Many small businesses today are looking to outsource HR duties. One of the best ways to do this is to partner with a Professional Employer Organization (PEO), the most cost-effective option.
PEOs provide businesses with comprehensive HR outsourcing support and services. The right PEO can help you save costs by increasing the quality of your benefits package, ultimately lowering your employee turnover.
But not all PEOs are created equal. The average PEO has an ROI of 27.2%. Your individual ROI depends on how effective your PEO is at providing you with the services, support, and cost savings you need.
The ROI of the Average PEO
When making any business decision, you want to know your ROI, the net benefit of your investment divided by the cost of the investment. With a PEO, you're looking for cost savings to your company, as well as the value-added by the PEO. But it's easier to calculate cost savings as they are more tangible and quantifiable.
The average annual cost savings per employee you could see with a PEO are up to $1775, and they come in the following areas:
- 54% from salaries and benefits
- 37% from health benefits
- 5% from other HR expenses
- 4% from workers' comp costs
Factors Impacting the ROI of Your PEO
Your ROI with every PEO may be different. The services and support offered may vary along with the price. Here are the biggest factors impacting the ROI of your PEO.
Comprehensiveness
When you outsource HR tasks to a PEO, you do not need to hire another internal HR employee. By avoiding the tasks associated with hiring a new employee, you save yourself time and headache. You also save money by not paying an additional salary and benefits to a new employee.
With a PEO, you gain access to a team of HR experts ready to help you navigate whatever complex HR situation you face. Instead of relying on one internal hire to hopefully do the job you need them to do, you can rely on a team of HR experts at your disposal.
When you partner with a PEO, you expect them to be able to handle all of your HR needs, even as your company grows. Unfortunately, not all PEOs are equipped to handle growth so choosing one which can grow with you is vital from the start.
Master Health Plan
When you join a PEO, you gain access to their master health plan, negotiated at scale by experts. Your PEO can get you better benefits at a lower price than what you would be able to get on your own.
Through your PEO's master health plan, you can also better plan your budget. Renewal rates with a PEO are more stable, so you don't have to worry about major premium increases from year to year.
Workers' Comp Savings
Workers' compensation insurance is required for all companies, with few exceptions. Your PEO can provide you access to their workers' comp experience modifier, which should reduce your premiums.
Cost
The average PEO can provide you with an average savings of $1775 per year per employee. The average fee for a PEO is $1395 per employee, giving you a positive ROI. Of course, if your PEO charge less, your ROI will shoot up.
The ROI of the Ideal PEO
Not all PEOs are created equal. Some provide top-notch services and support with reasonable fees. Here's what they look like.
Cost
Nationwide PEOs overcharge to make up for their bloated overhead. Because they advertise nationwide, part of your fees go to their advertising budget.
A best-in-class PEO, however, will charge about the same amount as a payroll processor. This will send your ROI skyrocketing compared to the average PEO.
Cost-Savings
Your PEO can provide you with massive cost savings through several channels. With the right PEO, you can reap the benefits of comprehensive HR services and a master health plan. You also get access to the PEO's workers' compensation experience modifier, which may help your company save money.
Turnover
Workers across the country consistently state that, aside from salary, benefits are the most important factor in them choosing to take a position with a company. With a PEO, you can offer a stellar benefits package that includes competitive healthcare plans. These benefits can give you a competitive edge in the marketplace and help reduce your turnover. When employees feel cared for through a great benefits package, they are more likely to stick around and not leave for a competitor who is offering better benefits. You can attract and retain top talent in your industry through your partnership with the right PEO.
Low Cost Doesn't Mean Low Quality
Best-in-class PEOs provide the same or better cost savings than the average PEO. They are able to do this because they care about their clients and provide them with reasonable fees.
Some PEOs charge more, not because their services are better, but because they are bigger. Don't equate bigger or more expensive with better quality. You will reduce your costs, increase your employee retention rate, and increase your employee satisfaction with the right PEO partnership. Through more competitive benefits, your company will also be able to attract even more high-quality employees. Ultimately, you can increase your ROI, saving your business money while increasing efficiency.
