PEO Benefits: How Using a PEO Can Help Your Business
- Human Resources
6 min. Read
Last Updated: 02/13/2023
Table of Contents
Managing human resources (HR) tasks, offering competitive benefits, administering payroll, and maintaining compliance are essential HR functions. However, spending time on these time-consuming activities can take away from focusing on actual business growth.
Research conducted by Paychex found that managing HR administrative duties, such as employee benefits, payroll processing, and safety program implementation takes up a lot of time. Almost 7 in 10 business leaders reported spending more than one week per month on HR tasks and duties.1 What is this time costing your business?
Help Business Owners Focus on Growth vs. HR Administrative Tasks
Businesses across the U.S. may enjoy wide-ranging benefits by choosing a professional employer organization (PEO). It could help you retain employees, offer better benefits that employees value, and have a long-term and profitable business — benefits that are worth considering.
Working with a PEO could be a great business strategy to attain higher return on investment (ROI) in multiple areas of the business. A PEO is a popular way to outsource HR functions such as payroll, employee benefits, and workers' compensation administration, allowing business owners to focus more on running their companies.
While the tasks can vary, common options in a PEO may include:
- HR administrative support
- Benefits administration and enrollment
- Payroll administration and taxes
- Compliance assistance
- Workplace safety
- Talent management
Research from Paychex found 51% of leaders said the No. 1 benefit of outsourcing HR administration was having fewer mistakes.1 Participants also reported outsourcing HR helped increase productivity, provided better analytics and reporting, improved regulatory compliance, and reduced costs.
Improve Employee Turnover and Retention
In today's increasingly competitive work environment, keeping employees and reducing turnover are key areas of concern. Research from Paychex found business leaders ranked hiring and keeping good employees (46%) as their top operational challenge.1 It’s time-consuming and expensive to recruit and train new staff; while positions are unfilled, there's extra stress on existing staff or important work goes undone.
Turnover can have even deeper consequences for businesses, including:
- Damaging their brand in the market
- Negatively affecting employee morale
- Decreasing the quality of candidates that companies can attract
With so much at stake to hire and retain great employees, many businesses are doing everything they can to deliver attractive and competitive compensation and benefits packages — not only traditional offerings (explained below), but also value-added ancillary benefits such as employee assistance programs, ID theft protection, financial counseling, healthy lifestyle programs, and supplemental insurance packages.
Looking ahead to the next 12 months, offering competitive compensation and benefits (42%) was reported as an HR-related issue that is likely to become more challenging, followed by attracting dedicated and capable staff (39%), and minimizing employee turnover (36%).1
One advantage of a PEO is that it can be a secret weapon in finding and keeping your company's valuable talent when you can offer more competitive benefits and efficient service. Findings from the National Association of Professional Employer Organizations (NAPEO) showed that small businesses in a PEO had turnover rates 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 contributing factors.
Negotiate Competitive Benefits
As noted above, offering competitive benefits remains a pressing issue. A key benefit of a PEO is that it's often well-positioned to negotiate attractive insurance rates and benefits for its members. In instances where a company might only be able to offer its workers a bare-bones health insurance plan, a PEO may be able to provide a choice of generous coverage options for medical, dental, and vision care, as well as life, disability, and workers' compensation coverage. Employees may also gain access to 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 needs.
Stay on Top of 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? Among the many benefits, a PEO helps businesses monitor and adapt to changes involving local, state, federal regulations, healthcare reform, COBRA, and minimum wage requirements, as well as state unemployment insurance. This can help relieve a significant time and resources burden.
Employee Relations Support
PEOs can assist with employee relations issues such as:
- Hiring and firing
- Job descriptions
- Training and development
- Employee handbooks
- Worker retention tools
- Staffing strategies
- Performance management
Every business should have a thorough, up-to-date, and clearly written employee handbook to help engage and communicate to employees and protect the company. A PEO often provides a customizable employee handbook, and they may be able to provide you with access to an integrated HR management system that enables employees to access information about benefits and company policies around-the-clock.
Potential Disadvantages of Using a PEO
When evaluating whether a PEO is right for your business, it's important to examine potential risks or disadvantages of a PEO, depending on the PEO and terms of the service agreement. Here are factors to consider:
- PEO fees: If your business experiences rapid growth (thus causing a need to quickly hire a whole new crop of employees), the fees charged by a PEO can increase as well.
- The financial health of your business: Any quality PEO will likely vet your business operations and finances prior to entering into this relationship. These organizations prefer working with businesses in good financial shape, without any pending litigation against them or allegations of misconduct or wrongdoing.
Ultimately, it's critical to consider both the pros and possible cons of PEOs. This includes carefully assessing PEO risks and weighing them against potential PEO benefits that may help meet your business needs.
PEOs and Your Business
Working with a PEO is increasing in popularity as U.S. employers seek to emphasize core functions and increase efficiencies. In fact, 98% of PEO clients said they would recommend a PEO to a small business colleague.2 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, PEOs can provide a unique combination of powerful HR technology and expert support to help you achieve your goals.
1 2023 Priorities for Business Leaders, Paychex
2 NAPEO Market Research Tracking Survey Report from December 2021