Topic Outsourcing HR / PEO,

How PEOs Protected Businesses During the Pandemic

How PEOs Protected Businesses During the Pandemic

Small businesses faced many challenges during the COVID-19 pandemic, and many of those challenges are ongoing. A lot of companies lost revenue, and some were forced to close or reduce their operations. 

However, the National Association of Professional Employer Organizations did a study in September 2021. It showed that businesses who partner with a PEO are 32% more likely to report that business has already returned to normal or better. PEOs had a range of impacts, including: 

  • Improved business operations. 
  • Positive changes in employment. 
  • Greater success accessing government support programs. 

What is a PEO? 

Professional Employer Organization (PEO) is comprehensive HR outsourcing solution. They also provide a wealth of advice and assistance, especially to newer businesses. PEOs act as the employer of record for your employees, allowing them to, among other things: 

  • Take over routine payroll operations including filing taxes.
  • Add your employees to their benefits plan. 
  • Include your employees in their workers' comp plan, resulting in lower premiums. 

PEO's Impact on Business Operations 

Partnering with a PEO helps reduce cash flow issues and can improve business operations. This is measurable by comparing business closures across small businesses with or without a PEO. 

The NAPEO study found that PEO clients were 58% less likely to go out of business during the pandemic when compared with similar small businesses. These clients were also 22% less likely to report that the pandemic had a negative impact on their business. 

While closure rates as a whole have not been as bad as initially feared, only 1.1 percent of PEO clients active in January 2020 had closed permanently by December 2020. And the rate is almost identical to that observed in 2019. The overall rate for all small businesses is 2.6 percent, a significant difference.  

In other words, partnering with a PEO appears to have cushioned many small businesses from the negative impact of the pandemic. 

PEO's Impact on Employment Levels 

Employment levels have been the largest problem during the pandemic. Many employees have been laid off or furloughed, and many businesses have reported that it is harder to find new talent.  

The impact has been high for small businesses, with a 6 percent decline reported. However, for PEO clients in the same size group, there has been an increase of 1 percent between January 2020 and June 2021. This figure likely indicates that PEO clients are attracting employees laid off by other businesses. While job losses absolutely happened during the first few months of the pandemic, the rates were lower. This was mitigated by a higher rate of growth in the first half of 2021. In fact, the rate of employment growth for PEO clients over the past six months has been 81% higher than comparable small businesses. 

Because PEOs allow small businesses to offer substantially improved benefits over those other small businesses can afford, it becomes easier to attract employees in a market that favors job seekers. Add to that the improved business operations, and PEO clients are in a more competitive position when hiring and attracting top talent. 

PEO's Impact on Accessing Government Support Programs 

A number of support programs were put in place to help small businesses survive the pandemic. However, many small business owners did not know what was available to them or how to access it. PEOs were able to help their clients with this. 

The Paycheck Protection Program (PPP) was the primary program, which allowed small businesses to access low-interest loans. These loans were then forgiven if the money was used to pay furloughed staff.  

During the first round of PPP loans, 65.9% of PEO clients received a loan, compared to 30.1% of other small businesses. PEO clients were 119% more likely to receive a PPP loan in 2020. In 2021 there was a second round of loans, and 30.5% of PEO clients received one compared to 17.8% of other small businesses.  PEO clients were thus 71% more likely to get a loan than small businesses without a PEO. 

PEOs helped by making sure their clients were aware of the assistance they were eligible for and by investing their time and effort to apply for benefits. They also helped clients achieve loan forgiveness. 81.2% of PEO clients that received loans in 2020 had received loan forgiveness by July 2021, compared to 68.8% of other small businesses. 

Other Advantages of Partnering With a PEO 

Hopefully, the pandemic will not be repeated any time soon, but it shows the advantages of partnering with a PEO. There are significant other benefits to doing so: 

  • Access to less expensive workers' comp (thanks to benefiting from the PEO's experience rate modifier) and healthcare premiums
  • More time for HR to work on company culture and mediate between employees. 
  • Improved compliance with employment laws at local, state, and federal levels. 

All of these benefits help keep your company thriving when things are easy. When you hit tough business times, whether it's global or specific to your business, a PEO becomes essential. Partnering with a PEO is the best HR outsourcing solution for small businesses through good times and bad. 

What Today's Business Owner Has to Know About HR

Christie Obrien

Christie Obrien

Christie is a Human Resource Consultant specializing in employee relations, legal compliance, and recruiting.