PEO 101: a beginners guide to professional employment organisations

In the busy world of business, managing HR tasks like payroll and contractor benefits can be a real headache. But don't worry because Professional Employer Organisations (PEOs) are like your trusty helpers. They take care of all HR so you can focus on running your business smoothly.

According to a survey by the National Association of Professional Employer Organisations (NAPEO), businesses that team up with PEOs grow 7-9% faster, have 10-14% lower employee turnover, and are 50% less likely to go out of business.

"PEOs have redefined HR management for businesses, offering a streamlined and efficient approach to payroll, benefits administration, and compliance. By having the expertise of PEO professionals, companies can optimise HR operations, reduce administrative burdens, and focus on driving business growth."

What's a PEO?

A Professional Employer Organisation, commonly known as a PEO, is a PAYE option for contractors. When a company partners with a PEO, they outsource their HR tasks, including payroll, benefits administration, compliance management, and other HR-related responsibilities. It's kind of like the PAYE system but for businesses and agencies.

How does it work?

A PEO is where a business (like Giant) provides outsourced PAYE services to a business. This can either be on a contract of Employment or workers can be issued with a Contract for services. This allows the business to outsource the payroll to a specialist, which is likely to reduce risk and costs, while improving efficiencies by engaging with an expert.

Why choose a PEO?

• Simplicity & efficiency: The PEO model simplifies HR and payroll processes for both the client and the worker. By outsourcing HR functions to a PEO, businesses can streamline payment procedures while benefiting from expert HR support.
• Support for small to medium businesses: Particularly advantageous for small to medium-sized enterprises (SMEs), PEOs offer comprehensive HR solutions without the need for extensive in-house HR infrastructure. This enables SMEs to focus on core business activities while entrusting HR responsibilities to PEO professionals.
• Cost-effective solution: PEOs typically charge fees to the contracting agency rather than the individual worker. This arrangement eliminates the need for contractors to bear additional costs, making PEO services a cost-effective HR solution.
• Transparent pay structure: PEOs offer transparent pay structures with fixed gross pay rates for workers. There are no hidden fees or confusing deductions. What you see is what you get.

PEO vs. Umbrella companies:

While umbrella companies also offer outsourced HR and payroll services, there are key distinctions between PEOs and umbrella companies:

Payment structure & Agency fees: Under PEO arrangements, the contractor is quoted the actual gross pay rate upfront by the PEO, which remains consistent unless there is a change in the pay rate. There are no deductions other than regular PAYE employee tax and the employee's national insurance

PEOs typically charge fees to the contracting agency, while umbrella companies may have different fee structures. For comparison, under umbrella employment, the agency provides a limited company pay rate which is the umbrella company’s income. From this, the umbrella company retains its margin, employer’s national insurance, apprenticeship levy, and employer pension contributions to reach the gross taxable pay rate. These deductions are usually broken down on invoice reconciliations per payment, fluctuating based on hours worked, potentially leading to rate variations.

Find out more about what an umbrella company is.

PEOs have redefined HR management for businesses, offering a streamlined and efficient approach to payroll, benefits administration, and compliance. By having the expertise of PEO professionals, companies can optimise HR operations, reduce administrative burdens, and focus on driving business growth.

Contact us at hello@giantgroup.com for more information!