Topic Employee Benefits,

How to Reduce Employee Costs

How to Reduce Employee Costs

Looking for areas in which to cut costs can be tricky. While downsizing may save money on the front end, it often hurts the bottom line if no measures are taken to compensate for loss of productivity.

However, there are ways to lower employee costs without sacrificing the quality of service or long-term growth. Downsizing is not the answer; partnering with a Professional Employer Organization (PEO) is. A strong relationship with an experienced PEO can lead to exceptional cost savings without hurting revenue. Below are just a few ways that a PEO can reduce employee costs.

Access to More Affordable Benefits

Insurance premiums are becoming increasingly cost-prohibitive, both for employees and their companies. By partnering with a PEO, you can gain access to their benefits master plan negotiated on behalf of thousands of worksite employees by industry experts. Not only will your employees gain access to a wider array of benefits, but you'll also save money in the process.

Outsource Non-Revenue Generating Tasks

Many companies fall into the trap of trying to keep all HR-related tasks in-house — whether they directly contribute to revenue generation or not. This has led to mixed results at best. For example, the Small Business Administration estimates that a small business owner may spend about 3.5% of their gross wages on managing non-revenue generation functions in-house. 

In contrast, the average ROI in cost savings alone from using a PEO is 27.2%, and half of those savings result from not having to hire more HR representatives. The experts at the PEO pick up the slack instead.

Reduced Turnover

When you have to replace an employee with a new hire, there are significant costs associated with the entire training and onboarding process — not to mention the somewhat intangible costs of losing the previous employee's knowledge and experience in the role. In fact, the cost can range from one half to two times the employee’s salary.

A partnership with a PEO can cut down a company's turnover rate by 10-14% per year compared to non-PEO clients. Ultimately, reduced turnover equals reduced costs and improved profitability.

Error-Free Payroll

Even simple payroll errors can lead to severe liability issues and huge costs. For instance, one company was forced to compensate its employees a total of $951,456 as a result of a misclassification error. In addition, research indicates that when employees experience only two payroll errors, almost half (49%) of them will begin searching for other jobs.

PEOs ensure an error-free payroll for their clients. They stay on top of all the latest updates to federal, state, and local regulations, and audit their own processes to ensure compliance. PEOs have a strong incentive to provide a 100% error-free payroll: if an error comes to light, they will be held partially liable.

Increased Employee Engagement

It's no secret that employee engagement is directly linked with productivity and company growth. In fact, a Gallup survey found that highly engaged teams show 21% greater profitability than their less engaged counterparts. Highly engaged and productive employees are a true asset to business organizations since these high performers can increase revenues without forcing their employer to increase headcount. 

Research strongly suggests that PEO client companies have employees that are more engaged than their counterparts in non-PEO clients. In fact, one study found that employees of PEO clients are 5% more likely to say that they are engaged with their company compared to workers in businesses without a PEO partner.

Return-to-Work Programs

When companies have an effective return-to-work program in place, they are able to save a significant amount of money on workers’ comp insurance premiums — largely because insurance carriers are confident that more employees will return to work, and do so more promptly, than workers in companies without such a program.

PEOs are experts in developing and supporting world-class return-to-work programs.  Their expertise in this area results in increased cost savings to the client.

Reducing Employee Cost by Partnering with a PEO

In summary, PEOs offer enhanced cost savings to their clients by:

  • Providing better and more affordable benefits to employees
  • Streamlining non-revenue generating HR tasks
  • Reducing turnover
  • Ensuring a 100% error-free payroll
  • Increasing employee engagement and productivity
  • Developing return-to-work programs that cut down costly workers compensation insurance premiums

In an ideal world, companies can lower employee costs without letting anyone go. By partnering with a PEO, you may be able to make that dream a reality.

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Wendy Katz

Wendy Katz

Wendy Katz is the Chief Financial Officer at Questco Companies. Wendy is aiding our clients’ drive for profitability and compliance by providing pragmatic insights and sound financial solutions to constantly evolving HR challenges.