Outsourcing has become a lifeline for many small businesses in the modern marketplace.
In fact, nearly all small businesses (83%) are planning on maintaining or increasing the amount they spend on outsourcing business processes. It’s no wonder why: outsourcing enables access to domain expertise and right-sized pricing structures that can help businesses with tight margins perform better.
Professional Employer Organizations (PEOs) occupy a special place in the outsourcing world. Unlike any other vendor, PEOs don’t just partner with their clients, they become a co-employer with them. They are designed to help small businesses not only survive but thrive in a competitive market by managing complex HR tasks effectively. And make no mistake: PEOs are a perfect fit for small businesses. If you think PEOs focus mainly on enterprise clients, think again. "Almost two-thirds of all PEO clients have between 10 and 49 employees,” reports the National Association of PEOs (NAPEO).
But what services do PEOs provide to smaller organizations that make such a difference?
Small businesses often struggle to offer competitive benefits due to high costs and administrative burdens. This makes it difficult to attract and retain top talent. Here’s where PEOs come in: they enable even very small companies to offer a broad array of enterprise-grade benefits—Large Group Health Plans, retirement savings, employee assistance programs, and much more—at small business prices thanks to economy-of-scale pricing and pooled resources.
PEOs don’t stop there; they also support employees in understanding and using their benefits. This is especially applicable to employers who lack fully staffed, dedicated HR teams. For instance, employers who engage PEOs are significantly more likely to place a higher priority on assisting employees in making more informed benefits decisions than non-PEO users. In turn, better benefits mean less turnover. Businesses that have been rated highly on their benefit offerings face 56% less workforce attrition.
Small organizations are more likely to outsource payroll services than larger enterprises, according to Statista. Managing payroll can be complex and time-consuming, particularly for small business owners who are already stretched thin. Yet, it’s a critical function where errors and problems could result not just in unhappy employees but in legal jeopardy.
PEOs handle all aspects of payroll administration, including paycheck processing, tax withholding, and compliance with government regulations. This not only ensures accuracy and compliance but also frees up business owners to focus on core business activities, leading to increased productivity and reduced administrative overhead.
The good news: organizations that outsource payroll services typically save 18% on payroll-related costs. In fact, payroll is perhaps the poster child of why outsourcing benefits small businesses: every aspect of a critical function improves without business leaders having to take time away from core business work to deal with it.
Small businesses often lack the expertise to navigate the complex web of state and federal employment laws, leading to potential legal risks. This is an area where the numbers don’t favor small businesses; no matter how small the firm, there will be some compliance-related activity that’s required. All told, U.S. firms spend an average of $10,000 per employee dealing with regulatory compliance. And small businesses don’t have the deep pockets of enterprise-sized organizations.
This is why over a third of organizations outsource some or all HR compliance functionality. Here, PEOs provide expert guidance and support on regulatory compliance. They manage everything from workers' compensation to unemployment insurance and labor law compliance, significantly lowering the risk of non-compliance and associated liabilities.
Small businesses face a Catch-22 situation when it comes to hiring: dedicating internal resources to recruitment risks starving core, revenue-generating business of time, personnel, and budget. Yet, without dedicated resources, the business may face labor issues related to recruitment and turnover that could threaten future profitability. One study found that turnover can cost as much as 33% of an employee’s annual salary.
PEOs support small businesses in their recruitment efforts by providing access to recruitment tools, job posting services, and performance management software. This helps small businesses improve their hiring processes, secure high-quality candidates, and enhance overall employee management and development practices.
Developing employees' skills can be a challenge for small businesses due to resource constraints. Yet, it’s a hugely beneficial function. “A 10 percent increase in training produced a 3 percent increase in productivity over two years,” said Iva Klepic, the Head of HR at the University of Mostar in Bosnia and Herzegovina, told the Society for Human Resource Management.
PEOs offer training and development programs that small businesses might not otherwise afford or manage on their own. This can potentially include online courses, in-person workshops, and custom training sessions tailored to specific job functions. If the PEO doesn’t offer training options itself, it usually can connect the business with credible third parties who do. Ultimately, the outcome is a more skilled workforce that can drive business growth and better adapt to changing market conditions.
Small businesses frequently need expert HR support to handle complex issues but may not have the expertise in-house. It’s in this area that HR can shift from a cost center to a value-driver; well-designed HR programs, when aligned with overall business objectives, can make a huge difference in supporting a small company’s rapid growth.
PEOs provide HR consultancy services that offer strategic insights into managing a workforce effectively. This can include advice on organizational structure, employee engagement strategies, and conflict resolution. The key is to align HR practices with the organization’s larger strategy and business objectives. When all parts of the business are working in tandem, it becomes possible to produce better outcomes for the whole operation—and if that isn’t the ultimate, underlying purpose of any HR function, what is?
In the end, PEOs provide expertise and resources that are often out of reach for smaller types of businesses. Importantly, PEOs combine all of these functions under one roof, so PEO users get access to everything HR that they need from one trusted source. Finally, the PEO model itself creates an incentive to act as a genuine partner; as co-employers, they share employment-related liabilities and incentives with the client organization.
When a small business partner with a PEO, they can improve the effectiveness of their HR management, assisting with compliance and boosting employee satisfaction. This allows business owners to focus more on strategic business growth. The comprehensive support offered by PEOs allows small businesses to flourish by stabilizing their operational foundations and enabling them to compete more effectively in their markets.
Ready to optimize your HR operations and boost business productivity? Consider partnering with CoAdvantage, a nationwide Professional Employer Organization (PEO). With our comprehensive and cost-effective HR solutions, including but not limited to: HR administration, HR technology, workers' compensation management, and tailored health insurance packages. From payroll to compliance and risk management, we've got you covered.
Let us handle the complexities of HR management so you can focus in growing your business. Fill out the form below to discover how CoAdvantage can support your company's success!