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PEOs and Payroll – What It Really Means

June 19th, 2018

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How do PEOs and payroll work? When your company joins a PEO, all your employees are transferred to the PEO’s payroll. This means that your company is now “leasing back” its employees from the PEO. By doing so, the company gives up control and will often pay a premium.

All PEOs require clients to use their payroll administration services. You must pay to play. PEOs charge a service fee, which may be upwards of 15 percent of total payroll (or around $150 per employee per month). This can be costly if businesses don’t fully use all of the PEO services.

When it comes to administrative tasks, a PEO may not necessarily decrease the time spent. The allure of “decreased administrative management” is often replaced with different processes to report changes and actions to the external PEO. Your company will still need someone internally who’s responsible for collecting and reporting data to the PEO (payroll changes, non-exempt hours, new hires, terminations, benefit plan changes, commissions, bonuses and so forth).

If you are considering exiting your PEO, the payroll question may cause concerns. Many PEOs report payroll and claims as their own, so your specific company does not have a history for new prospective insurers to use for assessing risk and providing quotes. Another aspect to consider is how you will handle payroll moving forward. Will one of your employees take over, or will you need a dedicated payroll provider?

Don’t let the questions about how you’ll handle payroll deter you from exiting your PEO. Instead, work with an experience Employees Benefits Consultant who can answer your questions and share with you other programs that are a better fit for your company.

As the 6th largest insurance intermediary in the country, Brown & Brown understands the challenges transitioning out of a PEO can bring and are here to guide you through the process.