Nowadays, all businesses are trying to cut costs, increase efficiency and attract and retain top talent.
In response to this pressure, the popularity of HR outsourcing has grown, as it allows HR teams to be more efficient and focus on building a solid company culture that convinces good employees to stick around.
However, more and more organizations are shifting from simple HR outsourcing solutions to professional employer organizations (PEOs).
Why use a PEO? To understand why, it is vital to differentiate regular HR outsourcing from partnering with a PEO.
The big difference is that PEOs are the most comprehensive form of HR outsourcing. This hinges on a mechanism called co-employment.
With co-employment, the PEO becomes the "employer of record" for your employees. This should not be confused with employee leasing; you lose no power over hiring, firing, promotions, etc.
The PEO is only the employer for the purposes of filing taxes and providing employee benefits. Not only does this save you time, but it significantly reduces the cost of benefits like group health insurance.
Here are just seven of countless reasons to work with a PEO:
The economies of scale and your PEO's expertise give you access to affordable Fortune 500 level benefits. Many small businesses cannot compete for the best talent because they don't offer retirement plans or top-tier healthcare. Employee benefits also improve employee retention.
Workers' compensation insurance is a cost of doing business and a legal requirement. It can be a significant burden to smaller and newer companies, who don't have a safety record to help lower their experience rate modifier.
A PEO gives you access to their experience rate modifier and provides risk management services such as auditing safety plans, improving employee training, optimizing class codes, and designing a return to work program that reduces the cost of workers' comp claims. All of this helps keep premiums down.
With small companies, it is likely that most of HR's time is taken up with routine administrative tasks like payroll. In many cases, administrative tasks may spill over onto others, such as the receptionist, the office manager, or even the owner.
A PEO can save your company a significant amount of time by taking those administrative burdens off your hands.
This means that they can handle not just payroll but also filing payroll taxes, benefits administration, unemployment insurance claims administration, and workers comp claims administration.
Your in-house HR team can focus on making strategic hiring decisions, and you can focus on your core business and increasing revenue and growth.
Compliance is a full-time job, especially if you have job sites or remote workers in multiple states. You have to deal with a maze of local, state, and federal rules and regulations. Unfortunately, small companies can't afford a compliance officer. The burden falls on HR staff to try and keep up with all of these changes.
With a PEO, you can access a compliance team and enterprise-level HR software that will automatically update to help ensure compliance, preventing costly fines and morale-destroying employee lawsuits.
All of this helps you and your employees focus on what matters: Your core business. You waste less time on activities that don't generate revenue and can devote your energies to marketing, providing the service your customers deserve, designing new products, etc.
There is a major opportunity cost to having business owners or other non-HR employees handling HR tasks. Instead of using those hours to generate revenue, you are stuck processing payroll or verifying I-9 forms.
Working with a PEO means you can offload all of those tasks and focus on the things only you can do.
A PEO wants to work with you on your growth. Their business framework helps companies grow faster by attracting and retaining top talent. They also take care of all the HR functions requiring resources, money, and specialized know-how. This means you only pay for what you need and can devote all your energy to growth.
Your PEO can assign more resources to assist you as your company grows. This is much smoother than hiring additional full-time HR employees once you hit certain headcounts.
Enterprise-quality HR software is expensive. Because of economies of scale, a PEO can afford to buy and maintain world-class HR software with various features. This includes the ability for employees to log in from anywhere to view their information and submit time off requests, applicant tracking software which leads to significant reductions in the time to hire new employees, and integrations between time tracking and payroll modules.
PEOs allow you to improve your HR department's infrastructure and software while offloading routine tasks. You gain access to all of their people, software, and experience. You can focus on everything that matters to your company with the peace of mind that your PEO has all the HR minutiae handled.