Human resources is an increasingly critical component of every successful business. But today’s human resources operations face unprecedented challenges, everything from attracting and onboarding top talent to emerging technologies, security threats, compliance obligations and the shifting demographics of a changing workforce. To more effectively manage these and similar challenges, an increasing number of businesses are turning to professional employer organizations (PEOs)
WHAT IS A PROFESSIONAL EMPLOYER ORGANIZATION (PEO)?
As the National Association of Professional Employer Organizations (NAPEO) points out, hiring an effective PEO contributes to a business’s productivity and profitability, and tends to improve employee retention:
“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. 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.”
WHAT ARE THE MAIN REASONS TO PARTNER WITH A PEO?
Said differently, a PEO is especially beneficial for small and mid-size companies for 2 principal reasons:
1. They tend to be more efficient.
Because human resources is the main focus of professional employer organizations, they stay on top of the latest HR developments, whether that entails new compliance regulations, new HR technologies or new approaches to employee training, onboarding and retention.
2. They free up businesses to focus on other, mission-critical activities.
Human resources is a central challenge for business—but it’s not the only one. To be successful, small and mid-size business owners have a host of other problems to solve, whether that’s cash flow, infrastructure, customer satisfaction or marketing. Simply stated, hiring a PEO frees up businesses to spend more time on finding effective solutions to these and similar challenges.
WHAT ARE THE PRINCIPAL BENEFITS OF HIRING A PEO?
Every business is different, of course, with different goals and different challenges. That said, partnering with a PEO confers a similar set of benefits on most, including the following 6:
1. You’ll improve employee morale and engagement.
According to Gallup, only 34% of employees in the U.S. are “engaged” in their jobs—and 17% are “actively disengaged,” which probably means they’re looking for other jobs. Add to this the fact that replacing an employee who leaves costs businesses on average $15,000, and you can see how important employee engagement is. A competent PEO will improve your onboarding and training programs, as well as offer employees the kinds of benefits they most care about. That adds up to a happier workforce, and a more productive and profitable business.
2. You’ll be compliant with regulations.
Federal and state tax laws are continually changing, creating a potentially serious boondoggle for your business. The same is true with regard to labor law. A PEO makes it his or her business to keep up with the changing tapestry of compliance laws and regulations, giving you the reassurance that your business is always operating within the letter of the law.
3. You’ll be able to attract top job candidates.
With the nation at almost full employment, top job candidates increasingly have their pick of the business for which they want to work. To win the competition for top talent, businesses need to be aware of the most effective recruitment and hiring strategies. For example (according to Learning Hub), almost 75% of hiring managers feel they provide “clear job descriptions,” but only 36% of job candidates say the same thing.
An experienced PEO will know the best ways to roll out your “employer brand,” the way in other words you articulate the values your business embraces. He or she will also be adept at the best ways to create job descriptions, structure interviews, conduct effective background checks and speak with listed (and unlisted) references. The result will be group of employees who are an appropriate fit for your business, more fully engaged, and more likely to remain with your business over the long haul.
4. You’ll have a fully collaborative partner.
The best PEOs understand that they are working for you—not the other way around. They know that their job is to help you do what you do best. Said differently, an experienced PEO will never try to run your business for you. He or she will certainly help you understand the changes that will make your business more successful—but you will always make the final decision.
5. You’ll enhance the training of new and current employees.
You want employees who perform at their optimal level. Unfortunately, far too many businesses fail to provide their workers with the training they need to understand both their job responsibilities and the culture of your business. For example, an alarming 61% of employees receive no training about company culture—and more than half of all businesses never measure how effective their training and onboarding processes are.
PEOs, because human resources is their single, laser focus, understand the importance of effective training programs for new employees. They also understand that the number one reason employees leave the businesses for which they work is the lack of career advancement opportunities. For this reason, they help every employee understand (through training) promotion opportunities within your organization.
6. You’ll grow your business.
Although you have many goals for your company, arguably the number one goal is to become more profitable, and to grow your business. According to a recent study from NAPEO, small and mid-size businesses that shift from an in house HR team to a PEO grow on average between 7% and 9% more than those who don’t. They also experience as much as a 14% decline in employee attrition and are approximately 50% less likely to fail.
As noted above, every business is different—which means no one is in a better position than you to decide if a PEO is right for your company. That said, the businesses which have decided to partner with a PEO have, on average, seen substantial growth in employee engagement and retention, profitability, productivity and growth.
Still, making this important decision can itself be challenging. That’s where we can help. To learn more about the ways our human resources, accounting, tax preparation, recruiting, branding and marketing services can make your business more efficient and profitable—or to see how much you can save on HR costs with our HR Costs Calculator—book your consultation today.