A professional employer organization, or PEO, is one of the best kept secrets of success for many small and medium sized businesses. A PEO is an organization that provides a service under which an employer can outsource employee management tasks, such as employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, in addition to training and development. And it is becoming more and more popular. The industry has grown to around $165 billion annually with nearly 85 percent of organizations outsourcing some or all of their HR needs to PEOs.
As we’ve shared before, with the massive amount of work assigned to most HR functions, PEOs can help efficiently manage employee services and administration. Here are five ways in which a professional employer organization can help your company.
- Multiple Areas for Cost Reduction
Most companies that choose to outsource HR do so to save money and operational costs. A PEO can handle HR needs at a much lower cost than a full-time, in-house HR team. Another area where PEOs can save a business money is through insurance costs. Because PEOs negotiate insurance rates on behalf of all of their clients, they can normally negotiate significantly lower group insurance costs, workers’ compensation discounts and, in most cases, a lower state unemployment insurance (SUI) rate.
- Better Access to Technology Services
Large corporations can afford the latest HR technology and an advanced Human Resource Information System (HRIS). Small to mid-sized businesses, on the other hand, typically lack the budget and resources for such technology. A PEO provides the advantage of HR technology solutions that their clients likely have not had access to before. Solutions can include an HRIS and system capabilities for payroll and HR analytics. Using and benefiting from these technology services is often a major factor in the decision to go to a PEO for HR outsourcing.
- Improved Compliance
Staying abreast of the more than 180 federal, not to mention state, laws is impossible for most small businesses. Trusting that task to a PEO makes much more sense. The PEO has more bandwidth to help customers be proactive and compliant with the ever-changing laws related to hiring, taxes, insurance claims, wage claims and benefits, thus minimizing the threat of noncompliance to your company. From employee handbooks to understanding the Affordable Care Act (ACA), a PEO can be your partner to provide the compliance guidance your business requires.
- Level the Recruitment Playing Field
Finding the right employee for an open role is critical, particularly for a small business. The Harvard Business Review reports that up to 80% of employee turnover is due to bad hiring decisions. Even if the hiring mistake is recognized within the first six months, replacing that employee is still going to cost two and one-half times the person’s salary. Small businesses cannot afford to make that mistake. Many PEOs have employees with formal hiring expertise as well as a broader network for recruiting. They also can handle salary negotiations, onboarding and overall compliance.
- Better Business Focus
A major benefit of PEOs is that they free up your internal resources to focus on the company’s goals and growth plan. PEOs allow business leaders to spend time on what their company does best while the PEO handles the rest. HR functions can often be spread thin into other departments within organizations or, in some cases, HR is only part of an individual’s role. PEOs mean business owners and employees have the flexibility to focus on core business activities while leaving the HR to an entire team of HR experts.
Working with an outside HR provider can bring many benefits to small and medium size business owners. We hope these give you and your organization a better idea of how a PEO can help you. Ready to take the next step toward hiring an expert PEO? Email solutions@worksmartpeo.com or call (317) 585-7870 to get started today.
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