Excerpt from Journal of Accountancy,
Bruce Katz, CPA

More than ever before, CPAs are advising their bottom-line-conscious employers to use outsourcing to cut costs and improve efficiency. Once confined to production-related areas, outsourcing has grown to encompass a broad range of business operations. Human resources and payroll are two areas companies traditionally kept within their control, but over time businesses have gradually begun to outsource payroll functions to service bureaus and turn over more employee-related responsibilities to professional employer organizations (PEOs). CPAs and other financial executives whose employers do not already use PEOs should understand how they work—and how to select the right one—so they can decide whether the PEO route is a good solution for their companies.

PEOs specialize in human resources (HR) management. They offer businesses a wide variety of services—including payroll management, employee benefit design and administration, tax filing and administration and compliance with state and federal workplace legislation. PEOs also take responsibility for developing and administering lawful employment policies and procedures; employee recruitment and disciplinary actions; recordkeeping; and unemployment, disability and workers’ compensation claims and administration.

According to the SBA, PEOs control a 2% market share of the payrolls of small to medium-size companies (those with fewer than 100 employees). Many different types of companies use PEOs, since the benefits of doing so cut across industry lines. With the number of employees working for PEOs projected to grow at 30% per year, more and more CPAs may find themselves recommending that their companies consider using PEOs as their HR departments.

The PEO Industry

There are more than 1,000 professional employer organizations nationwide, with 2 million to 3 million employees. Their collective payrolls are estimated at $18 billion.

Source: National Association of Professional Employer Organizations, Alexandria, Virginia.