Many business owners struggle with payroll compliance issues. Since human resources and payroll are not their core competencies, they may easily get frustrated trying to juggle all of the regulatory procedures involved.
For this and other reasons, thousands of business owners outsource their payroll to an experienced professional employer organization (PEO). This approach has often resulted in success, and is becoming more and more popular. In fact, one study found that47% of American companies use outsourced payroll providers — and among large companies (those with annual revenue of $5 billion or more), 73% outsource payroll.
Of course, not just any payroll provider will do. You need to thoroughly investigate the PEO under consideration in order to avoid problems in the future. Here are 5 key questions you need to ask about payroll before committing to a PEO.
1. What Services Does the PEO Provide?
It's important to partner with a PEO that can provide all of the services your business needs. You need to ask: Does this PEO "check all the boxes?"
There are a myriad of ways HR and PEOs work together, and enlisting the assistance of a full-service provider offers many advantages. Convenience is one of the biggest benefits. From payroll to benefits administration to strategic services, your PEO can function as a one-stop shop for all of your HR-related needs. A full service provider typically offers the following services:
2. Does the PEO Manage Compliance and Tax Payments?
Timely and accurate tax payments to the government are a key part of maintaining compliance (and avoiding hefty fines and penalties). You need to ensure that the PEO under consideration has the experience, skills, and technology to effectively manage all aspects of tax compliance. This includes:
W2 distributions (for employees)
1099 distributions (for independent contractors)
State, local and federal tax contributions and regulations
Since PEOs typically operate under a shared liability contract, they are keenly aware of and invested in properly managing the day to day operations around tax compliance.
3. Can Your PEO Track Time?
Best-in-class PEOs offer advanced time tracking solutions in order to ensure compliance with labor laws, overtime regulations, etc. These time tracking solutions may come in the form of performance management platforms that incorporate time and attendance tracking software into their system.
Obviously, accurate time tracking is a key first step in providing effective payroll services.
4. How Accessible is Your PEO?
It's critical that PEOs are readily available to their clients and responsive to their needs, especially if a business needs immediate help with regard to compliance, staff, or payroll issues. An HR representative at the PEO should serve as a primary point of contact for the client. HR representatives performseveral duties, such as maintenance of an organization's HR policies and procedures, the performance of compliance audits, payroll and benefits management and administration, and maintenance of employee records like time and attendance.
Exceptional PEOs not only offer high levels of accessibility; they also take a proactive approach to issues that may arise. This approach is often made manifest by the following features:
A dedicated FAQ page to assist with common issues
Tutorials that walk HR professionals/business owners through common scenarios
5. Can the PEO Scale As Your Business Grows?
One of the primary reasons why business owners outsource their HR operations is to focus on growing their brand. While PEOs perform a number of HR-related tasks for their clients, payroll is a key driver within the outsourcing process.
A major advantage of having a PEO handle your payroll is that they act as a one-stop shop by bringing related services to the table. Otherwise, a company would not only have to take on the time-consuming and costly task of finding a payroll provider, but also a benefits broker, workers’ comp broker, and an HR person. By working with a PEO, companies don't need to juggle or pay for multiple vendors, giving them the time they need to focus on scaling their business.
In addition, PEOs that can scale along with their clients (in terms of payroll and all other HR operations) yield a high ROI for their partners. In fact, PEO clients grow 7-9% faster than other businesses, have 10-14% lower rates of employee turnover, and may pay $450 less per employee for access to a broad array of HR services.
Partnering with a PEO for Your Payroll Needs
As the above information demonstrates, you need to do your homework when selecting an outsourced payroll provider. However, the benefits of doing so are numerous. Areputable PEO can help you remain compliant in terms of tax law, ensure that your employees' time at work has been accurately tracked and recorded, and allow you the freedom to focus on growing your business.
The first step on this journey is finding a PEO with which you're comfortable having a dialogue. In many cases, this could be the start of a successful relationship.