Over 180,000 businesses rely on Professional Employer Organizations (PEOs) to help them navigate the human resources landscape. But what is a PEO? Why are business owners flocking to these HR partners? And what kinds of benefits do PEOs offer small businesses struggling with the challenges of human resources administration?
What is a PEO?
A Professional Employer Organizations (PEOs) is an outsourced Human Resources partner that provides HR administration services from processing payroll to accessing more affordable employee benefits packages.
There is a reason that 98% of businesses that use a PEO would recommend one to their colleagues. Not only are businesses that leverage the services of a PEO 50% less likely to go out-of-business, but they're also more likely to grow, less likely to shed high-value talent, and more likely to experience a positive ROI in their HR units. In fact, the average ROI of using a PEO is over 27%.
What Services Do PEOs Provide?
PEOs provide a lot of services (over 130!). Partnering with a PEO can help you scale, outsource, or maximize the efficiency of nearly every HR function. PEOs complement your existing HR staff as a trusted advisor. If you have no HR personnel at the moment, PEOs can take the reigns and support your team with any HR service.
Below are some of the more popular services that PEOs provide.
1. Access to Affordable Benefits
Small businesses pay around 18% more benefits than enterprises. Furthermore, they pay more for worse benefits. This is due to risk pooling. When massive enterprises with thousands of employees negotiate with benefits companies, they're offering those benefits providers a bulk package of employees. This helps that provider offset risk which results in lower prices.
PEOs bring economies-of-scale to small businesses. Instead of simply pooling your workers together, PEOs can pool all the workers from hundreds of businesses at the same time. This offsets risk the same ways a massive enterprise offsets risk. With a PEO, your businesses can secure Fortune 500 benefits at Fortune 500 prices.
2. Relieve Administrative Burdens
HR administration is a massive time-sink. Even if you have a robust internal HR team, HR administration can quickly turn them into cost centers. Instead of focusing on culture, productivity, and employee happiness, your HR team is forced to focus on mundane and repetitive tasks.
PEOs can help. Depending on your needs, your PEO can handle employment administration, unemployment insurance claims, payroll, filing taxes, and all of the other HR administrative headaches.
3. Risk Management
57% of senior execs at large companies risk management as their #1 priority and most significant struggle. For small businesses, risk mitigation woes go well beyond a struggle. 40% of small businesses incur IRS penalties each year. And that's just the start. Thousands of small businesses face OSHA fines, which can reach $134,937 per violation.
PEOs can help your business mitigate risks. Not only do PEOs provide end-to-end workplace liability management and workplace safety measures, but they can help you handle regulatory needs like posting requirements and notices.
4. Workers' Compensation Insurance
When you join a PEO, you'll be on that PEOs workers' compensation insurance plan. If you partner with a world-class PEO, you'll instantly have access to industry-leading workers' comp insurance with pay-as-you-go rates and, potentially, a lower emod rate. Better yet, you don't have to put down any money in the form of a down payment. In other words, PEOs provide unbeatable workers' comp value — and they provide the services you need for long-term workers' comp cost containment.
5. Compliance Management
The pure scale of labor laws and compliance requirements in today's hyper-regulated business ecosystem is mind-numbing. There are over 180 federal regulations to follow and that does not count state and local regulations. Here are a few of the laws you need to comply with:
- Fair Labor Standards Act (FLSA)
- Family and Medical Leave Act (FMLA)
- The Occupational Safety and Health Administration (OSHA)
- The Americans with Disabilities Act (ADA)
- The list goes on!
Your PEO will work with you to ensure compliance and create policies that adhere to these strict and ever-changing regulatory needs. They stay up-to-date with the latest regulations so your HR team is never caught unawares.
What Are the Advantages of a PEO?
1. Renewed Growth
PEO clients grow 7 to 9 percent faster than their competitors. Why? Because PEOs let you be you. Running a business is tough. The average small business owner works well over 40 hours a week, and when you have to juggle HR administration with growth needs, sales, and marketing, the non-growth needs of your business can quickly consume your R&D-driven, mission-oriented growth strategies. PEOs give you back your time. And when business owners have room to breathe, magic happens.
2. Reduce Turnover
PEOs lower turnover by 10 to 14 percent. This happens in multiple ways. For starters, PEOs free up your internal HR team to focus on critical tasks like culture propagation and employee appreciation. At the same time, PEOs give you competitive benefits and help you create a happy and healthy workplace.
3. Attract Top Talent
84% of HR pros admit that it's difficult to find quality talent in today's talent landscape. Attracting top talent isn't just a business differentiator; it can make or break your company. PEOs give you the benefits you need to win in today's talent marketplace. 78% of employees admit that their benefits directly impact their loyalty, and 72% admit that great benefits improve their job satisfaction. Having great benefits makes you attractive to top talent during the job hunt.
4. Increase Productivity
PEOs help you save money by reducing fines, and they certainly help you find top talent and reduce turnover. But they also help you create a more productive workplace. When you don't have the 500-lb whale of HR administration sitting in the corner of your business, you can focus on maximizing your efficiencies — not just wading through paperwork. PEOs help you return to what really matters — running a successful business.
PEOs Provide Unparalleled Value to SMBs
The cost savings from just employee benefits and workers' compensation gives businesses an 11% ROI. When you combine reduced risks, increased compliance, minimized HR time spend, and all of the other 130+ benefits that PEOs provide, working with a PEO isn't just cost-effective: it's revenue-generating. In today's competitive landscape, PEOs provide the scalable HR infrastructure that businesses need to stay competitive, productive, and resourceful.