The industry needs a new way. PEO.

In the world of payroll and compliance ever more we hear these three letters PEO. But what do they actually mean? And how could they help your business? On this page we’ll explain exactly what a PEO is, where and why it started and importantly how it could help your business.

Background

What is a Professional Employment Organisation?

Let’s start with some background.

PEOs became popular in the United States around 30 years ago. The PEOs approached small to medium businesses offering to run HR functions including payroll. The carrot for these SMEs was that the PEO offered access to healthcare benefits for all workers (which was and isn’t free in the US). Due to the buying scale of the PEOs, these employee benefits packages soon quickly expanded.

For the individual companies engaging a PEO this dramatically transformed their ability to attract and retain talent. It also provided a cost-effective alternative for the management and processing of all back-office functions surrounding employment.

In the new world of work,
do old solutions still work?

What this simple change can make to an organisation, is extraordinary.

Benefiting from a more engaged & loyal workforce and eliminating those time consuming admin processes it gave companies a distinct and very real competitive advantage. Suddenly all internal resource was freed to focus on the company’s core business, increasing productivity and driving performance.

In 2017, The National Association of Professional Employment Organisations carried out a wide-ranging study to examine the impact PEO can have on the bottom line. Since adopting PEO, 70% reported that their revenues had increased and 66% had reported that their profits had also increased. Meanwhile, 98% would recommend PEO.

Today, over 150,000 US firms now engage workers through a PEO.

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Umbrella Vs PEO

Risk free

Your contingent workers are employed via your PEO provider. So, they’re on full PAYE, removing all supply chain risk and giving the worker all the employee benefits they could expect if they were a full-time employee.

Focus on your core business

Because the PEOs are specialists in payroll, tax and compliance, they take on management of all admin and related processes, freeing your internal teams to concentrate purely on fee-generating activity.

Attract and retain talent

PEOs give recruiters the chance to attract & retain talent (by providing simple & transparent pay with great benefits) and importantly increase candidate loyalty to grow talent pools; so critical today in an environment where contractors and candidates are in short supply.

Realise cash flow & actual savings

When engaging with a PEO via Joint Employment contracts, agencies can realise significant cash flow savings and actual savings. Under joint employment VAT is only payable on a fraction of the costs associated with employment, giving cash flow savings of 99%.

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In the new world of work, do old solutions still work?

The world of work has changed for recruiters, end-hirers and contractors.

Roll back 5 years and the Umbrella model served its purpose well and gave all parties genuine reasons to use it. Then expenses went, IR35 in the public sector happened, with hundreds of ‘Umbrella companies’ springing up to serve contractors, with some very creative & risky payroll models. And now we’re left wondering; where are the benefits in using umbrella for recruiters and contractors? Yes umbrella still gives agencies the vehicle to outsource employment responsibilities, but so do other models. And yes, for contractors using a reputable umbrella company the model does serve its purpose; to get people paid compliantly. But does it make contractors happy? And what benefit does it provide for recruiters? What’s more, following the Taylor Report, the Governments Agency task force will place close scrutiny on umbrella companies particularly in light of IR35 being applied to the private sector.

PEO offers a safe, transparent and reliable option that has clear benefits for both agencies and contractors.

Personal Service Companies lifespan is dwindling.

Due to the Off Payroll Rules, Limited Company (PSC) engagement is already outlawed in the Public Sector, and in April 2021 the rules will be applied to the Private Sector. With PSC no longer an option for recruiting the skills required, an attractive alternative payment option is needed to help plug the gap.

Internal PAYE drains resources

The only UK alternative to the above options has previously been internal PAYE. However, as experienced by those US companies this quickly transcends into an admin headache. And when you start adding up the hidden costs it soon mounts in to a resource drain. Recruiters should be recruiting, not sorting out payroll or employment responsibilities for their contingent workers. And contingent workers still want flexibility which internal PAYE doesn’t offer.

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Are you a business that hires contractors or freelancers? Are you worried about being caught by the new IR35 rule in April? Partnering with a Professional Employment Organisation (PEO) could be the solution.

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