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How PEOs Reduce Your Payroll Liability

How PEOs Reduce Your Payroll Liability

Payroll processing must be right every single time. Your employees count on you to make zero mistakes, so they get paid correctly. It’s their livelihood, and they need an accurate paycheck to hit their bank account. 

Making mistakes on payroll, even innocent mistakes can have massive consequences. You could face fines and penalties from government agencies, and your employees may have a legitimate reason to file a lawsuit. 

Many small businesses look to outsource their payroll duties to minimize these mistakes. Unfortunately, outsourcing payroll does not always outsource liability. If a payroll processing company makes a mistake on your payroll, your company is liable. However, you can outsource payroll liability with one particular HR outsourcing solution — a Professional Employer Organization (PEO). 

How are PEOs Different? 

A PEO is more than a payroll processor. A PEO provides your company with comprehensive HR services and support, including payroll tax remittance. Payroll processing companies can process payroll but, unlike a PEO, they cannot file payroll taxes for you. 

A PEO can also provide:

  • Benefits administration 
  • Workers’ compensation 
  • HR compliance 
  • Policy creation and review 
  • Expert HR guidance for legally tumultuous situations 

What is a PEO’s Role in Payroll Processing? 

A PEO processes your company’s payroll on the regularly scheduled paydays. One of the most significant benefits of a PEO is the mundane tasks they take off your internal HR team. For payroll, your PEO may handle:

  • Computing pay 
  • Sending out payroll checks
  • Computing federal, state, and local taxes
  • Reconciling your accounts
  • Tax liens
  • Garnishments
  • Vacation days
  • Benefits eligibility
  • Benefits deductions
  • Probationary periods
  • Child support payments 

All you have to do for payroll is report hours worked for each employee.  

That’s it! 

The best PEOs will even provide HR software that integrates all these processes into one easy-to-use and confidential system. This makes reporting hours worked so much easier for you, reducing payroll mistakes. It gives you one place to locate all of your HR-related company information. That includes providing your employees with a place to review their HR information like their benefits selections, retirement contributions, and paid time off. 

How do PEOs Reduce Payroll Liability? 

When you run payroll, any mistakes from miscalculating overtime, failing to remit taxes properly, or any other related issues can be highly costly for your company. Employee lawsuits and government fines can wreak havoc on your budget. So how do you shed that liability? 

Payroll processing companies do not take your payroll liability away. A PEO, however, is different. That is because PEOs use a legal tool called “co-employment.” 

Co-employment is when two companies share responsibility and liability for employees. PEOs engage in co-employment relationships with companies like yours. For payroll purposes, your PEO will become the employer of record for your employees and run payroll under their Employer Identification Number (EIN), not your company’s EIN. This also means that payroll taxes are filed under the PEO’s EIN, not your company’s EIN. Any mistakes made on payroll or in remitting taxes will fall to the PEO, not your company. 

All of this comes together to mean that you get massive time savings and a substantial reduction in stress. Sometimes mistakes happen, even innocent ones, and by working with a PEO, your company can shed the liability for those mistakes. Ultimately, this means your company can focus on building a great culture, attracting and retaining top talent in your industry, and not worrying about the complexities of payroll. 

What are the Other Advantages of Co-Employment? 

The benefits of co-employment do not end with payroll. A PEO can also provide your company with additional savings through better employee benefits. To remain competitive in your industry, you need to offer competitive benefits to your employees. With a PEO, you gain access to their master benefits plan, negotiated at scale by experts. This means you can offer more and better benefits to your employees at costs you can afford. 

A PEO can also save you money on workers’ compensation. If you have had any claims in the past, your workers’ compensation experience modifier might be high, making your premiums budget-busting. But with a PEO, you gain access to their experience modifier, which might be lower than your company’s experience modifier. This could result in massive savings through lower premiums. 

But not all PEOs are created equal. In fact, some PEOs offer you amazing services but cannot back them up. The big nationwide PEOs often run call centers, so you never get to speak with the same person twice and don’t get to build a personal relationship with them. You also don’t get truly expert-level HR guidance when someone is just reading from a script.  

That’s why a local PEO may be the solution you’re seeking. Local PEOs don’t need to have a massive advertising budget, which means they can charge less than national PEOs while offering the same or better services. Local PEOs also understand the legal issues and regulations you face because they’re challenged with the same ones.

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Payroll Management & Administration, Small Business