Why partnering with a PEO is a smart growth strategy for small businesses

Small business owners feeling the revenue dampening effects of inflation, staffing shortages, and supply chain disruptions are also having to spend valuable time on compliance with ever-changing federal, state, and local laws. Professional Employer Organizations (PEOs) are in a prime position to help businesses grow rather than simply try to keep their heads above water.

Three main areas where PEOs deliver value

1. Helping small businesses attract and retain employees,
2. Handling all HR matters so that clients can focus on their core business, and
3. Reducing the costs associated with a wide range of HR functions.

When it comes to reducing the costs of HR, there are tangible measures to this value. The average annual return on investment (ROI) of using a PEO is 27.2% according to a study by the National Association of Professional Employer Organizations (NAPEO).

That is in cost savings for HR functions alone, such as HR personnel costs, health benefits, workers’ compensation, unemployment insurance, and payroll.

There are additional savings associated with attracting and retaining employees and enabling clients to focus on their core businesses.

PEOs improve employee benefits and stabilize the workforce

Businesses that partner with PEOs have 10% higher employment growth rates than small businesses that don’t use PEOs, according to NAPEO. They increase workplace safety by over 20%. Participation rates in retirement plans more than double and 40% of businesses upgrade their benefit packages, which are instrumental in attracting and retaining employees. In fact, businesses that use a PEO have 33% lower employee turnover.

These results can start being put to work for many small businesses. According to the National Federation of Independent Business March 2022 COVID Survey, 42% of owners are currently experiencing a significant or moderate staffing shortage. Of those, 23% are experiencing a significant loss of sales opportunities and 22% reported a moderate loss of sales opportunities because of the staffing shortage.

Wide range of HR administration and compliance services

Companies today have more administrative and compliance responsibilities than ever. PEOs can provide:

Human Resources assistance: Employee relations and complaints; employee policies and handbooks; hiring and recruitment practices, job descriptions, HR training, labor and employment law compliance; wage and hour audits; compliance posters; EEOC matters and investigations, unemployment claims management; HR needs assessment; employee background checks; performance management.

Payroll Services: Payroll processing; web payroll access; online employee self-service; employment maintenance; new hire reporting; standard payroll reporting; W-2 processing; garnishments; benefits and other deductions; federal and state withholding and tax deposits; direct deposits; PTO tracking; third-party employment verifications; records management; census reporting

Employee benefits and administration: ACA compliance; medical and supplemental plans; group and voluntary employee benefits, benefits administration and consulting; 401(k) and retirement options administration; Section 125 administration; FSA and HSA, Employee Assistance Programs, wellness programs, employee notices, enrollments and inquiries; new hires and terminations processing; COBRA administration; ERISA compliance; annual 5500 reports; discrimination testing

Workers’ compensation and risk: workers’ compensation insurance, loss control and safety services; OSHA compliance; Employment Practices Liability Insurance (EPLI), review of claims, losses, reserves and job classifications; drug-free workplace programs; return-to-work programs; claims administration; creation of safety manuals

How to evaluate a PEO

As with many industries, the quality, range, and depth of services vary from PEO to PEO. There are large, medium, and small PEOs. Some excel in some areas and not in others. Some are large with names familiar from advertising campaigns; others have built their reputations on high-touch, boutique services.

10 Important questions to ask when considering a PEO:

1. Are you accredited by the Employer Services Assurance Corporation (ESAC) and certified by the IRS as a CPEO? (Less than 3% of all PEOs in the country have earned both IRS and ESAC accreditation. ESAC is like the FDIC for banks; clients of ESAC-accredited PEOs each receive a bond to protect them for up to $16 million in payroll and employee benefits.)
2. What services do you provide, and which services are outsourced to other providers? Can we pick and choose which services we want?
3. What differentiates you from other PEOs?
4. What is your average client size, and what is your experience with our industry, size, types of employees, and locations?
5. Can you provide PEO services in all the states that I do business?
6. Does your technology platform allow for integrated recruitment, hiring, background checks, and onboarding, standard and customized reporting, documentation storage, and performance evaluations, legally required training, and professional development?
7. How much will it cost me for PEO services and how do you charge your fees?
8. Will you assign a specific representative(s) to work with our company for any and all questions or do you have specialists for different services? Who do we call if we have a question/issue?
9. What is your commitment to customer service?
10. Can you provide examples where you assisted companies with claims, or saved them money on legal fees because of compliance, training, discrimination, harassment, ADA, return-to-work, wage and hour misclassifications, policy violations, or employee complaints or issues?

By asking the right questions, business owners can partner with the PEO that’s right for them and focus on their core business.

Alex Pisani is General Counsel and Executive Vice President of Sales for Engage PEO. He oversees legal affairs and strategic business partnerships, which includes legal compliance, business development and sales management. He also oversees the management of human resource services for Engage clients. Prior to joining Engage’s executive team, Alex held numerous executive roles in the HR outsourcing and PEO industries, managing legal, operational and business divisions. He also has counseled clients across industries on legal compliance matters, mergers and acquisitions, commercial litigation and state unemployment tax planning. Alex earned a Bachelor of Arts from Wesleyan University and a Juris Doctor from the Benjamin N. Cardozo School of Law at Yeshiva University.