December 4, 2023, by HR Search & Rescue When using professional employer organizations (PEOs) instead of operating in-house HR teams, companies save an average of 27.3% according to the National Association of Professional Employer Organizations (NAPEO). The savings come from reduced salaries, improved employee onboarding, practices that increase retention, lower benefit costs, and more. In this article, we’ll examine the different ways HR outsourcing can save money and increase the revenue of small, medium-sized, and large organizations. Save Money on Salaries On average,organizations pay $2,986 in HR fees per full-time employee, according to the Society for Human Resource Management. This breaks down to an average of $306,044 a year for small businesses and $840,015 for medium-sized companies. Large organizations have the most significant HR-related expenses, coming to an average of $3,393,775 annually. However, outsourcing HR reduces the cost-per-employee by $1,175 according to a study conducted by NAPEO. This alone saves organizations tens of thousands of dollars each year. The amount you save will depend on the size of your organization, HR needs, and the fee schedule you choose. PEOs typically charge in one of two ways. Some organizations choose to pay a percentage of the gross payroll every month. Others pay a flat rate per employee when outsourcing to an HR expert. Regardless of the method selected, most companies notice immediate savings when using PEOs. Reduce Employee Turnover Research shows thatemployers spend an average of $15,000 to replace employees after they leave the company. However, according to NAPEO, outsourcing to an HR expert reduces employee turnover by 10-14%. This allows companies to lessen their employee recruitment costs. HR experts implement targeted and efficient recruitment strategies to help companies land the top talent, meaning new hires are more likely to be suitable candidates. They also use the best practices for employee onboarding, including providing professional growth opportunities for new hires. With the help of HR experts, employees continue to receive opportunities for development throughout their employment while also accessing benefits that are typically only available at larger corporations. PEOs also communicate the employer’s expectations and set performance goals for employees. When they fail to meet goals, the HR professional provides coaching to help employees reach the company’s standards. This reduces employee terminations across the board. Lower Benefit Costs Insuring employees is expensive for small business owners, with them paying anaverage of $6,584 a year per employee. That goes up to an average of $16,357 for employees requiring family coverage. Employers can cut costs dramatically by outsourcing to an HR expert. Business owners can sign co-employment agreements when partnering with PEOs. Other companies that use the PEO also enter into co-employment agreements, and all of the companies are considered the same entity for insurance purposes. Insurance companies reduce rates based on the number of employees, allowing small business owners to pay lower premiums when insuring employees. Avoid Costly Penalties Companies must meet all rules and regulations to avoid fines and other penalties. For example, companies with 50 or more full-time employees have to provide health insurance and those who do not face penalties. Companies also must adhere to labor laws, safety standards, and more. PEOs review the business practices and assist in making changes to ensure compliance. Along with avoiding fines, complying with the law helps companies maintain their reputation, which improves employee recruitment and retention. Reduce the Risk of Lawsuits The U.S. Equal Employment Opportunity Commission (EEOC) received 72,675 discrimination claims and resolved 80,806 cases in 2020. Employer retaliation and discrimination due to disability, race, and sex were the common reasons for filing claims. Employers also face lawsuits for wrongful termination and wage violations. HR experts make sure that employers comply with all regulations regarding employing, compensating, and terminating workers. Additionally, PEOs provide proper documentation in case an employee files a lawsuit. The documentation helps companies defend themselves against legal claims, reducing the risk of large payouts. Increase Revenue Companies that outsource their HR needs experience a revenue growth rate of 13.5% compared to 8.5% for non-PEO clients. That’s 5% more in revenue just from outsourcing to an HR expert. Additionally, the employee growth rate is 4.2% higher for companies using PEOs. The growth is attributed to various factors, including efficient employee onboarding practices, increased worker engagement, and higher retention rates. Outsource to an HR Professional An effective human resources department is one of the most critical components of operating a successful company, but having one doesn’t have to be expensive. You can save on HR costs and increase revenue by outsourcing to a human resources expert. Learn more by contacting HR Search & Rescue. We will discuss your unique needs and explain how an HR expert can improve your organization. With our help, you can operate an efficient company that meets the needs of your employees and customers.
