It’s often said that risk is the nature of business. Yet, operational liabilities like workers’ compensation claims or workplace incidents threaten your investment with zero rewards. A professional employer organization (PEO) co-employs your workforce, providing safety policies and human resources (HR) expertise to reduce your legal and financial risks.
As a result, PEO risk management services can free up your time and give you peace of mind. This guide discusses risk management in human resources and its impact on small businesses. It also explores seven PEO risk management features that benefit companies and their employees.
What is risk management?
Risk management in business is the process of identifying threats, assessing risks, and reducing impact. It includes all aspects of your company, from financial and legal to operational and market conditions. Risk management aims to find issues before they happen, do what’s possible to mitigate them, and have a plan to address them.
Picture the business owner who notices that the entrance tiles get slippery when it’s raining and adds a non-skid commercial rug and wet floor signs to prevent injuries. That’s proactive risk management. Going a step further by training managers and employees on how to respond to and document a workplace incident could be part of a larger risk management strategy.
When managing risk, you can avoid, transfer, or reduce it. For instance, you can eliminate the risk of bounced checks by no longer accepting checks. You can also reduce this risk by requesting more customer information or transferring the risk to a payment provider with an electronic check service. However, not all risks are avoidable.
Although manufacturing companies, restaurants, and fully remote firms face different safety hazards, many have one thing in common — a workforce. Employment-related issues increase your risk exposure. You can decrease risks by assessing internal systems and focusing on risk management in human resources. Alternatively, you can share responsibilities through PEO risk management services.
[Read more: 5 Things You Need to Know About Choosing a PEO]
How does HR fit into risk management?
HR risk management protects your business against legal, operational, reputational, and financial threats. You manage risks by distributing employee handbooks and ensuring hiring managers follow employment laws. But, HR risk management and compliance extends to timely filings and expert understanding of workers’ comp, rules, unemployment regulations, and wage laws.
If you have a small HR staff, these back-office tasks could take away time managing other employment-related risks, such as recruitment and retention. With PEO risk management services, your PEO partner oversees these responsibilities so your team can focus on high-level tasks.
Why is risk management important to small businesses?
One in four small businesses told MetLife and U.S. Chamber of Commerce that “they are one disaster or threat away from shutting down.” And even those prepared to navigate challenges would rather avoid them. After all, what small company has time for an operational crisis?
Risk management is vital to small business resiliency. The risk management process reveals threats, helps anticipate and prevent problems, and aids in a response. It enables faster, more informed decision-making. In addition, you can use the framework and systems to manage risk consistently across your organization, regardless of external or internal circumstances.
The importance of a risk management program shouldn’t be understated when it comes to workplace safety. For example, it can help you weigh decisions about employee footwear policies and reduce workers’ compensation claims.
Half of the small business respondents to a poll from Pie Insurance Services Inc. “report[ed] a workplace injury claim within the past five years.” Workers’ comp claims involve a lot of paperwork and administrative headaches, underscoring the importance of risk management. Workers’ compensation risk management is also a core benefit of PEO services.
[Read more: How to Offer Health Insurance Using a PEO]
What types of risks do PEOs manage?
PEO vendors handle HR processes and co-employ your staff, meaning they share responsibilities for managing administrative and employment-related risks. Generally, PEO risk management services involve HR professionals, technology platforms, and guided support.
Outsourcing HR tasks like workers' comp and payroll to a PEO management firm transfer some risk to the PEO, as they become the co-employer. Eliminating these administrative duties can free up your team to prioritize mission-critical HR objectives, like recruiting and retaining staff.
Workers’ compensation risk management
Workers’ compensation is a time-consuming and often expensive process. PEO risk management services can reduce legal and financial risks while alleviating administrative burdens.
PEO providers handle the following workers’ compensation risk management tasks:
- Securing workers’ compensation insurance: The PEO vendor becomes the employer of record for administrative payroll and insurance purposes. This factor allows them to pool resources and possibly get lower insurance rates.
- Helping with risk assessments: Your PEO partner may evaluate your workplace or provide resources to complete a self-assessment. This information enables you to improve safety and decrease the likelihood of claims.
- Assisting with return-to-work programs: PEO providers can coordinate with multiple parties to find the best way to bring injured workers back on the job while minimizing risks to the employee and company.
- Managing workers’ comp claims: PEO vendors oversee claims from start to finish. A seamless claims management process reduces risk by expediting information, using the correct job and business codes, and ensuring compliance.
Employee and workplace safety risk management
While every accident can’t be prevented, PEO risk management services could improve workplace safety. These options vary by provider, with some firms offering resources and others handling the audits or risk assessments themselves.
For instance, a manufacturer or construction business may work with its PEO risk management service to review its Occupational Safety and Health Administration (OSHA) compliance history and complete an on-premise audit. A small office or remote workforce will have different requirements.
Regardless of where your team works, your PEO management partner can assist with the following:
- Identifying workplace and employee safety issues.
- Developing safety documents and policies.
- Displaying and distributing safety information.
- Offering workplace awareness and safety training.
- Staying compliant with industry-specific safety education or certifications.
[Read more: How PEO Services Can Enhance Your Employee Experience and Retention]
Picture the business owner who notices that the entrance tiles get slippery when it’s raining and adds a non-skid commercial rug and wet floor signs to prevent injuries. That’s proactive risk management.
Unemployment claims management
Like managing workers’ compensation, unemployment claims are a huge lift for small businesses. As the co-employer, your PEO partner shares unemployment liabilities, which can mitigate your financial risk.
Here’s how a PEO provider helps with risk management:
- Manages the unemployment claims process, including accurate and timely filing.
- Maintains employment records, which are vital for showing regulation compliance.
- Assists during appeals by providing documentation for contested claims.
- Helps small businesses develop layoff and termination procedures.
- May assess unemployment trends and offer recommendations to reduce claims.
Employment and HR risk management
PEOs typically employ HR experts who can support your company with local, state, and federal employment law compliance. They assist throughout the staff life cycle, from hiring to retirement. PEO risk management features streamline hiring, onboarding, and benefits administration while ensuring your processes comply with regulations.
PEO HR risk management may include:
- Software modules or service add-ons for job candidate background checks or drug testing.
- FMLA policy development, leave administration, compliance monitoring, and return-to-work coordination.
- Documentation, accommodation assessment, and compliance with the Americans with Disabilities Act (ADA).
- Fair Labor Standards Act (FLSA) risk management services to reduce legal exposure from wage and hour claims.
- PEO providers provide Affordable Care Act (ACA)–compliant insurance options and handle the reporting.
- Notification of Consolidated Omnibus Budget Reconciliation Act (COBRA) eligibility, documentation, and recordkeeping.
- PEOs administer employee benefit plans that meet Employment Retirement Income Security Act (ERISA) standards.
- Health Insurance Portability and Accountability Act (HIPAA) policy assistance, risk assessments, and training.
Wage and tax law compliance
When it comes to payroll and taxes, a small error, like a misplaced decimal point, can lead to substantial financial liabilities. PEO management includes payroll processing and tax filing services, alleviating your responsibilities. They run payroll, withhold employment taxes, and provide 1099 and W2 forms to workers.
PEO risk management features and software may include built-in time-tracking tools, which reduce time and attendance mistakes. Self-service apps give employees access to tax statements and pay stubs. Using your PEO partner’s software and support services, you can ensure that hiring managers correctly classify employees and that your minimum wage, overtime, break policies, and recordkeeping comply with FLSA regulations.
[Read more: PEO vs. EOR: Differences Explained]
Substance abuse programs
Implementing a workplace drug-testing program can prevent incidents and lower risks. However, small businesses must follow federal and state laws, including the Drug-Free Workplace Act. PEO risk management services may include policy development, testing administration, and Employee Assistance Programs (EAPs). Ensuring compliance and understanding relevant privacy laws protects your company from litigation while improving workplace safety.
PEO risk management for loss prevention
A comprehensive business risk management plan should maximize operational efficiency while lowering revenue losses. PEO providers assist across several areas to minimize costs, penalties, and legal risks. They can help small businesses choose insurance coverage for employees and property. To this end, a PEO vendor may help you with emergency response planning and procedures.
[Read more: PEOs vs. Insurance Brokers for Health Benefits]
What are the benefits of using a PEO to help with risk management?
If your small business team had more time, what could they accomplish? UKG and HR.com found that over a third of “HR operations focus primarily on back-office tasks instead of people-focused tasks.” PEO management handles administrative and compliance responsibilities so your staff can prioritize recruiting and retention.
The benefits of PEO risk management services include:
- Affordable insurance: PEO partners help small businesses mitigate financial risks by offering cost-effective workers’ compensation and health insurance coverage.
- Comprehensive support: You can request expert HR and compliance guidance from your PEO management service to avoid legal pitfalls when navigating complex regulations.
- Safer work environments: PEOs and businesses coordinate to assess risks, develop policies, and train teams to reduce workplace injuries.
- Increased employee retention: Effective risk management builds a positive culture and satisfies staff with fewer payroll, tax, and compliance errors.
- Improved HR processes: Outsourcing benefits, payroll, and compliance tasks to a PEO provider gives your team more time to manage core activities, like employee development.
- Cost savings: PEO management tools and resources minimize risks and potential liabilities, saving your business money for hiring temporary workers or covering legal fees.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.
