Why Use a PEO?

Professional Employer Organizations (PEOs) act as liaisons in the wonderful and wicked world of Human Resources. 

But why should your business use one? After all, you probably have previously-established HR workflows that you leverage in the day-to-day. 

Why should you change what you're doing?

What is a PEO?

A Professional Employer Organization (PEO) is an end-to-end HR solution that helps SMBs and enterprises handle HR administration, reduce compliance burdens, secure best-in-class benefits, and maximize payroll efficiencies. By leveraging a unique partnership system, PEOs are able to advise on employee management and reduce employee-oriented liability issues.

Today, over 180,000 small businesses use the services of PEOs to help them manage the ever-growing realm of HR administration, benefits, and compliance. 

But why? 

After all, PEOs aren't the only outsourced HR partner. There are payroll processors, Administrative Services Organizations (ASOs), and plenty of niche tech-based HR tools. 

What makes PEOs so popular?

8 Reasons to Use a PEO

The value of PEOs isn't limited to one specific service, but one of the core components of the PEO-business relationship is scalability and flexibility. 

PEOs can cater their services to your specific business needs. For example, small businesses often have little-to-no HR assistance. The average small business owner spends over a fifth  of their time dealing with HR problems, and that doesn't include the potential 18 hours per week they spend solely on HR administration. 

In an effort to save time, many small business owners push HR responsibility to untrained employees in other departments. But leaving compliance and workforce management in the hands of untrained professionals is a costly mistake. This is where PEOs come into play. A respectable PEO can take over virtually all of your HR administration needs (e.g., benefits, payroll, compliance, etc.)

A reputable PEO will grow with your business. As you acquire an HR team, your PEO will scale down its services to meet your unique situation. The only required services are payroll and workers’ compensation insurance.

So, what are all of these services? 

And how do PEOs save your business money, time, and energy? 

1. Affordable Employee Benefits

Employee benefits are cost-centers and talent drainers for small businesses. The average small business pays 18% more than their larger counterparts for benefits. Worse yet, they often receive less valuable benefits for that larger chunk of change. 

This is due to risk pooling. 

For example, 5% of employees spend over 50% of healthcare dollars. So, when you approach an insurance carrier with fewer than 20 employees, you're an immediate risk. You don't have a large enough pool to help your benefits provider accurately calculate risk. 

You could have 5 employees that belong in that 5 percent, or you could have 10 employees in that 5%. You don't have enough employees for carriers to accurately calculate their risk.

PEOs are the only outsourced HR partner that can directly save you money on benefits. Your PEO will pool your employees with the employees of every other business they work with to reduce risk. In other words, you won't be negotiating with 20 employees; you'll be negotiating with 20 employees from 100 businesses. This means Fortune 500 benefits at Fortune 500 prices, regardless of your size.

Simply acquiring better benefits can instantly make your company more competitive. Twenty seven percent of employees have turned down a job due to health benefits alone, and 83% of employees stay at their jobs due to benefits — not salary. 

There's a reason that companies rated highly on benefits see 53% less attrition than their counterparts; benefits keep employees happy, healthy, and (most of all) employed at your business.

2. Lowered Workers' Comp Expenses

Workers' compensation insurance is expensive and comes with a hefty deposit. The average cost of a workers' compensation claim is $40,000, so workers' comp insurance premiums are relatively high. 

When you partner with a PEO, you get a better overall workers' compensation plan by accessing the PEO’s plan. But your PEO also handles the down payment. That means you will be on a pay-as-you-go plan instead of lump sums based on projected payroll.

3. Offer Retirement Plans

As a whole, the average SMB is 11x less likely to offer retirement benefits than their larger counterparts. 

That's a problem when eighty-one percent of employers believe that retirement plans play a significant role in job searches and 72% of workers consider retirement plans critical to keeping them with their current company.

PEOs can help small businesses access world-class retirement benefits. At the same time, PEOs can unlock unique retirement plans and establish various types of funds, terms, and partners that may be unavailable to your business ordinarily.

4. Payroll Processing and Tax Remittance

Many small business problems start and stop with payroll. 

The average small business owner spends a massive 5 hours per pay period, simply navigating payroll taxes. Unfortunately, this time crunch leads to late payments. Forty-seven percent of SMBs that handle payroll themselves admit to late payments. In an ecosystem where 49% of employees begin looking for a new job after just two payroll errors, making simple mistakes can cost you big in the talent marketplace.

Your PEO will completely take over your payroll responsibilities. They are also capable of filing payroll taxes for you — a task that payroll service providers can't accomplish.

5. HR Administration

Did you know that every state has unique posting requirements? 

Is your business leveraging best-in-class hiring practices to secure hyper-talented employees in the open market? 

If not, you need a PEO.

PEOs understand HR administration. It's their full-time job. In fact, small businesses that partner with PEOs see a 21% overall cost-savings on HR administration. That doesn't include all the saved costs relating to avoided fines. 

In other words, PEOs take over your HR administration responsibilities while providing cost savings.

6. Total HR Compliance

Small businesses have a variety of regulatory requirements. These include:

• The Consolidated Omnibus Budget Reconciliation Act (COBRA)
• The Americans with Disabilities Act (ADA)
• The Fair Labor Standards Act (FLSA)
• The Occupational Safety and Health Administration (OSHA) 
• I-9 requirements
• IRA tax codes

This convergence of regulatory bodies can be time-wasting, energy-wasting, and money-wasting for the average small business. 

In 2016, nearly 60 percent of SMBs admitted that regulatory needs were directly slowing their growth. Given how vastly the regulatory landscape has grown since then (and continues to grow), even more small businesses are struggling to keep up with compliance needs. 

PEOs turn shaky compliance structures into compliance skyscrapers. Not only does your PEO keep abreast of upcoming regulatory code changes, but they have the people, processes, and resources to keep your business compliant around-the-clock.

7.  Reduced Turnover

Over 60 percent of small businesses struggle to find the right talent. Securing top talent spurs growth, enables business intelligence, and jumpstarts R&D. Without the right talent, you will lag behind your competitors. 

PEOs minimize turnover in a variety of ways. From benefits to hiring practices and training, PEOs can touch many different retention buckets. Multiple studies have found that PEO clients have 10 to 14 percent lower turnover than their peers.

8.  Positive ROI

PEOs provide a 27% ROI. In fact, simply utilizing PEOs for workers' compensation and benefits will generate an 11.2% ROI. The more services you add, the higher your ROI will inevitably become. This isn't just mid-horizon cost-savings. PEOs save your company money immediately, and they continue to do so throughout their lifecycle.

Why Not Use a PEO?

The National Association of Professional Employer Organizations (NAPEO) found that 98% of PEO clients would recommend a PEO to their colleagues.

Not only do PEOs generate incredible cost-savings for your business, but they help you peel back the onion layers of HR administration to reveal the tangible value of your HR department. From small businesses to massive enterprises, nearly two hundred thousand businesses rely on PEOs to accomplish their HR requirements. 

Why use a PEO?

A better question might be: “Why shouldn’t you?”