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Small Businesses May Have Higher Growth Rates with PEOs

Human Resources

Studies have shown that small businesses that partner with professional employer organizations (PEOs) have higher growth rates than other small and midsize businesses. One of the core reasons may be that business leaders who leverage PEOs may spend less time on administrative work and more time focusing on their businesses' most pressing customer and product or service concerns. The National Association of Professional Employer Organizations conducted a study that revealed small businesses that work with PEOs have lower employee turnover rates and lower rates of business failure than the average. Let's take a closer look at what small business owners need to know about choosing a PEO.

What is a PEO?

A professional employer organization generally provides services to small businesses, which allow them to outsource tasks associated with managing employees. While the services needed vary from business to business, common options include employee payroll, benefits, workers’ compensation, government reporting, training, recruiting, and much more. 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.

At the same time, a professional employer organization can allow business owners to focus on their company's core objectives. Small businesses often struggle with a lack of financial and human resources. When administrative and human resources responsibilities take the focus away from income-generating activities, companies can suffer. 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.

Employee turnover

One of the most difficult challenges businesses can face is employee turnover. 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, affecting employee morale, and over time decreasing the quality of candidates that companies are able to attract. The results of the NAPEO study showed that businesses working with a PEO had rates that were between 10 and 14 percentage points lower than the average, depending upon the industry. Better employee service and more comprehensive attention to the employee experience are likely contributing factors.

Failure rates

Small business failure — as in going permanently out of business—is a reality for today's difficult business environment. Owners need every advantage that they can muster in order to thrive and survive. The NAPEO study revealed that businesses were a staggering 50 percent less likely to fail when they worked with a PEO. There are many reasons why this may be true, from better employee relationships to stronger administrative structures.

Small business owners and managers have a lot on their plates. Finding the right support systems 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 PEO may be a great business strategy to attain higher ROI on multiple parts of the business.


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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