The COVID-19 pandemic has provided all businesses with new challenges over the last 18 months. Fortunately, companies who are partnered with a PEO (professional employer organization), have fared better than companies without a PEO.
According to a study recently completed by NAPEO (National Association of Professional Employer Organizations), PEO clients are doing better in several areas, including business operations, employment and government support programs.
We can confidently say that most businesses felt the impact of the pandemic on their business operations in some way or another. Sadly, some companies did not survive and were forced to close their operations. Based on Federal Reserve data, the permanent closure rate of businesses in 2020 was 2.6%. Comparatively, the permanent closure rate for PEO clients was 1.1%. This is a 58% lower closure rate for companies that have the support of a PEO.
Similarly, 72.1% of PEO clients have returned to a normal or better level of operations as of July 2021. This is 32% higher than all small businesses. This shows that PEO clients were able to rely on their PEO partners to help with some aspects of the business so they could focus on operations.
Another key factor that reflects how a small business fared during the pandemic is whether the business lost or gained employees. According to the NAPEO research, for businesses with less than 250 employees, there was an overall decline rate of 6% for the 18 months from January 2020 to June 2021. PEO clients had an increase of 1% in their total employment levels during the same period. Combined, PEO clients and their employees experienced fewer job losses in the first months of the pandemic and larger job gains during the past year.
Though it may seem negative, PEO clients are more likely to experience concerns in finding qualified employees to hire than are other small businesses. This is because businesses with a PEO partner are growing more rapidly and expecting greater future growth compared to non-PEO clients. The challenges in finding qualified employees have been and are more likely to remain a challenge for which PEO clients will continue to turn to their PEO partners for support and assistance.
Government Support Programs
There have been two important federal government programs created to help businesses survive during the pandemic:
Both the PPP and ERTC have helped small businesses in paying salaries and other expenses. They have garnered economic strength for companies and aided in employee retention despite lost revenues and business disruptions. Unfortunately, applying for either program proved difficult, complicated, and time-consuming for small businesses, but PEO clients reaped the benefits of having a PEO partner.
Since the first round of PPP loans was announced, PEOs have invested significant time and effort in assisting clients applying for benefits. Last year, businesses that received PPP loans in 2020 were entitled to apply and receive full forgiveness of these loans provided the necessary applications were completed and certified they had used the full amount of the loan for authorized uses. As of mid-2021, 81.2% of PEO clients that received the PPP loans had been granted loan forgiveness. Non-PEO small businesses that received the loans only received 68.8% forgiveness.
In 2021, the federal government funded another round of PPP loans to help small businesses. PEO clients were 71% more likely to receive these loans and have them forgiven.
The Employee Retention Tax Credit (ERTC) was another major federally funded program that encouraged employers to keep employees on the payroll. Eligible employers for the ERTC were eligible for a refundable payroll tax credit equal to a percentage of eligible wages. Again, the process of qualifying and receiving this benefit was complex, and changes required revised tax forms and eligibility requirements. Favorably, PEO clients were more familiar with this program and were more likely to meet the qualifications for this assistance.
The impact of the pandemic has varied widely across all industries and some industries have suffered more than others. A full spectrum of small business types utilize PEOs. Despite the differences, based on detailed studies and data, PEO clients are in a stronger position for future long-term success than other comparable small businesses with a PEO partner.
One Source Business Solutions is a Professional Employer Organization (PEO) that provides small and mid-sized businesses comprehensive Human Resources solutions, including payroll, employee benefits, HR support, worker’s compensation, risk management, and more. Contact OneSource today to speak with a business advisor and learn how partnering with a PEO can benefit your business.