The Power of PEOs: Why HRO is Skyrocketing in Popularity

The Professional Employer Organization industry is booming. A report by the National Association of Professional Employer Organizations (NAPEO) examined the PEO industry over the past decade. It revealed an industry whose growth outpaced typical employee growth. Starting from 2008, the PEO industry's compounded annual growth rate has surpassed the comparable growth rate of the U.S. employed labor force by up to 8.3 percentage points!

In total, 487 PEOs with 173,000 clients collectively managed 3.97 million worksite employees nationwide and paid $216 billion in aggregate. This is a 150% increase in worksite employees from 2008. That represents 15.3% of all employment by private sector employers that have 10 to 99 employees.

This group has an overrepresentation of small businesses, which is not surprising. Nearly two-thirds of all PEO clients have fewer than 50 employees.

Given this remarkable growth, an important question arises. Why have Professional Employer Organizations seen so much success, especially among small businesses?

Balancing The Business Owner and Employer Roles

What it comes down to is that the core function of a Professional Employer Organization is just incredibly valuable. It offers a genuinely useful service that isn’t otherwise available.

That’s because as soon as a business owner hires their first employee, they take on a new role on top of their role as owner. In this role all employee-related issues, government paperwork, and personnel issues. “Employer” and “owner” are not complementary roles. They conflict because the “employer” roles will erode time, money, and resources away from the “business owner/manager” role.

HR Outsourcing Services Bring Big Company Advantages

A PEO can also deliver big company advantages (like enterprise-grade benefits programs and Group Health plans) to small employers. That makes smaller businesses competitive in the talent marketplace even with their largest and most well-resourced competitors. In short, PEOs can help:

Businesses better attract better workers.

For instance, PEOs can enable employers to build highly competitive compensation packages. They achieve this by leveraging a wide range of enterprise-grade benefits at a low cost. All made possible because of the PEO's purchasing power. 

This means that businesses can offer their employees complete and attractive benefits packages, including health insurance, retirement plans, and more. In turn, this makes the business more appealing to skilled talent in the job market. Competitive benefits not only attract top talent but also contribute to employee satisfaction and retention. This, in turn, drives growth and success for your business.

Protect employers by strengthening compliance.

A PEO assists businesses in navigating the intricate landscape of constantly changing local, state, and federal regulations. By offering proactive guidance and HR support, employers gain enhanced protection from the numerous regulations that oversee the workforce when they partner with a PEO. In a co-employment agreement, both the PEO and the business shoulder specific responsibilities, thereby alleviating the burden of potential risks from you as an employer.

Essentially, by partnering with a PEO, you can rely on their expertise to assist in handling these complex legal matters. This allows you to focus more on your core business activities and less on the complexities of employment law.

Get employers out of the employer business.

The co-employment model offers a valuable advantage to business owners. Business owners no longer have to worry about liabilities like payroll taxes. This allows business owners to focus more fully on their core business and less on administrative work that's necessary but not revenue-producing.  

Enable businesses to save both time and money.

Partnering with a PEO brings a cost-effective approach to managing human resources. PEOs have a team of HR experts who specialize in tasks like payroll and benefits administration. They can also use their buying power to get services and products at a lower cost.

This is especially helpful for small businesses that most likely don't have the same bargaining power. When you team up with a PEO, you not only cut costs on HR tasks but also ensure they are managed effectively and in accordance with regulations. It's a smart way to manage your HR needs efficiently and affordably.

Put small businesses on par with enterprises.

Small businesses often face challenges when competing against larger companies. For instance, imagine a small shop with 40 employees trying to keep up with a giant corporation that has 400 or even 4,000 employees. It can be a daunting task.

However, when a small business professionalizes its HR function by partnering with a PEO, it becomes more competitive. This means they can put more focus on their core activities, which is what they do best. Furthermore, they get the cost advantages that big companies typically have, which helps business owners save money and grow.

Additionally, they can attract better talent because they can offer competitive benefits and a well-organized work environment. In simple terms, working with a PEO helps businesses level the playing field and become stronger competitors in the business world.

Key Takeaways

At the end of the day, the benefits of partnering with a Professional Employer Organization are significant and impactful for businesses. This can seen when comparing PEO clients to non-PEO clients. PEOs result in administrative costs that are about $450 lower per employee while they also grow 9% faster than non-PEO clients.

PEOs also make small-to-midsize businesses, more resilient against unexpected crises. For instance, during the pandemic, PEO clients were 60% less likely to shut down early on.

The support of a PEO is invaluable in navigating through challenging times, but its advantages extend beyond emergencies. In normal circumstances, PEO clients are 50% less likely to fail. The remarkable growth of the PEO industry backs up the consistent and reliable benefits they provide to their clients.

Overall, partnering with a PEO is a strategic move. This partnership not only improves a company's financial health but also ensures its stability and longevity in an ever-changing landscape.

CoAdvantage, one of the nation’s largest Professional Employer Organizations, dedicates its PEO services to supporting small to mid-sized companies. We offer solutions across HR administration, employee benefits, payroll, and compliance. Are you interested in discovering how CoAdvantage can establish a strategic HR function in your business to enhance its potential for growth? Feel free to reach out to us today.