An Alternate to a Payroll Service Bureau?

There is another form of “Payroll” service out there, referred to a Professional Employer Organization (PEO) or Employer of Record service.

The PEO  Industry got a serious start in the United States in the mid 1980s, cruised along for a while, and ramped up in the late 1990s. While not as significant in Canada, we were involved from the mid 1980s as well.

Professional Employer Organizations provide a cost effective way for small to mid sized businesses to outsource human resources, employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, and training and development. They do this by becoming the employer of record and then leasing the employee(s) back to their  client through a co-employment contract.
This staff leasing arrangement helps business owners cut costs and save money because the PEO’s have many clients and get bulk discounts for insurance packages and payroll processing costs. PEO’s attract quality employees with what they can offer, and the business owners they service benefit.

NAPEO, the National Association of Professional Employer Organizations conducted a survey recently and the following interesting results were documented:

• PEO clients have greater growth rates than other small businesses. Since 2010 the growth rate amongst small business has been 9% higher than other small businesses and 4% higher than the employment growth in the US economy.
• PEOs are able to provide a broad array of HR services at a lower cost. A conservative estimate based on the study is that PEO clients enjoy a  minimum 21% savings.
• Small business executives who use PEOs are better able to focus their attention on the core business.  PEOs help their clients manage the people side of the business more effectively.
• PEOs offer retirement plans to small business that may not sponsor them otherwise, and their employees participate at much higher rates. 98% of PEOs offer some sort of Retirement  Plan to their employees in contrast to only 16% of small businesses with less than 10  employees, and 30% of companies with 10 to 49 employees.

In Canada, compliance with Employment Standards in the jurisdiction of where the business is operating is of major concern, and very few small employers in particular, are aware of the requirements. Failure to adhere to these minimum standards can result in heavy penalties, and unhappy employees.

Small employers in particular, have difficulty in obtaining  economically priced comprehensive extended health, dental, vision and prescription drug coverage for their employees. This makes it difficult to recruit and retain good employees.
PEOs also generally provide comprehensive offer of employment letters and customized handbooks, background screening, and can be a huge factor when employing  one or two individuals in a foreign. Country, and they eliminate the need deal directly with governments when it comes to employees.

OnPayroll.ca Canada Corp has been in the business since 1990 and we would be happy to answer any questions for those not familiar with this interesting alternative to simply outsourcing payroll.

• Bill Smyth CPA, FCGA, FCPA

For more information contact [email protected]