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PEO for Small Business: Helping Companies Focus on Growth

Human Resources
Article
12/04/2018

No one knows better than you that small business owners and managers have a lot on their plates. Finding the right support system is an essential part of retaining employees, offering excellent service to customers and clients, and ultimately having a long-term and profitable business.

Exploring a professional employer organization (PEO) could be a great business strategy to attain higher return on investment in multiple areas of the business. A PEO is a popular way to outsource human resource functions such as payroll, employee benefits, and workers' compensation, allowing business owners to focus on running their company.

Helping business owners focus on growth

A professional employer organization generally provides services to small businesses, which allows them to outsource tasks associated with managing employees. While the tasks can vary, common options in a PEO may include:

  • Employee payroll
  • Benefits administration
  • Workers' compensation
  • Government reporting
  • Training
  • Recruiting

Busy business owners may benefit from the support and guidance of the PEO to assist with their compliance efforts as they navigate increasingly complex regulations and demanding business processes. PEOs can help free up business owners to keep their business affairs in order and turn their attention to activities that benefit the bottom line.

The growth of PEOs

For small business owners wondering about the status of PEOs within the U.S., here are some compelling statistics offered by the National Association of Professional Employment Organizations (NAPEO):

  • PEOs provide services to between 175,000 small and mid-sized businesses, employing 3.7 million people.
  • There are more than 900 PEOs in the United States.
  • 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.
  • The PEO industry's 175,000 clients represent 15 percent of all employers with 10 to 99 employees.
  • Between 2008 and 2017, the number of worksite employees employed in the PEO industry grew at a compounded annual rate of 8.3 percent. This is roughly 14 times higher than the compounded annual growth rate of employment in the economy overall during the same period.

Challenges faced by business owners

Can PEOs help HR teams tackle their toughest challenges? According to the 2018 Paychex Pulse of HR Survey, the five most-cited HR challenges include:

  • Keeping up with regulations (38 percent)
  • Tracking employees' time (38 percent)
  • Complying with regulations (35 percent)
  • Offering competitive benefits (33 percent)
  • Retaining talent (31 percent)

PEOs are positioned to address many of these concerns. Perhaps most importantly, business survival is enhanced by working with PEOs. According to a recent study, PEO clients grow faster, have lower rates of employee turnover, and have higher rates of business survival than other comparable small businesses.

Employee turnover and retention: Employee retention is a key area of concern. Turnover is an expensive process. It's time-consuming and expensive to recruit and train new staff; while positions are unfilled, there's extra stress on existing staff to fill the gaps or important work goes undone. Turnover can have even deeper consequences for businesses, including:

  • Damaging your brand in the market;
  • Negatively affecting employee morale; and
  • Over time, decreasing the quality of candidates that companies can attract.

The results of the NAPEO study showed that small businesses in a PEO had turnover rates that were between 10 and 14 percentage points lower than average, depending upon the industry. Better employee service and more comprehensive attention to the employee experience are likely contributing factors.

Offering benefits: As noted above, offering competitive benefits remains a pressing issue. PEOs are often better positioned than most small businesses to negotiate attractive insurance rates and benefits for their members. Whereas a small company might only be able to offer its workers a bare-bones health insurance plan, a PEO can provide a choice of generous coverage options for medical, dental, and vision care, as well as life, disability and workers' compensation insurance. Employees may also gain a 401(k) savings plan and consumer-directed health plans such as flexible spending accounts and health savings accounts.

With a PEO, employees don't have to obtain health insurance through a government marketplace (which only offers medical and stand-alone dental benefits). Employees may have access to more plan designs at competitive prices, as well as one-stop shopping for most benefit and insurance needs.

Changing workplace regulations: How can a small business hope to focus on sales and growth when it must also keep pace with today's changing regulatory environment? A PEO helps businesses monitor and adapt to changes involving health care reform, COBRA, minimum wage requirements, safety and OSHA requirements, as well as state unemployment insurance. This can help relieve a significant time and resources burden.

Employee management: PEOs can assist across the employment management spectrum:

  • Hiring and firing
  • Job descriptions
  • Employee handbooks
  • Worker retention tools
  • Staffing strategies

Every business should have a thorough, up-to-date, and clearly written employee handbook, with legally certified policies that help protect the company. A PEO often provides a customized employee handbook, and they may be able to provide you with access to an integrated human resources management system that enables employees to access information about benefits and policies around-the-clock.

PEOs and your small business

Working with a professional employer organization is increasing in popularity as U.S. employers, seeking to emphasize core functions and increase efficiencies, turn to PEOs. Whether you're an HR professional looking to streamline administrative tasks so you can focus on more strategic work, or a business owner needing more comprehensive HR management services, experts can provide a unique combination of powerful HR technology and expert support to help you achieve your goals.

 

Professional employer organization (PEO) services are sold and provided by Paychex Business Solutions, LLC (PBS) and its affiliates, which are registered and licensed to sell and provide PEO services, including in Florida. PBS FL license numbers are Paychex Business Solutions, LLC, GL7, PBS of Central Florida, LLC, GM14, PBS of America, LLC, GM46, Paychex PEO I, LLC, GM455, Paychex PEO II, LLC, GM456, Paychex PEO III, LLC, GL193, Paychex PEO IV, LLC, GM519 and Paychex PEO V, LLC, GM 522, Paychex PEO VI, LLC, GM627, Paychex PEO VII, LLC, GM628, Paychex PEO VIII, LLC, GL242, Paychex PEO IX, LLC, GM637, Paychex PEO X, LLC, GM636.

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This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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