Many small and mid-size business (SMB) employers and their employees could use a win these days after more than two years of uncertainty that has included the COVID-19 pandemic, the highest inflation in 40 years, and political and social tumult.
Fortunately for these SMBs there is a win-win solution that is growing exponentially: the outsourcing of HR services to professional employer organizations (PEOs).
“[PEOs] provide human resources services to their small business clients – paying wages and taxes and providing compliance assistance with myriad state and federal laws and regulations,” says the National Association of Professional Employer Organizations (NAPEO). “In addition, PEOs often provide workers with access to 401(k) plans, health, dental, and life insurance, dependent care, and other benefits not typically provided by small businesses.”
PEOs Allow Businesses to Focus on Their Core Mission
The reach of PEOs in the United States is far and wide:
- There are nearly 500 PEOs in the United States that provide services to 173,000 small and mid-sized businesses, employing 4 million people.
- The 4 million worksite employees (WSEs) were paid $216 billion in 2020.
- The total employment represented by the PEO industry is roughly the same as the combined number of employees for Walmart (domestic only), Amazon, Kroger, and Home Depot.
- The PEO industry’s 173,000 clients represent 15.3 percent of all employers with 10 to 99 employees.
- Between 2008 to 2020, the number of WSEs employed in the PEO industry grew at a compounded annual rate of 7.6 percent. This is 7 percent higher than the compounded annual growth rate of employment in the economy overall during the same period.
“By providing payroll, benefits, and HR services and assisting with compliance issues under state and federal law, PEOs allow small businesses to improve productivity and profitability, to focus on their core mission, and to grow,” says the NAPEO.
Good Things Come in 3s: Partnering with PEOs
There is something cosmic about the power of the number 3 with Aristotle using the Latin phrase “Omne Trium Perfectum” in his 4th century BC “Rhetoric”.
That Latin phrase translates into “Three is perfection” and the NAPEO has demonstrated that good things do indeed come in 3s, especially when partnering with PEOs, in their infographic that showed both:
- 3 Ways Small Businesses Benefit from Using a PEO
- 3 Ways PEOs Help Employees of Small Businesses
“By working with a PEO, small business owners can use HR technology that can help simplify many HR tasks while also improving the employee experience,” said BenefitsPRO. “Turning to an outsourcing solution, such as a PEO, can help business owners who feel overwhelmed with the many HR responsibilities that must be managed each day. By having more time, leaders can focus their efforts on other areas of the business that can facilitate growth.”
3 Ways Small Businesses Benefit from Using a PEO
There are hundreds of ways small businesses benefit from using PEOs but for those that need convincing, the elevator pitch highlights 3 specific ways including:
- Your Business will Grow Faster: The Intuit Small Business Employment Index found that employment at small businesses using a PEO grew at a clip 7 to 9 percent faster than at small businesses overall.
- Your Employee Turnover will be Lower: Research by McBassi & Company found that the turnover rate for companies using a PEO was 28 to 32 percent compared with an average overall employee turnover rate of 42 percent per year in the United States.
- You Increase Your Chances of Business Survival: The overall business failure rate among private businesses in the United States is approximately 8 percent per year (pre-pandemic), but McBassi & Company research found that businesses that partnered with a PEO had a 4 percent per year failure rate, making them twice as likely to stay afloat over the next 12 months.
While this research was done prior to the pandemic, it appears that using a PEO during a crisis period continues to increase small business survival odds with McBassi & Company in September 2021 finding that “since the pandemic, relative to comparable small businesses, PEO clients are 58 percent less likely to have permanently closed.”
3 Ways PEOs Help Employees of Small Businesses
The good news gets even better because it is just not employers that benefit from partnering with a PEO, but employees benefit from the resources and expertise the outsourcing relationship provides.
Here are 3 ways that PEOs help employees of small businesses:
- Access to Fortune 500 Employee Benefits: Yes, you can work on Main Street but receive benefits like you are employed on Wall Street! Employees of small businesses that use a PEO can gain access to big-business benefits such as:
o Health insurance
o Dental insurance
o Vision care
o Life insurance
o Retirement savings plans
o Job counseling
o Adoption assistance
o Education benefits
Heck, some PEOs can even arrange for employees to gain pet insurance!
- Saving for Retirement: Employees that work at a business with 10 or fewer employees that use a PEO, participate in retirement plans at a rate triple that of businesses that do not employ a PEO. For businesses with 10 to 49 employees, more than half of employees (52 percent) working with PEOs have retirement plans vs. just 23 percent for those businesses without a PEO relationship.
- HR Professional Expertise: The reality is that most small businesses cannot afford to hire experienced human resource professionals. Working with a PEO, provides small businesses with access to HR expertise, which can be beneficial when navigating local, state, and federal employment laws and other crucial compliance issues.
Reach out to Employer Flexible today to find out more about how our experienced HR team can help your company work more smoothly and efficiently.
