When is a Business Too Large for a PEO?

Posted by PRemployer on April 21, 2020


Did you know that the size of your company determines whether it's a good idea to outsource or keep your HR in-house? You might think that a Professional Employer Organization (PEO) is better for just small to medium-sized businesses, but larger companies can also benefit in many cases.

Once a company reaches a certain size, the business’ philosophy becomes a major determinant. At that point, the decision to outsource largely comes down to whether you prefer to have in-house payroll and HR administration or prefer to buy services from a PEO. However, PEOs come with many advantages that go above and beyond simple payroll.

PEOs for Small Companies

Small companies will always benefit from hiring a PEO. This is because of the huge administrative burden that comes with operating a small business with one or even no HR employees on staff. 

By working with a reputable Professional Employer Organization (PEO), small businesses can access master plans negotiated on the part of thousands of employees. This enables cost savings on healthcare benefits, retirement plans, and workers compensation. 

Without a PEO, a company also has to rely on and communicate with providers and brokers on their own, which can be overwhelming. PEOs have a unique relationship with brokers and tenured senior individuals which gives them access to the best deals.

Ultimately, if you're a small business in need of assistance with handling HR and benefits, a PEO can be an invaluable asset.

Medium-Sized Companies

As smaller companies grow into medium-sized businesses, things will only become tougher as the compliance burden rises along with an increased need for expertise in regulations and statutes. PEOs provide constant access to HR experts so that there is no need to hire more HR staff. SMBs can join an organization that has business services already in place and compliant.

A single compliance mistake such as  misclassifying hourly employees can have serious consequences including major penalties, investigations, and even lawsuits. While you can avoid these issues by hiring HR reps with expertise in compliance, the salary and benefits that come with hiring in-house HR staff can cost more than outsourcing to PEO experts. 

In fact, a  2019 study by McBassi & Company found that the annual return on investment (ROI) of using a PEO was 27.2 percent. Much of the cost-savings come from not needing to hire more HR representatives.

PEOs also bring to the table expensive HR software that integrates payroll, pay stubs, and other elements. For these reasons and more, medium-sized businesses benefit significantly by turning their HR and benefits management over to a reliable PEO.

Hiring a PEO for a Large Company

When it comes to headcount, at a certain size, the cost of payroll will be the same whether it's performed in-house or outsourced. However, you can still save time and resources by outsourcing to a PEO.

The question becomes where you would like to devote management time and effort. Does your HR team possess the capability to keep up to date with, understand, and implement new regulations at the local, state, and federal levels? 

If you're worried about your company's ability to maintain compliance, bear in mind that the chance of compliance error increases with the number of employees.

If you turn to a PEO, you get plenty of expertise and assistance at the same cost with additional flexibility, allowing your HR staff to spend more time on improving overall productivity and other aspects that improve your bottom line. You might also find it more beneficial to outsource since employees generally prefer PEOs

So, if you find that hiring in-house and outsourcing cost the same, you could still benefit hugely by working with a PEO to further grow your business.

Why Working with a PEO Is Always a Good Decision

Trustworthy PEOs treat your employees like their own so in-house HR can focus on making you an employer of choice. They offer scalable services, systems, and a team of professionals that work with companies of all sizes. There’s a reason that 98 percent of PEO clients would recommend one to a small business colleague.

Whether you are a small start-up or the CEO of a major company, outsourcing to a PEO simply makes the most sense.


How a PEO Could Lower Costs Related to Your 401(k), Healthcare, and Other Employee Benefits

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