Why Use a PEO?

Posted by Jason Randall on March 11, 2020 at 9:46 AM

Why Use a PEO?

Your company's HR functions may appear to be operating smoothly, but without outsourcing HR services you are leaving money on the table. Even if you already have a great in-house HR staff in place, working with an outsourced HR partner will benefit both your HR team and your business as a whole. An outsourced HR partner, such as a Professional Employment Organization (PEO), grows their client’s companies 7%-9% more quickly compared to businesses without a PEO.

Size Matters

As your company size increases, the compliance risk and burden for HR also increases. There is no silver medal for “mostly compliant;” either your company is fully compliant with all relevant laws, or your company is vulnerable to lawsuits and federal investigations.

Mistakes as commonplace as misclassifying employees is a serious issue that leads to investigations and lawsuits that can cost hundreds of thousands of dollars in related expenses.

Your in-house HR team should be able to focus on improving company culture and morale (which improves productivity). Those measures correlate with an increase in your company's growth and bottom line. Happier employees are more productive, better team members, and remain with the company longer. This can be tough to accomplish while simultaneously keeping up with the newest regulations.

Minimizing compliance risks is essential to avoiding government investigations or fines due to simple, preventable errors. For example, your company needs to comply with the Fair Labor Standards Act, the Civil Rights Act, FMLA, the Occupational Safety and Heath Act, and more. 

When you outsource HR for your company, you are choosing to work with HR experts who know the ins and outs of complex regulations and the best practices for compliance. Outsourcing HR can be especially beneficial when dealing with complex laws like the Affordable Care Act

Cost Savings

No one takes a job in Human Resources so they can spend the day answering complex questions about benefits or re-negotiating relationships with brokers and vendors. Yet, instead of increasing productivity by creating a positive workplace culture, HR has to spend valuable hours researching the latest regulations and connecting with providers.

A single outsourced HR partner can take the place of:

  • Payroll services provider
  • Benefits provider
  • Benefits administration provider
  • 401K provider
  • HR technology provider
  • HR advice - usually a law firm

How effective are PEOs? 

A 2019 study found that PEOs have an average ROI of 27.2%. Over half of those savings come from the fact that businesses who partnered with PEOs did not have to hire another HR representative. Further savings came from gaining access to better health plans with a wide array of benefits: vision, dental, disability, and voluntary benefits such as critical illness.

Time is money, and the 27.2% ROI of PEOs does not even take into account the time saved. When HR can focus on what is important, productivity rises along with profitability. That is one of the key drivers behind the superior growth rates of PEO clients versus non-PEO clients.

Technology can lead to further savings. For instance, PEOs offer comprehensive technology that utilizes the same software to manage onboarding, payroll, reporting, HR tasks, and employee self-service portals. The all-inclusive software will save your company money by avoiding the need for time-consuming tasks like integrating Excel, QuickBook, and other generated reports. 

Companies that partner with PEOs experience an average cost savings of $1,775 per employee. This includes providing better benefits while reducing costs. Teaming up with an outsourced HR partner results in lower personnel costs, more affordable benefits, and expert risk management to reduce workers' compensation costs.

Risk Management

Effective risk management requires a multifaceted approach involving guidance on policies and procedures as well as practical safety training. Risk management protects the company, executives, and employees. Safety programs must comply with OSHA to ensure a safe work environment. That means you need world-class safety programs to train employees to take an active role in safety and accident prevention. A safer work environment correlates with fewer accidents and fewer workers' compensation claims, which means that a worker’s compensation insurance will cost less. Beyond that, PEOs keep you up to date with the latest regulatory changes so you never have to worry about being caught flat-footed.

Reach Your Potential with PEOs 

PEOs help businesses grow faster in today's hyper-competitive HR landscape. By outsourcing payroll, benefits, and compliance, business owners can focus on profit-generating activities instead of administrative headaches. The result is happier, healthier, and more engaged workers who are ready to help you grow. 

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ABOUT THE AUTHOR: 

Jason Randall

Topics: Outsourcing HR / PEO

Welcome to the Questco Blog!

Here, you'll find educational resources, best practices, and business tips created for business owners and leaders. We cover topics including human resources management, PEO, compliance, risk management, staffing, and more. Learn more about Questco here.

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