Can A Non Profit Use A PEO?

In our PEO series, we’ve talked about what a PEO company is and who is the employer in a PEO relationship. Here, we’ll discuss PEO for nonprofits, and whether or not using a PEO for your nonprofit might make sense.

PEO for Nonprofits

As it turns out, nonprofits have unique employment issues that PEOs can address well. By definition, a nonprofit doesn’t typically have extra funds to serve as a cushion in tough times. All profit is used to maintain operations, and very few nonprofits have the profit margin to employ a Human Resources professional, let alone a well-staffed department.

Enter the Professional Employer Organization (PEO). PEOs are designed to eliminate many of the challenges that businesses face when it comes to the management of personnel issues – and can be especially beneficial to a nonprofit who is already strapped for cash and resources.

Nonprofit Human Resource Challenges

Nonprofits face several challenges when it comes to managing their human resources tasks. These challenges include:

• staying compliant with ever-changing laws, regulations, and statutes at local, state and federal levels; and
• competition for attracting and keeping good talent; and
• resources for negotiating with, selecting, and maintaining relationships with vendors and partners.

Because nonprofits are already strapped for resources, an oversight on any aspect of HR could mean diverting even more time and energy away from the mission to resolve errors and pay fines for noncompliance. In addition, nonprofits without an HR department may struggle to obtain competitive and affordable benefits packages for its employees.

PEO Solutions for Nonprofits

Because a PEO eliminates the need for a Human Resource department, the nonprofit can focus valuable resources on their mission. The PEO also relieves leadership – including the executive leadership and the Board of Directors – of the burdens and responsibilities associated with managing legal and compliance issues related to personnel.

Additionally, the PEO handles all payroll, recordkeeping, and tax-related tasks, which allows nonprofit employees and volunteers to dedicate themselves to the mission of the nonprofit.

The Co-Employment Relationship

As the PEO takes on all tasks related to payroll, compliance, tax payments, risk management, unemployment claims, worker’s compensation, and employee insurance and benefits, the non-profit will be required to accept the PEO’s guidelines for policies and procedures. Though this sometimes can result in a loss of control over some aspects of the nonprofit’s culture, the benefits typically outweigh the cost.

PEOs can also offer additional benefits such as assistance with recruiting, background screening, and training. Other perks include deals on group insurance premiums, 401(K) plan participation, and employee assistance programs – benefits that help to attract and keep good talent.

Other Considerations

Nonprofits are required to comply with certain state and federal laws – including taxation withholding, reporting obligations, and payment of wages. As such, it is important to address those nuances as you search for the right PEO for your organization. To ensure compliance, we recommend involving a CPA in the transition of accounting and tax records.

For many nonprofits, hiring a PEO can prove to be a mutually beneficial relationship. PEOs offer nonprofits’ executives, managers and their employees more than a few benefits, and free up valuable resources so they may accomplish the mission at hand.