Strategic HR For Startups: The PEO Solution

Partnering with a PEO Can Accelerate Your Startup’s Success

As an entrepreneur, I’m inspired to see the many ways entrepreneurship is being fostered in young people. There are classes in entrepreneurship in middle schools and high schools. Lemonade Day teaches kids in ages ranging from kindergarten to fifth grade how to create business plans, set financial goals, and implement budgets by operating their own lemonade stand. The Girl Scouts promotes entrepreneurship by encouraging girls to think innovatively and earn badges for jumpstarting a business, completing market research, connecting with customers and, of course, selling cookies.

These efforts to promote entrepreneurship are paying off. According to the Census Bureau, a record-breaking 5.4 million applications to form new businesses were filed last year, a 53 percent increase from two years earlier. It’s a positive sign for the economy. I’m excited to see where all of these new innovators and creators will make their mark!

In my conversations with entrepreneurs of all ages, the common theme I hear is that, as their business grows beyond the startup stage, they find it increasingly difficult to focus on the very ideas that inspired them to start their business in the first place. The culture and policies that work when there are only one or two employees no longer work as a business expands. Suddenly, founders start to worry about whether they need workers’ compensation and safety procedures, or question what they might do if they are sued for a workplace injury. They struggle with payroll administration and wonder when (or if) they should be withholding payroll taxes.

Too often, managing HR becomes one more responsibility that an already stretched founder or partner is juggling. They need to spend more and more time ensuring that they are in compliance with a myriad of employment-related laws and regulations. To stay competitive in hiring and retaining top talent, they need to dedicate valuable time to researching benefits plans, recruitment strategies, and employee development programs. Payroll and tax administration are consuming more of their focus than sales.

It’s to provide a solution to challenges like this that Professional Employer Organizations (PEOs) were created. HR shouldn’t be an afterthought, nor matter how many people you employ. PEOs offer a way to outsource the types of HR administration that can quickly overwhelm a startup or small business, and ensure that critical tasks are managed competently and efficiently.

PEOs function in a co-employment relationship. What this means is that both the PEO and the startup or small business have an employment relationship with the worker in which the PEO assumes the liability and responsibility for the business of employment. As a result, the PEO is responsible for things like risk management, payroll, and payroll-tax compliance, while the startup or small business handles the day-to-day supervision and management of the employee. A PEO can ensure that a workplace is in compliance with OSHA regulations, as well as other critical national, state, and local laws.

This is a strategic and cost-effective outsourcing of responsibilities that immediately can be a game changer, but in the current competitive environment for hiring and retaining great workers, the PEO’s ability to access health insurance, 401k plans, and other benefits means that small businesses can now offer the type of attractive plans that typically are only available to very large corporations. It works through economies of scale. A successful PEO may have thousands of employees, enabling them to source insurance coverage at much more competitive rates.

Every entrepreneur hopes that their business will be successful. But success and growth mean a need for leveraging new expertise to support a larger organization. A PEO can be part of that growth support team, providing experts in all areas of HR management who can ensure that your people have the resources they need to help your business continue to innovate and excel.