When to Use a Professional Employer Organization

When to Use a Professional Employer Organization

May 10, 2018 | By Tailored Solutions


You’ve heard of PEOs and wondered if a professional employer organization is right for your business goals. But when’s the right time to implement this sort of change? Is your business ready for a PEO partnership?

If any of these six statements rings true for your organization, then the time to consider a PEO partnership is now:

Your HR Staff is Overwhelmed

Many small businesses rely on a few trusted employees to get the job done - and these hardworking individuals often wear multiple hats. If this sounds like a description of the person in charge of HR duties in your company, it may be time to consider a PEO partnership.

In addition to the basic payroll duties your overworked (and overwhelmed) HR person is handling, a PEO company can offer HR services including:

  • Compliance assistance
  • Time and attendance
  • Online training for worksite employees
  • Performance reviews
  • Tax liabilities
  • Developing job descriptions
  • Administering workers’ compensation programs
  • Managing retirement and health benefits
  • Loss prevention
  • Claims management

PEO companies offer a wide array of employee-related services, efficiently. Partnering with a PEO gives you the benefit of a large, experienced, and specialized Human Resources staff - without the big paychecks that it would take to extend your HR department to that magnitude.

A PEO partnership doesn’t mean you no longer need your dedicated HR staff. Rather than spending all of their time managing an ever-growing list of third-party programs and vendors, a PEO partnership provides your HR staff with one single vendor for employee management. Free your HR staff from the burden of managing multiple outside vendors and let them focus on what’s important - your people.

Your Business is Ready for Growth

Small businesses in PEO arrangements have higher growth rates than other small businesses, and small business execs who use PEOs are better able to focus their attention on the core business, according to a comprehensive analysis of economic data.

PEO client firms’ median revenue growth is 2x that of non-PEO firms.

PEO companies offer a broad array of benefits to their clients at lower cost than companies that don't use PEOs. These benefits can play a major role in helping attract and retain employees. 

PEOs focus on the “people side” of their clients’ businesses more effectively, avoiding compliance pitfalls and creating key benefits for the business and its employees. At the same time, owners and executives are allotted more time to focus on growing their business, devoting their undivided attention to operations, strategy, and innovation.

You Want to Offer Better Benefits

Are you offering best-in-class benefits to your employees?

Retirement benefits play a major role in companies’ abilities to attract and retain employees.

  • 47% of employees cite retirement benefits as an important reason to stay with their current employer
  • 35% of employees view retirement benefits as an important reason they decided to work for their current employer

Employers know that benefits can help attract and retain talent. Yet very few small businesses are able to provide those.

  • 23% of businesses with 10-49 employees offer retirement plans
  • 13% of businesses with less than 10 employees offer retirement plans

Among the most valuable PEO services are employer-sponsored retirement benefits, such as 401(k)-type plans. Nearly all PEO companies (98%) offer some type of retirement plan to their clients - whether their clients choose to take advantage of them or not.

PEO companies use “economy-of-scale” to procure benefits at prices that a small business typically never could obtain on their own. When a business partners with a PEO, not only can it offer and manage retirement and health benefits, it can do so at a quality and price that’s typically reserved for Fortune 500 companies, not small- or mid-sized organizations.

You Have Workers’ Comp Challenges

Many companies turn to a PEO in order to solve a workers’ compensation issue. PEOs can often be the answer for companies who are struggling to obtain affordable workers’ comp on the standard market, for any number of reasons:

  • New in business, no established history
  • Businesses with coverage lapses
  • High-risk industries
  • Businesses with high MOD rates

A PEO company can be a great alternative to the state fund for companies with workers’ comp challenges, often times bringing more affordable premiums and pay-as-you-go options.

These clients may come to a PEO for the workers’ comp relief, and then stay when they experience the additional cost savings and HR services available, too.

You Want to Reduce Turnover

The cost of employee turnover to employers is substantial. From hiring replacement employees, onboarding costs, and opportunity costs, the direct cost of losing someone can add up quickly.

But the indirect costs can be even greater; the impact of losing the skills, knowledge, and expertise of valued employees may be even greater than any direct turnover-related costs.

Reducing employee turnover is - quite simply - an easy way to fuel growth and avoid failure.

The employee turnover rate for PEO clients is typically 10 to 14 percentage points lower per year than that of comparable companies. The average overall employee turnover rate in the United States is approximately 42% per year, unlike companies that used PEOs for at least four quarters. For those companies that number drops to 28% - 32%.

You Don’t Want to Fail

PEO companies can offer small- to mid-sized businesses the services and tools they need to survive, while simultaneously cutting costs. All of this adds up to an overwhelming advantage.

Businesses that use PEOs are approximately 50% less likely to fail (permanently go “out of business”) from one year to the next when compared to similar companies.

The overall business failure rate among private businesses in the United States as a whole is approximately 8% per year; is approximately 4% per year for those companies that used PEOs for at least four quarters. In some industries, such as construction, finance/ insurance, and professional, scientific, and technical services, the business failure rates for PEO clients is even lower.

PEOs: Helping Businesses Survive & Thrive

There’s no doubt about it: whether you’re ready to survive or thrive, a PEO partnership can help you reach your goals. PEOs bring big benefits to organizations - at low costs.

Employers in PEO arrangements have access to a broader array of HR-related benefits and services, yet spend much less on HR administration than their similar sized peers.

PEO companies offer a wide array of services for their clients at low costs, thanks to economy of scale. A conservative estimate is that PEO clients employing 1,000 or more employees enjoy a 21% savings on HR administration services, even as they enjoy a significantly higher level of services. For the typical PEO client – a small to mid-size employer – this savings is likely to be many times greater.

By offering best-in-class benefits, PEO clients are able to attract and retain top talent and reduce unnecessary turnover-related costs. Freed from cumbersome and confusing HR administration burdens, owners, executives, managers, and key employees can focus more of their time on strategy and growth.

Is it time for your business to grow and thrive? Find out what a PEO partnership can do for your business today.
 

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