Professional employer organizations (PEOs) have the ability to provide immense benefits to small and medium-sized businesses (SMBs), especially those in active growth mode, through a co-employment relationship. While it may be relief enough simply to offload your business’ human resources burden, including compliance with local and national employment laws, payroll and payroll taxes, risk management and employee benefits to a trusted partner, the benefits reaped from the PEO relationship extend well beyond the outsourcing of these essential business functions. But how do you know if a PEO is right for your company?
What are the Benefits of Using a PEO?
PEOs provide the full suite of first-class human resources services to their business clients including payroll services, payroll taxes, group employee benefits plans, and compliance with state and federal employment laws. Beyond these essential HR functions, some PEOs help to manage the entire employee lifecycle from recruiting and onboarding to leadership training, investigating harassment allegations and assisting in unemployment claims.
In doing so, PEOs give their clients the time and energy to focus on their core competencies — to maintain and grow their bottom lines.
According to the National Association of Professional Employer Organizations (NAPEO), when small businesses outsource their HR to a PEO, it allows them to improve productivity and increase profitability. In a recent study, economists Laurie Bassi and Dan McMurrer found small businesses that use PEOs:
- grow 7 to 9% faster,
- have 10 to 14% lower employee turnover, and
- are 50% less likely to go out of business.
And through the early and unprecedented stages of the 2020 pandemic, PEO clients saw even more benefit. From a percentage standpoint, PEO clients were:
- 119% more likely to have received PPP loans.
- 72% more likely to have received their PPP funding in Round 1.
- 91% less likely to still be temporarily closed.
- 60% less likely to be permanently closed.
So, what does the ideal PEO client look like? Do businesses in certain industries or of a specific size find the relationship to be more beneficial than others? Axcet Founder and President Jerry Diddle answers your most asked PEO questions in this PEO FAQ series.
Is There a Typical Business That Uses a PEO?
Businesses in basically every industry benefit from and seek out the expertise of PEOs to provide comprehensive HR support. In fact, clients range from accounting firms and technology companies to real estate organizations, non-profit organizations, manufacturers, retailers, doctors, lawyers, and engineers.
According to the National Association of Professional Employer Organizations (NAPEO), PEOs provide services to 175,000 SMBs, employing 3.7 million people. In fact, the total employment represented by the PEO industry is roughly the same as the combined number of employees for Walmart (United States only), Amazon, IBM, FedEx, Starbucks, AT&T, Wells Fargo, Apple and Google.
What is the Ideal Size of a PEO Client?
While almost any size business may find value in a PEO relationship, including businesses in excess of 500 employees, most are small businesses (those with 10 to 49 employees) and medium-sized businesses (those with 50 to 250 employees). That said, the average client of a NAPEO member company is a business with 19 full-time worksite employees.
Why Would a Business Use a PEO?
Businesses use PEOs for three reasons: Expertise, buying power and automation. PEOs fill a gap for small and medium-sized businesses that don't have the resources to hire an in-house HR team, the buying power to offer fortune 500-style group employee benefits or the ability to afford the latest HR technology.
The reason for seeking out a PEO may vary depending on the size of the organization. For small and medium-sized businesses, it’s often more cost-effective to outsource HR than hiring an in-house HR team with even a fraction of the knowledge and expertise of a PEO.
- Buying Power
“Small to mid-sized businesses with 10-50 or more employees typically feel they are too small to hire a payroll administrator, a human resource manager and typically don’t have the buying power to offer a complete suite of Fortune 500-style benefits. So, small businesses, and often those with over 200 employees, find using a PEO can fulfill their payroll, HR and benefits needs,” explains Steve Owens, business development manager at Axcet HR Solutions.
Typically small- to mid-sized businesses aren’t able to afford the technology to streamline processes that large, enterprise-sized organizations can. PEOs give them access to sophisticated systems such as online applicant tracking, online employee benefit onboarding, and payroll and time and attendance systems. They then have the power and efficiencies to make their operations hum and their employees happy.
If you’re looking to increase your business’ productivity, improve performance, reduce turnover and grow in today’s competitive marketplace, a partnership with the right PEO may be the solution for your small or medium-sized business. At Axcet HR Solutions, we have more than 30 years’ experience managing human resources, benefits, payroll, safety and workers’ compensation duties for small and medium-sized businesses in the greater Kansas City metropolitan area.
"I paid for HR services from two other payroll providers before I found Axcet. As bad as those other experiences were, it has helped me to fully appreciate the team at Axcet. Things are always clear, concise and timely. I have never, ever, had to wait for an answer regarding my employees and I've had a number of challenging HR things happen this year. Having Axcet is truly like having an HR specialist, one I really like interacting with, in the office right next to me," explains N.C., Axcet client and owner at a local Kansas City-based medical supply company.
*The IRS does not endorse any particular certified professional employer organization. For more information on certified professional employer organizations, go to www.irs.gov.