How PEOs Work to Make Your Company Grow

Since we are little, one of the main questions we get asked all the time is what you want to be when you grow up. All of us might have different ideas and dreams.  Let’s say you are that percentage that kept dreaming to be your own boss and get your own company and by the time it happens, there is a point where it is growing, just like you did!

Your long-time dream now needs help, and most of the time the Human resource area is most likely to need that help.  Becoming an expert on labor regulations, HR administration, payroll, benefits, and compliance is almost a must on any business, which is great because knowledge is a treasure now a days. The sad part of this is how time consuming it can be.

This is where the PEO (Professional Employer Organization) comes along to save the day, or not?  Today we’ll give you the greatest parts of partnering with a PEO but also the challenges it may have on the road which do not necessarily have to be bad.

But wait a second, why me, as a small business owner who even needs to think about this?  Well, did you know that 17% of your time goes directly on manpower and non-core business tasks?

You may already know this but understanding not only the meaning but also the concept, will always help.  A PEO is a third-party company that handles HR tasks and employee management responsibilities for small and medium-sized businesses.  Businesses that partner with a PEO experienced twice the revenue growth of their non-PEO competitors.  PEO clients are also 50 percent less likely to permanently close.

Let’s not do the typical comparison table to check on what’s great and maybe not that amazing from the PEOs.  Instead, we’ll check a couple of scenarios that will help us understand all the bullet points from a better perspective.

· Cost savings: PEOs can potentially reduce costs by consolidating administrative tasks, leveraging their purchasing power for better rates on benefits, and streamlining processes.  Processes such as payroll processing, tax filings, workers' compensation claims, and compliance-related paperwork.  By outsourcing these functions, businesses can save on the costs associated with hiring and maintaining a dedicated HR department or investing in specialized HR software.

While PEOs can offer cost savings, their services come with fees.  Understanding the fee structure, potential hidden costs, and whether these expenses align with the company's budget is crucial.

· HR Expertise and Support: PEOs offer HR support, assisting with payroll processing, compliance with employment laws, managing employee relations, and handling administrative tasks.

Companies may feel a loss of control over HR functions and employee-related decisions, as PEOs handle many administrative tasks and some aspects of Human Resources management.

· Risk Management compliance:  PEOs assist in managing compliance issues, staying updated with changing employment laws, reducing risks associated with HR-related lawsuits, and ensuring that businesses adhere to regulations.  Transferring into or out of a PEO relationship can be complex and may involve legal and administrative challenges.

· Employee development and training programs: Some PEOs provide resources for employee development and training, fostering a more skilled workforce within client companies.  A company's reputation can be influenced by the performance and service quality of the PEO.  If the PEO fails to deliver on promised services, it can affect the employer-employee relationship.

Now, let’s review with a scenario.

ABC Corporation is a small manufacturing company with 75 employees.  Before partnering with a PEO, ABC Corporation struggled to offer comprehensive employee benefits due to the high costs associated with purchasing health insurance and retirement plans for their relatively small workforce.

By joining the PEO's benefits pool, ABC Corporation gained access to a wider range of health insurance plans, retirement options, and other employee benefits at more competitive rates than they could secure independently.

Besides assisting on all administrative tasks like payroll processing, benefits enrollment, and compliance, freeing up ABC Corporation's HR department to focus on strategic initiatives rather than day-to-day administrative duties it also provided expertise in navigating complex healthcare regulations and employment laws, reducing the risk of costly compliance-related errors or penalties.

As a result, improved employee satisfaction and operational efficiency.

Still need more examples. Let’s review scenario #2

XYZ Marketing Solutions is a mid-sized marketing firm specializing in digital advertising and content creation.  With around 120 employees, the company faced challenges in managing HR tasks, providing competitive employee benefits, and ensuring compliance with evolving employment laws.

The PEO streamlined HR functions by handling payroll processing, benefits administration, and compliance-related tasks.  This freed up the internal HR team's time to focus on strategic initiatives and employee engagement.

With access to better benefits and improved administrative efficiency, employees experienced a positive impact.  They had access to a wider array of benefits options and a smoother benefits enrollment process.

As a result, experienced operational improvements, cost savings on benefits, reduced administrative burden, and improved compliance, ultimately contributing to a more efficient and competitive company structure.

OK, but what all these means?  I mean, for my long-time dream, my precious baby, is it really what I need for my company?

It’s no secret a PEO will provide expert support as your HR partner.  Human Resources expertise is crucial to the success of your business.  Errors from your HR department can potentially cost your company thousands.  Hiring the wrong HR personnel can increase your risks of fines, workers’ compensation claims, and lawsuits.  A PEO with recruiting expertise can protect your organization from hiring the wrong people.

You’ll enjoy cost savings when you partner with a PEO.  A study conducted by noted economists Laurie Bassi and Dan McMurrer of McBassi and Associates on behalf of the National Association of Professional Employer Organizations (NAPEO) found that businesses enjoy a cost savings of 27.2 percent when they partner with a PEO. According to the study, the average cost savings for groups partnering with a PEO is $1,775 per year per employee, which also reinforced the findings of earlier research, again showing notably lower employee turnover, higher rates of both employee and revenue growth, and enhanced employee benefit offerings.

Partnering with a PEO has important and beneficial tax implications for your company.  A PEO will become your “co-employer.”  Under this arrangement, the PEO can withhold employee federal and state taxes.  The PEO then pays the government the withholdings.

The reality of employee management may cast a shadow on your dreams when you’re a business owner. But an HR partner can help to reduce the time you spend on less creatives activities that may be holding you back from growing your business even more.  With so many PEO companies out in the market once you have a trusted ally who can navigate the burdens of HR administration, you can go back to focusing on what you really are passionate about.