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What is a PEO? Professional Employer Organization Pros and Cons

In this video, we'll discuss what a professional employer organization (PEO) is, how they work, and what the benefits, pros, and cons are. ************************************* Additional Resources    • PEO vs Payroll Service: Why Are PEOs ...      • What are the advantages of using a Gl...      • Do PEOs file an amended 941 for an ERC?   ************************************* #PEO #ProfessionalEmployerOrganization #PEOBusiness #PEOProsandCons Be sure to subscribe for more accounting, HR, and finance tips for your startup. https://www.youtube.com/c/KruzeConsul... MORE FROM KRUZE CONSULTING: Website ► https://kruzeconsulting.com/ YouTube ► https://www.youtube.com/c/KruzeConsul... Facebook ►   / kruzeconsulting   Twitter ►  / kruzeconsulting   Need help with your startup’s bookkeeping? Kruze Consulting is a leader in providing low-cost, high-quality financials to funded startups. Learn more at https://kruzeconsulting.com/startup-b... Hey, it's Scott Orn at Kruze Consulting. And today, we're talking about PEOs, professional employer organizations. And so what PEOs do is they basically handle your startup's HR services. So payroll, benefits, HR policy, HR counseling. They also do a lot of tax stuff, like they help with state and local taxes in some instances. Not always, you kinda have to check it out state by state. And they usually don't do much on the municipality front. But PEOs are actually a really interesting approach to solving your HR problems. Now the interesting about PEOs is that instead of your employees working for the startup directly, the PEO is actually the employer of record, which means like the employees of the company actually sign a contract with the PEO, and they have kind of like a third relationship, kinda off to the side a little bit with the startup. So it sounds a little weird. But what it does is allows the PEO to pool all of their employees across all their clients, and actually negotiate better benefit rates. So typically PEOs, they're kind of like negotiating like they're a Fortune 500 company you know. They have a lot of power when they're talking to BlueCross, or Anthem, or Kaiser, those kinda folks. And so that's actually one of the big benefits of PEOs is that you can often get lower benefit costs if you work through a PEO. The other benefit of a PEO is they will handle some of that state and local tax compliance, which is really nice. And because your employees are basically employees of the PEO, they have a super vested interest in making sure your HR policies are correct, HR problems are handled correctly so there's no liability. So those are the positives. Sometimes on the negative side, PEOs tend to be a lot more expensive. They actually charge like a monthly fee per employee. That's much, much higher than Gusto or Rippling. So you're getting a benefit on one side with lower benefits cost and some of the extra services. But you're also paying more. That's kinda why I call it like, it's kinda like a Cadillac policy. It's taking the luxury approach. However in times of COVID, this can actually be really smart because as employees are spreading out throughout the country, I know this is happening at Kruze, you're starting to have to worry about more local and state tax, like payroll taxes and registrations. So the PEO can really help you out there. And you have to worry about benefits in all these other states if the employees are gonna be there permanently. So COVID is actually driving a lot more interest in PEOs, which I find pretty interesting. Now a couple other downsides of PEOs. We've kinda noticed that the PEOs are not as effective or as fast at filing R&D tax credits and getting those rebate checks. And there's this thing called a certified, like the IRS basically certifies the PEO to be able to handle this stuff. So if your PEO that you're working with has not been certified, then that's not good. Your R&D tax credit's gonna have some real problems we've had this experience with kinda some lesser PEOs. Our favorites are Sequoia, TriNet, and Justworks. Those are kinda the "big three" in our world and the Kruze world. So if you're working with someone else, odds are they're probably not doing the R&D tax credit correctly or quickly enough, and you might have some problems. And it's a little tricky for the PEOs because again, that benefit they get from pooling employees on the insurance benefit side, that actually kinda works against them on the R&D tax credit side, because a lot of times, they're having to pool all these R&D tax credit filings underneath their own EIN number, which makes that super complicated and if there's a hangup somewhere, then a lot of companies' R&D tax credits are hung up. So you just need to investigate that.