Pros and Cons of Using a PEO Company

Managing HR tasks, offering competitive benefits, processing payroll, and maintaining compliance are critical functions — but these time-consuming activities can distract from business growth.

Research conducted by Paychex shows that HR administrative duties take up a significant amount of time. Nearly 70% of business leaders spend over a week monthly on HR tasks.¹ What is this time costing your business?

A Professional Employer Organization (PEO) can streamline HR tasks, boost employee retention, enhance employee benefits offerings, and help you ensure regulatory compliance. Keep reading to explore PEO pros and cons.

What Are the Benefits of Using a PEO?

A PEO lets you outsource HR functions like payroll, benefits, and workers' compensation administration, freeing you to focus on running your business. Keep reading to discover how PEO services can transform your operations.

PEO Companies Help Handle HR Tasks, so You Can Focus on Growth

Companies nationwide can benefit from partnering with a PEO — improving employee retention, offering large-group employee benefits, and building long-term profitability. It's a strategic approach that can deliver higher ROI across multiple business areas.

Common PEO services include:

• HR administrative support
• Benefits administration and enrollment
• Payroll administration and taxes
• Compliance assistance
• Workplace safety
• Talent management
• Robust HR technology and self-service

Research from Paychex found 51% of leaders said that the main benefit of outsourcing HR administration was having fewer mistakes.Participants also reported increased productivity, better analytics and reporting, improved compliance, and reduced costs.

Improve Retention & Decrease Turnover With a PEO

In today's competitive market, retaining employees and reducing turnover is critical. Research from Paychex found 46% of business leaders rank hiring and keeping good employees as their top operational challenge.¹

Turnover's deeper consequences include:

• Brand damage in the market
• Lower employee morale
• Reduced quality of job candidates

To attract and retain talent, small, midsize, and large businesses must offer competitive compensation and benefits — both traditional packages and value-added perks like employee assistance programs, ID theft protection, financial counseling, wellness programs, and supplemental insurance.

Looking ahead, 42% of leaders expect offering competitive compensation and benefits to become more challenging, followed by attracting capable staff (39%) and minimizing turnover (36%).¹

A PEO helps improve retention by enabling competitive benefits, reducing HR strain, and enhancing the employee experience. According to NAPEO, small businesses using PEOs see turnover rates 10-14 percentage points lower than average, depending on industry — driven by better employee service and a more comprehensive employee experience.

How a PEO Can Help You Offer More Competitive Benefits

As growth enablers, Professional Employer Organizations (PEOs) optimize talent, align revenue, and provide operational leverage for small, mid-sized, and large businesses. When companies can only afford basic health insurance, partnering with a PEO unlocks comprehensive, enterprise-level benefits, including medical, dental, vision, life, disability, and workers' compensation. Additionally, PEOs offer retirement benefits like 401(k) plans and consumer-directed options like FSAs and HSAs.

Partnering with a PEO grants access to robust master medical plans, a significant advantage over limited government marketplace options. By leveraging scale and expertise, PEOs offer a comprehensive range of competitively priced, high-quality employee benefits.

PEOs Help You Stay Compliant With Workplace Regulations

Among its key benefits, a PEO helps small, midsize, and large businesses navigate local, state, and federal regulations, healthcare reform, COBRA, minimum wage requirements, safety and workers’ compensation, and state unemployment insurance — relieving significant time and resource burdens.

Employee Relations Support

PEOs assist with guidance and expertise for critical employee relations issues:

• Hiring and firing
• Job descriptions
• Onboarding
• Training and development
• Employee handbooks
• Retention strategies
• Staffing strategies
• Performance management

Every business needs a thorough, current employee handbook to engage workers and protect the company. PEOs typically provide customizable handbooks and may offer integrated HR management systems, giving employees 24/7 access to benefits and policy information.

What Are the Potential Cons of Using a PEO?

When evaluating a PEO, it's important to examine potential disadvantages of using a PEO, which vary by provider and service agreement. Consider possible PEO disadvantages, including:

• PEO Fees: During rapid growth requiring multiple new hires, PEO fees will increase proportionally.
• Financial Health Requirements: Quality PEOs vet your business operations and finances before partnering. They prefer working with financially stable businesses without pending litigation or allegations of misconduct.

Ultimately, it's critical to consider both the pros and cons of a PEO.

Is a PEO the Right Fit for Your Small 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