Why Does My Small Business Need a PEO?

Small business owners may not have x-ray vision or be able to fly like Superman, but American entrepreneurs can outdo the Man of Steel when it comes to alter egos.

While Superman had just the role of Clark Kent to assume, small business owners must act as CEO, CFO, salesperson, operations manager, customer service rep, and more!

“Small business owners often do not have the luxury of hiring people to perform all the tasks required to keep a business going. As the owner, your duties are as diverse as collecting sales tax, creating a computer network, setting up a filing system and marketing,” says the Houston Chronicle.

Focusing on the growth and direction of your business is time-consuming and often critical tasks like human resources (HR) can take a back seat. Fortunately, there is a way for small businesses to streamline essential HR functions while boosting performance by working with a Professional Employer Organization (PEO).

“A PEO partners with businesses, essentially co-employing staff to manage critical HR tasks. This collaboration allows businesses to outsource complex employee management areas such as benefits, payroll, workers’ compensation, and tax compliance,” explains the Society for Human Resource Management (SHRM). “By teaming up with a PEO, companies can streamline their human resources operations, ensuring efficient handling of essential employee-related responsibilities. This setup not only simplifies HR processes but also aids in compliance and risk management, making it a strategic choice for businesses looking to optimize their workforce management.”

Let's explore why partnering with a PEO might be the strategic advantage your small business needs.

Understanding PEOs

Before diving into the benefits, it's crucial to understand what a PEO is and how it operates.

“A professional employer organization (PEO) provides comprehensive HR solutions for small and mid-size businesses. Payroll, benefits, HR, tax administration, and regulatory compliance assistance are some of the many services PEOs provide to growing businesses across the country,” says the National Association of Professional Employer Organizations (NAPEO).

PEOs operate on a co-employment basis, where they become the employer of record for tax purposes while you maintain control over your employees' day-to-day activities and core business functions.

PEOs typically handle a wide range of HR tasks, including:

• Payroll processing and tax filing.
• Benefits administration.
• Compliance management.
• Risk and safety management.
• HR policy development and implementation.

“Let’s be honest. Handling HR and compliance in-house is complicated and time-consuming. That’s where a PEO comes in. It can take some of these responsibilities off your plate so that you can protect and grow your business,” writes Anna Baluch and Rob Watts in Forbes Advisor.

While PEOs offer a broad suite of services, you can often tailor the arrangement to fit your specific business needs.

By partnering with a PEO, small businesses can access HR expertise and resources typically available only to larger corporations, leveling the playing field in terms of employee management and benefits.

Cost Savings and Financial Benefits

One of the most compelling reasons to consider a PEO is the potential for significant cost savings:

• Economies of scale: PEOs aggregate employees from multiple small businesses, enabling them to negotiate better rates for health insurance and other benefits.
• Reduced administrative costs: By outsourcing HR tasks, you can decrease the need for in-house HR staff or free up existing staff for more strategic roles.
• Potential tax advantages: Some PEO arrangements may offer tax benefits, such as the ability to claim certain tax credits.
• Lower workers' compensation costs: PEOs often have better rates due to their larger pool of employees.
• Streamlined payroll processing: PEOs can handle payroll more efficiently, potentially reducing errors and associated costs.

These financial benefits can be substantial, especially for small businesses operating on tight margins with the NAPEO estimating the return on investment of using a PEO, in cost savings alone, is 27.3 percent.

By leveraging a PEO's buying power and expertise, you can access services and benefits typically reserved for larger corporations, leveling the playing field in your industry.

HR Management and Compliance

Navigating the complex world of labor laws and regulations can be daunting for small business owners. A PEO brings expertise and resources to ensure your business stays compliant:

• Up-to-date knowledge of federal, state, and local employment laws.
• Assistance with workplace safety regulations and OSHA compliance.
• Management of workers' compensation claims and unemployment insurance.
• Help with employee handbook creation and policy development.
• Support for HR-related audits and inspections.

By partnering with a PEO, you gain access to a team of HR professionals who can help streamline your HR processes, reducing the risk of costly compliance errors. This expertise is particularly valuable in today's rapidly changing regulatory environment.

Employee Benefits and Satisfaction

Attracting and retaining top talent is crucial for small businesses. A PEO can help you offer competitive benefits packages that rival those of larger companies:

• Access to a wider range of health insurance options.
• Retirement plans like 401(k)s.
• Additional perks such as life insurance, disability coverage, and employee assistance programs.
• Professional development and training opportunities.
• Streamlined onboarding processes for new hires.

Moreover, PEOs often provide employees with direct access to HR professionals for questions and concerns. This level of support can significantly improve employee satisfaction and retention, saving you the costs associated with high turnover.

Focus on Core Business Functions

Perhaps one of the most valuable benefits of partnering with a PEO is the time it frees up for you and your management team. By offloading HR tasks, you can:

• Dedicate more time to strategic planning and business development.
• Improve your products or services.
• Focus on customer relationships and expanding your client base.
• Invest in innovation and new technologies.
• Explore new market opportunities without HR constraints.

This renewed focus on core business functions can lead to increased productivity and accelerated growth. Instead of getting bogged down in administrative tasks, you can concentrate on what you do best – running and growing your business.

Scalability and Flexibility

As your business grows, your HR needs will evolve. A PEO offers scalability and flexibility to adapt to your changing requirements:

• Easily add new employees to your benefits plans.
• Adjust services as your business expands into new markets or states.
• Handle seasonal fluctuations in workforce size without overwhelming your internal resources.
• Access specialized HR expertise as needed, such as for mergers or acquisitions.
• Quickly implement new HR technologies and best practices.

PEOs are designed to grow with you, providing the support you need at each stage of your business's development. This scalability ensures that you have the right level of HR support, whether you're a startup or an established small business looking to expand.

PEO By Design Can Find the Right HR Solutions for Your Business

In today's business landscape of high interest rates and tight labor markets, small businesses need every advantage they can get.

In fact, small businesses that work with a PEO grow 7 to 9 percent faster, have employee turnover that is 10 to 14 percent lower, and are 50 percent less likely to go out of business, says the NAPEO.

Working with a PEO broker like PEO By Design can help you find the right PEO partner who can offer a powerful combination of cost savings, expertise, and support that can help your business thrive.

As experts in the PEO industry, we know the offerings and variations that are available, the cost and transparency capabilities, technology platform and offerings, and service delivery capabilities of the various PEOs.

With over 40 years of combined experience in the PEO industry, our team of experts can guide you through the process of finding the right PEO solution for your unique needs. From initial consultation to implementation and beyond, we provide the insights and support you need to make informed decisions about your HR strategy.

Contact PEO By Design today for a free consultation and discover how we can help your small business thrive with the right PEO partnership.