When Should Entrepreneurs consider using a Professional Employer Organization – PEO?

Do you have employees now or do you intend to hire employees?

If the answer to this question is no, then you have no need to consider hiring a PEO. You can close this webpage because the rest of the article does not apply to you. However if your company will have employees, you have a whole set of responsibilities that your company needs to address.

Starting and growing a successful company is tough. The internet is full of advice and people trying to make a buck by selling you their magic formula for business success. I do not need to list examples. you probably know most of them. Of course every start up needs to have a target market researched and be able to identify the business opportunity and bring product or services that are economically feasible to those target customers. If you are one of the few, lucky and smart, your business will get to the stage where it has a viable product with paying customers.

Entrepreneurs MUST Focus

Where do you focus your energies? Neil Armstrong once said about exercise: “I believe that the Good Lord gave us a finite number of heartbeats and I’m damned if I’m going to use up mine running up and down a street”. For entrepreneurs, it’s kind of the same. You only have so much time and energy to devote to your business. Where is your time best spent? Should you be focusing on your products, customers and monitoring the financials or administering payroll, insurance and implementing employer programs to satisfy a plethora of governmental demands? Successful entrepreneurs focus on the critical business tasks and outsource the non-revenue producing tasks that consume their time and energy.

Create Contractor (1099) Relationships or Hire Employees?

All businesses (except one man shows) are the result of a group of people who are focused on a common goal. That usually means hiring employees. Now you could make arrangements to pay your partners and workers as contractors. This is known as a 1099. This arrangement assumes that all of your staff are really independent business owners and are being paid under contract with your company. This has some tax advantages. However, the IRS has rules about who can be treated as a contractor and who cannot. Most businesses owners cannot meet the IRS rules for 1099 contractors and still assert effective control over the day to day operation of their company. To determine if you can pay people as 1099s you need to review the 20 Factor Test. If you can meet the guidelines of the 20 Factors, by all means you should avoid becoming an employer. Advantages include not being responsible for workers’ compensation insurance, unemployment insurance, federal FICA taxes matching and a whole lot of employment related liabilities. In reality most business cannot meet the 20 Factors guidelines and need to treat people as employees. Now what?
Review the IRS 20 Factor Test for 1099s

Becoming an Employer

The USA is currently (2011) ranked 9th for

ease of starting a business as ranked by the World Bank.
The USA ranked 62nd in ranking for the

ease of paying taxes. While not all of this effort is for employer related taxes, a lot is.

As an employer, your company now has lots of new responsibilities.

A Professional Employer Organization will unload many employment related administrative tasks and help you focus on growing your business. Professional Employer Organizations offers Start-up businesses and Entrepreneurs a turn-key approach to handling the tasks related to being an employer. To discuss your company’s needs contact StaffMarket.

Entrepreneurs Checklist for becoming an employer