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Using A PEO To Make Your Business More Profitable

A PEO’s economies of scale can be one solution to lowering your insurance rates.

PEO is the acronym for Professional Employer Organization. The industry did not start with that moniker. Originally, the industry was known as “Employee Leasing,” a term that really had no clear meaning. The idea of leasing applied to a car or a piece of equipment, but how did it apply to an employee in material handling?

The original concept, which was developed more than eight years ago, was to have the client fire his or her employees, then the leasing company would hire them and “lease” them back to the client. This was a faulty theory in that nothing really changed for the employee, and the leasing company really could not be the “sole” employer when tested by the IRS and other entities.

The industry then created a name that better described what they did and what was actually happening in the relationship. The result was the name “Professional Employer Organization,” because it was much more descriptive of what the industry was trying to accomplish, be an employer! The term “co-employer” (also known as joint employer in common law) was coined to show that both the client and the PEO were working together as employers. This arrangement is done via the Service Agreement provided by the PEO. It lays out the duties of the PEO, the client and the obligations of both parties.

What a PEO Does
In the vernacular of the PEO, the client becomes identified as the “worksite” employer, because he or she has the work, the tools to do the work, and most importantly, the day-to-day operation of the business to conduct.

The PEO is the “administrative” employer, who delivers service in the core areas. These are Human Resources, Unemployment, Payroll and Taxes, Workers’ Compensation Insurance and Safety, as well as a complete array of benefits such as health insurance, dental, AFLAC, supplemental insurance, 401k plans, credit union, travel arrangements, discount programs and much more.

This arrangement creates several strong positions for an operation:

  • You are both working together for the common good of your business with employees.
  • The PEO brings expertise to the table that most small and medium-size companies don’t have the budget to install.
  • The partnership allows the client to take advantage of economies of scale in products and services that are necessary for the workforce.

The client effectively outsources the non-revenue producing aspect of being the employer, enabling him or her to concentrate on his real core competency, making a material handling business profitable!

Material Handling Equipment Distributors Association
Meet the Author
Donald L. Shewmake Jr. is president and CEO of Peram Corp., located in Lombard, Illinois, and on the Web at www.peram.com.

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