt work that comes with managing employees, as well as a lot of the risks. Rather than completely giving up a part of the businesses to another vendor, PEO providers work in tandem with the company, and oftentimes are even considered an actual part of the company.
“As a rule, one of the major benefits of a PEO is that it takes over the HR tasks, ultimately freeing up businesses owners or HR professionals to focus on things that really matter to their business. They no longer have to worry about remaining compliant, managing personal time off, or health care benefits packages. For the gig economy, this means HR professionals can focus on the businesses, full-time employees, workplace culture- as well as the gig workers,” according to Breslin.
PEO is a type of outsourcing, but not in the sense that the tech industry usually outsources. Using this HR model, employers outsource aspects of HR such as employee benefits, payroll, worker’s compensation, training and development, recruitment as well as risk and safety management. And with the increase in the gig-economy, it’s becoming one of the more efficient ways to manage this unique workforce — especially as rules and regulations change as quickly as gig workers are hired.
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The benefits of a PEO model
HR has evolved over the years — it’s no longer a department strictly focused on the details of employees, benefits, payroll and time off. Instead, HR has developed into a department that is devoted to employee engagement and company culture. “As companies shift from having traditional paper pushing HR departments to becoming more focused on the employee experience, a PEO system can create a huge benefit allowing HR to focus on their talent brand vs compliance,” says Harris.
PEO models can also help minimize the workload and paperwork associated with gig workers, who are in and out of the company like a revolving door, says Harris. These systems take away a lot of the grunt work associated with onboarding employees, as well as managing their benefits, compensation and even seeing them out of the company once they move on. PEO systems are freeing up HR so they can focus on ensuring gig workers are engaged, feel a part of the culture and aren’t treated any differently than typical full-time workers.
Improved risk management
Beyond the fact that PEO systems help alleviate workloads, they can also help companies manage risk and compliance. HR departments are faced with plenty of compliance laws, and it’s creating complex environments that HR doesn’t always have the time or resources to navigate. However, PEO systems can help businesses manage compliance and stay up to date, so there aren’t any risks or fears around regulations and laws that constantly pop up. “A PEO helps their clients remain HR compliant. From producing employee handbooks to helping a business understand the Affordable Care Act (ACA),” says Breslin.
For the most part, PEO systems offer coverage and benefits that otherwise might not be easy for businesses to obtain. For example, coverage under an Employer Practices Liability Insurance (EPLI) is frequently a part of the offering, according to Breslin. A PEO may also offer additional services that businesses may find challenging to implement on their own. Some examples include expense management tools that integrate into payroll, online web-based learning and performance management programs. This is all become more important as we get deeper into the gig economy, because HR departments are typically juggling multiple databases filled with employee information — part-time or full-time.
By partnering with a PEO system, businesses can manage these employees more efficiently, and ensure that any changes from the last time that person was hired or when a new person is hired are covered in one main database. It also means that employees won’t stay in the system mislabeled; a big problem with the IRS. “The IRS’ perspective is that very few workers should be classified as independent contractors or gig workers,” says Breslin. “Paying the worker, deducting payroll taxes and funding workers’ compensation coverage lowers the risk of getting into trouble for misclassifying an employee.”
A shift to PEO
However, it’s not exactly easy for departments to completely shift how they conduct businesses. First, your business will need to develop a strong understanding around what employee information is needed for the business. That includes everything from benefits to payroll and the needs around them. After that, the next step is creating an implementation plan with specific goals, milestones and the due dates for each of them. This organized approach is a major part of what helps HR departments shift as seamlessly as possible to a PEO model, according to Breslin.
Not all PEOs are created equally, according to Harris. With that in mind, you need to consider what PEO system to go with. “If an employee has a bad experience with a PEO it reflects on the company, so you need to make sure you have a good service agreement in place with your PEO provider,” she says.
Breslin recommends choosing a PEO system that will benefit your employees no matter where they are, and to also consider regions you plan to hire from in the future. It’s also important to choose a PEO model that has been “accredited by the industry’s ‘watchdog’ organization, the Employer Services Assurance Corporation,” she says.