Running a business is filled with challenges. From Research & Development to marketing and sales, finding ways to improve your ROI and reduce your overhead takes quick thinking and a disruptive mindset. But, for most business owners, it's not the fast-paced marketing and sales strategies that are consuming their time.
Instead, time-intensive HR administration, people management, compliance, and HR paperwork are the most significant problems for the most business owners. Around half of business owners spend as much as 25% of their time dealing with these HR issues. Unfortunately, while the majority of business owners believe that spending time on HR is valuable (83%), these must-do tasks can be a serious drain.
While many entrepreneurs attempt to hire in-house skills to help them navigate this tsunami of paperwork and administration, it's often only band-aiding the issue. 71% of HR leaders spend the majority of their time on non-administrative tasks. This leads to some serious issues. Only 4% of HR heads believe they are adequate at accessing employee performance. 61% of small businesses struggle with payroll. Small business owners end up paying over $83,000 on regulatory burdens in their first year of business.
But the answer to the businesses HR woes may not lie in more in-house HR reps. Outsourced HR partners like Professional Employer Organizations (PEOs) can help businesses save big on HR administration, and companies who leverage these outsourced PEO solutions see an average annual growth rate that's 7 - 9% higher than their peers. Better yet, outsourced HR partners remain valuable across industries — regardless of their size or niche.
What is a PEO?
A Professional Employer Organization (PEO) is an outsourced HR partner that helps with HR administration, benefits, compliance, and all of the other pesky HR tasks via a legal tool called "co-employment." There are plenty of benefits to using a PEO. Employers who leverage PEOs see lower turnover (10 - 14% on average), faster revenue growth (40% higher than non-PEO users), and lower overall administrative costs (around $450 less per employee on average).
It's important to note that "co-employment" does not mean that PEOs can hire and fire employees or influence your core business strategies. Instead, co-employment is a tool that allows client companies to access the PEOs master health plan and benefits such as dental and vision. This results in major savings since the PEO is negotiating on behalf of all of its employees as well as yours.
How PEOs Help You Navigate the Complexities of HR Administration
While PEOs provide significant value in terms of payroll, benefits, skill acquisition, turnover reduction, and all of those other wonderful things that fall under the ever-reaching HR umbrella, they also help with the more complex parts of HR administration. This includes challenging tasks like compliance and risk management. Plus, they're able to accomplish these tasks with overall cost-savings to the business — which is a necessity when businesses are looking at long-term HR growth.
Did you know that there are over 70,000 pages of US tax code? The average cost of a noncompliance citation for small businesses is over $30,000. And, over 10% of small businesses face at least one of these fines each year. Due to the overwhelming nature of compliance, many small businesses force HR staff to spend critical time delving into regulation.
For small businesses, this can be... taxing.
Your internal staff should be focused on creating a positive company culture (88% of job seekers cite culture as an important part of their consideration) and providing internal value throughout your organization — not on repetitive, mind-breaking tasks like compliance.
But it's not just small businesses that have to deal with this regulatory wave. Medium and large companies face strict compliance from the Federal Labor Standards Act, FMLA, OSHA, Civil Rights Act, HIPAA, GDPR, CCPA, and all of the other nuanced compliance laws that force them to adjust workflows and breed a culture of compliance.
A simple mistake such as misclassifying employees can lead to hundreds of thousands of dollars in fines, reputation damage, and public action. From small businesses to massive enterprises, the value of outsourced HR partners is immediately apparent when compliance enters the picture. Instead of draining critical in-house hours on codes and paperwork, you can offload these annoyances onto your HR partner who can handle the nitty-gritty details.
One of the key benefits to an outsourced HR partner like a PEO is that they consolidate HR tasks into a single function. With traditional HR workflows, you have multiple siloed functions, like:
- Payroll services
- HR advice
- Benefits (e.g., health, 401k, etc.)
With a PEO, all of those tasks are rolled into one team — your PEO. The cost-savings of this consolidation can be staggering. A conservative overall cost-savings using a PEO is 27.2%. Plus, PEO clients are 16% more likely to report an overall positive ROI at the end of the year for their entire company. Without getting too granular, PEOs save money across HR dimensions, and they keep all of your administrative tasks contained within a single outsourced solution.
Again, this is something that happens at both small businesses and enterprise-scale companies. The benefits of PEOs aren't contained to a specific number of employees — and their flexibility makes them immediately valuable for a wide range of industries and business sizes.
But what about employee risk management? Do you have safety programs that comply with OSHA? Do you have an RTW program that keeps workers engaged and ready-to-return (3.6 weeks sooner on average) while injured? And is your workers' compensation quality up-to-par?
These are all tasks that PEOs can handle. From workers' compensation to safety to reducing your overall risk cost burden, PEOs provide value across this space.
In sum, PEOs increase productivity for HR and any executives who have been roped into handling administrative or compliance burdens. By creating new efficiencies, PEOs allow HR staff to focus on creating a positive workplace culture. That positivity, by itself, is enough to increase engagement which increases productivity.
Efficiencies in hiring and retention come from offering best in class health plans and benefits. This can save tens of thousands of dollars over the years in opportunity costs. This productive force is also behind the fact that PEO clients have a 10-14% lower turnover rate than non-PEO client companies.
Whether you care more about the cost savings or the revenue earned, PEOs provide the productivity boosters necessary to increase your company’s competitiveness.