What are the pros of using a PEO Professional Employee Organization for YOUR Co?
The best PEO services offer many employee HR-related services, such as payroll processing and payroll tax management, health insurance, workers’ compensation insurance, and retirement savings plans.
1. A PEO can save you money.
The annual return on investment associated with cost savings alone is one of the most common factors that small business owners assess when deciding whether to use a PEO, according to the National Association of Professional Employer Organizations.
NAPEO’s research found the estimate of the expected ROI for PEO clients, based on cost savings alone, is 27.3% per year. This estimate is based on the cost savings of businesses that entered into co-employment agreements focused on five areas:
- HR personnel costs
- Health benefits
- Workers’ compensation
- Unemployment insurance
- Other PEO services, like payroll and retirement plans
An ROI of 27.3% means that for every $1,000 spent on PEO services, the average business owner would save roughly $1,273, resulting in a net benefit of $273 for every $1,000 spent.
2. A PEO can protect you from legal risks.
PEO benefits offer several risk protections. For one thing, the IRS charges small businesses billions of dollars every year in payroll fines. A good PEO service can protect your company against this issue. Reputable PEO services are insured for mistakes they might make in your accounting and payroll. If something is off, the PEO eats the cost rather than you. You should confirm that your chosen PEO offers this guarantee before you commit to using the service.
Similarly, PEOs reduce your risk with HR compliance. HR failures can lead to fines and even lawsuits. The average lawsuit for Family Medical Leave Act (FMLA) violations is around $80,000. That’s just one common mistake. Even discounting penalties, HR issues can hurt employee retention and drive up turnover costs. When the work is properly outsourced, that insurance provides a layer of protection. Since you are not directly responsible for these problems when they arise, you are not on the line for their costs.
Indirectly, PEOs insulate your company against certain risks by saving you time. The resources you aren’t putting into PEO services are free to be reallocated. That can empower you to improve margins and/or cash flow, and both of those outcomes give you additional risk protection. The time your PEO saves is potentially more valuable than the direct spending you can cut for these services. This is why proper outsourcing is one of the best ways for a small or midsize business to improve its overall ROI.
3. A PEO can manage your workers’ compensation program.
The pro of using an employer organization is that it takes care of time-consuming tasks like vetting and purchasing workers’ comp policies, according to Bryan Bowles, founder and CEO of Transactly.
“Prior to utilizing a PEO, we had to manually sit through the annual audits, which consumed a significant amount of our accounting staff’s time,” Bowles told business.com. “In addition to the time savings, we’ve noticed a significant cost savings as compared to purchasing a policy directly.”
PEOs have experience with workers’ comp programs, so they have policies in place for situations you may not have yet encountered at your business. One example of this is return-to-work programs that help employees transition from medical leave back to work through modified, low-risk or light-duty jobs.
4. A PEO can improve your employees’ experience.
PEOs add value to your business by providing a great employee experience. Since a PEO handles much of the grunt work of human resources, it allows you to focus on your company’s culture and employee management.
Additionally, PEOs may allow you to offer employee benefits that typically wouldn’t be affordable for a small business, according to Samantha Reynolds, marketing manager for Helpside. These include “not only traditional benefits like health, dental and vision insurance, but also conveniences like online access to paycheck stubs, direct deposit and assistance with verifications of employment.”
Employees of businesses that use PEOs are more likely to experience:
- Higher levels of employee engagement
- Improved trust in their employers
- More confidence in the business’s approach to company growth
- Higher employee retention rates
FYI: Employee retention rate = (Number of employees on the last day of a given period ÷ Number of employees on the first day of the given period) x 100
5. A PEO can help attract and recruit top talent.
Additionally, your outsourced HR can handle a chunk of the recruiting and hiring workload, making the process substantially more efficient. You’re likely to retain good employees by having a better working environment, and you have more resources to go after top talent that can make the whole business run better. It’s a major win-win.
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