January 1, 2024, by HR Search & Rescue The professional employer organization (PEO) industry is rapidly growing due to small businesses embracing outsourcing HR tasks. Seventeen percent of businesses with 10-99 employees currently use PEOs, which is projected to increase exponentially. Small business owners turn to PEOs for a myriad of reasons, including cost savings, compliance, and better employee support. We will review the primary benefits of using PEO services and explain how to get started. 1.Cost Savings According to the National Association of Professional Employer Organizations (NAPEO), companies that use PEOs receive an average return on investment (ROI) of 27.2% annually. The ROI was calculated based on cost savings alone. NAPEO states that companies that utilize PEO services reduce costs in the following ways: HR personnel salaries and benefits – Average cost savings of 54% Employee health benefits – Average cost savings of 37% Additional external HR costs, including payroll administration – Average cost savings of 5% Workers’ compensation – Average cost savings of 4% NAPEO reports that companies also bring down their costs for unemployment insurance when using a PEO. 2.Streamline Recruiting and Hiring Practices It takes companies an average of 44 days to fill positions after posting jobs. Once the job is posted, employers screen resumes, review social media accounts, and conduct reference checks before setting up interviews. Prospective employees typically get interviewed once for entry-level jobs but may undergo two, three, or more interviews for mid to senior-level positions. Employers can spend 20 hours or more to vet and interview a single employee, creating a challenge for busy business owners. Businesses can streamline the process by using PEO service providers. PEOs can handle the entire process, from creating the job description and posting the opening to interviewing prospective employees. PEOs also lead employee onboarding, freeing additional time for business owners and staff. 3.Offer Robust Benefit Packages and Outsource Administration On average, small businesses dedicate eight hours to employee benefit administration during the open enrollment period. Benefit administration tasks continue after open enrollment ends, requiring an additional 1.6 hours a week, on average. PEO services include benefits administration, such as enrolling employees into insurance plans, filing claims, and answering questions. PEOs also improve the quality of the benefits offered while lowering the costs. PEOs and companies work together under co-employment agreements. Each company using the PEO is under the same agreement for benefits purposes. Employee benefit packages and associated costs are based on the number of people who require benefits. By increasing the number of eligible employees through co-employment agreements, PEOs provide more benefit options at lower prices when compared to companies that do not use PEOs. 4.Ensure Business Stability A study by Laurie Bassi and Dan McMurrer of McBassi and Company discovered that PEOs provide stability by reducing turnover and increasing survival rates. According to the study, companies that use PEOs report a turnover rate that is 10-14% lower than similar companies that do not utilize these professional services. Retaining employees allows companies to avoid the high cost of recruitment and onboarding while also allowing these businesses to continue benefiting from the wealth of knowledge provided by seasoned employees. This directly impacts companies’ survival rates. The failure rate for companies that use PEOs for at least four quarters is half the national average, according to the study. 5.Simplify Payroll Processes Business owners spend significant time ensuring payroll accuracy and often still make mistakes. According to the National Federation of Independent Business, almost one in three businesses is penalized by the IRS due to payroll mistakes. Common mistakes include inaccurate data, poor recordkeeping, failure to remit payroll taxes, and withholding errors. Employers also make mistakes distinguishing between exempt and non-exempt employees, contractors, and part-time workers. Employers avoid these costly mistakes when outsourcing payroll to PEOs. PEOs maintain payroll accuracy and compliance, ensuring business owners do not have to pay expensive IRS penalties. 6.Establish Policies to Meet Regulatory Compliance Standards Compliance support extends beyond payroll when using a PEO. PEOs ensure businesses maintain compliance with all laws and regulations set forth by local, state, and federal governments. This includes complying with the Fair Labor Standards Act, National Labor Relations Act, trust fund taxes, and the Family Medical Leave Act. For example, some business owners are unaware that they are legally obligated to notify employees if they are eligible for leave under the Family Medical Leave Act. If they are, they must also explain their rights under the act and how much leave is granted. Failing to provide proper notification can lead to a civil penalty. This is just one example of how PEOs ensure compliance. Schedule a Consultation for PEO Services HR Search & Rescue specializes in PEO services for small businesses. We provide expert guidance and support in all aspects of HR management and administration and help companies optimize their business strategies. Contact HR Search & Rescue today to schedule a consultation with a PEO expert.
