Too many small businesses settle for high HR administrative costs as the “cost of doing business.” But it’s possible to escape the status quo—and save tens if not hundreds of thousands of dollars—by using an alternative solution to outsmart and outmaneuver your competition.

Professional Employer Organizations (PEOs) help small businesses outsource administrative tasks like payroll, risk management, HR administration, and more. According to data from NAPEO, 39% of all PEO clients have 20-49 employees, while 28% have 10-19 employees. So, it’s safe to say, most beneficiaries of PEOs are small businesses.

Since 81% of those who don’t use a PEO currently are interested in using one in the future, it’s safe to assume you’re interested in learning more about this HR solution. So if you’re ready to learn how this HR approach can make your small business more competitive, read on.

What makes a PEO the ideal secret weapon for small business?

There are a host of reasons why PEOs give small businesses a competitive edge. Let’s walk through six that, in our experience, have the highest impact on your day-to-day.

1. Scalability without losing the personal touch

Many small businesses struggle to scale their businesses while keeping their personal touch intact. PEOs take on the tedious, monotonous, and repetitive tasks that accompany growth so you can put more resources into personal, customer-centric activities.

2. Focus on growth

Small businesses often face what’s called the “growth trap.” You invest in growth, then divert resources to manage that new business, which means you have to increase your investment to grow even more.

PEOs help you avoid this trap, maintaining your HR and employee benefits functions even as your team grows and your personnel needs become more complex. In fact, according to research conducted by NAPEO, businesses that use PEOs develop 7-9% faster than those who don’t, and are 50% less likely to fail.

3. Improve employee retention

It’s expensive for small businesses to rehire and retrain personnel. So maximizing employee retention should be a top priority. PEOs can help in several ways:

• Competitive benefits packages that incentivize against switching employers
• Access to knowledgeable staff that’s focused solely on providing HR support
• User-friendly, seamless software providing 24/7 access to benefits information

In fact, according to research from economist Laurie Bassi, firms that use a PEO have 14-16% lower turnover rates than those who don’t.

4. Recruit more competitive talent

In highly competitive industries, small businesses struggle to recruit talent because their benefits packages don’t measure up to those of larger, more prestigious brands. Partnering with a PEO can help you stay competitive and attract quality talent by offering more comprehensive benefits at a lower cost.

5. Regulatory compliance

Running a small business is stressful at the best of times. With countless spinning plates, it’s easy for things to fall through the cracks. However, compliance with federal, state, and local regulations is something you can’t afford to forget. A PEO will stay aware of changing regulations, ensuring you maintain compliance and avoid costly fines.

6. HR expertise

PEOs like Ethan Allen are staffed by experts who manage HR and employee administration as their core business function. This expertise means we can spot red flags in the distance, those small issues that have the potential to balloon into bigger problems. In other words, PEOs give you the bird’s eye view you need to avoid the same setbacks faced by your competition.

Which small business functions does a PEO handle best?

Now that we’ve convinced you why a PEO can be your new secret weapon, let’s dive into how. Here are the three main business functions you can delegate to a PEO to achieve the results listed above.

Payroll

Even for businesses with fewer than a hundred employees, payroll can be complex and unwieldy. But it doesn’t have to be. Partnering with a PEO can help take time-consuming payroll functionality off your hands, including:

• Comprehensive payroll administration
• Tax filings (federal, state, and local)
• Compliance with labor laws
• Direct deposit
• Electronic paystubs
• Preparing W2s

The list goes on. Plus, when you work with experts who’ve been at this for decades, you’ll have the peace of mind that all critical functions are covered.

Safety & risk management

No one wants to create an actively unsafe work environment. Unfortunately, this is often what ends up happening, simply because safety involves active management, staying up to date with OSHA requirements, and other time-consuming hurdles.

An experienced PEO will have processes and standards in place to not only implement safety practices, but manage all the sensitive information that comes with the territory. This work includes:

• Regular check-ins and safety audits
• Conducting criminal background checks and drug tests
• Handling workers’ comp, disability, and unemployment claims
• Conducting regular trainings to keep everyone up to date on the latest regulatory requirements

HR administration & compliance

Employment law is complex. You have to be an expert just to understand it, let alone comply with it. Thankfully, a PEO can help you:

• Maintain regulatory compliance
• Ensure seamless employee onboarding
• Develop & implement HR policies
• Implement labor standards, family leave, and anti-discrimination policies

All of this can protect your business against unnecessary (and expensive) risk.

Is a PEO worth the investment?

So let’s get down to the core question: is investing in a PEO worth it? The answer is a solid yes, for the following reasons:

1. They reduce costs. When compared with a traditional, in-house HR function, you can end up saving considerable money—roughly $1,775 per year, per employee. That’s because traditional HR is a fairly fixed price, while PEOs price dynamically, either as a flat fee per employee or percentage of total payrolls (plus some standard costs like taxes, workers’ comp, etc.).
2. They provide ROI. As a result of the cost savings mentioned above, the average client of a PEO can expect a return on investment of 27.2%, according to research conducted by NAPEO.
3. They pool resources. Rather than front the total cost of an in-house HR organization, small businesses work with PEOs to pool their resources to secure better rates and services—e.g. health insurance, 401k—for all involved.
4. They free up attention. Small businesses who outsource HR responsibilities to the PEO can place their attention on other concerns. For instance, instead of doling out penalties for minor infractions, more time can be spent on marketing, sales, and business growth.

If you’re already spending too much time and money on HR functions, delegating them to a PEO will undoubtedly help you come out ahead.

The role of technology in making PEOs a secret weapon

At Ethan Allen, we take PEOs a step further than what we’ve mentioned so far. Our Ethan Allen HR Cloud brings all aspects of HR management into a single, streamlined platform. This boost in efficiency takes things to the next level, unlocking some powerful capabilities:

• Providing employees with easy access to personal HR information
• Giving managers and leaders transparency into benefits, packages, and cost savings
• Helping Ethan Allen maintain high operational standards across all our clients

While your competition is struggling to tread water in the shifting seas of HR and employee regulations, you could be sailing smoothly with a PEO serving as the wind in your sails.

Learn more about how PEO services can be a competitive differentiator for your small business:

 

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