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There are times when the business landscape feels more uneven and treacherous than ever, with the onus on small businesses to search for new ways to stay competitive. For many companies looking for an edge, the concept of a Professional Employer Organization (PEO) often comes to the forefront.

But what exactly is a PEO? These companies provide small and medium-sized businesses with an array of human resources services through a co-employment model—the PEO co-employs your staff, handling complex HR tasks, while you retain the day-to-day control over your employees’ activities and your business operations.

The relationship can be quite advantageous for most. Let’s examine how PEOs can unlock better buying power for small businesses.

The Benefits of Better Buying Power

Small businesses often grapple with securing comprehensive benefits and services. They find themselves disadvantaged due to limited buying power. Unlike large corporations, small firms’ individual negotiations lack the volume that typically drives discounts. This is where PEOs can bridge the gap. They pool the resources of several small businesses to create a larger and stronger entity. This new, collective buying power can be leveraged to secure better rates and services otherwise unattainable for individual companies.

We can shout from the rooftops that you’ll have better buying power. But what does better buying power actually mean? As we’ll soon discover, it encompasses several direct and indirect benefits for small business.

Cost Savings

This is an obvious one. Economies of scale play a crucial role as PEOs negotiate better rates and terms with providers due to their aggregated client base, passing these savings to small businesses. PEOs also help reduce administrative costs by handling various HR responsibilities, allowing companies to allocate resources more efficiently. Beyond hard costs, such as better rates on health insurance, there are soft cost savings like reduced administrative burdens, fewer compliance penalties, and improved employee retention rates due to enhanced benefits and workplace satisfaction (more on that later).

As a bonus savings tip, keep in mind that there can be hidden costs associated with national PEOs and big payroll companies.

Access to a Broader Range of Benefits

PEOs enable small businesses to offer their employees robust benefits packages akin to those provided by larger corporations, including health, dental, retirement plans, and other ancillary perks. This comprehensive approach not only enriches employee satisfaction but also levels the playing field in competitive labor markets.

Compliance and Risk Management

This benefit is uniquely helpful for anyone who’s ever had to pore over complex legal jargon while other work tasks pile up. We all know navigating the labyrinth of state and federal regulations can be daunting. PEOs possess expertise in these areas, assisting with compliance and reducing legal risks associated with employment laws.

Administrative Support and Efficiency

More and more frequently, HR professionals are expected to contribute to business strategy, which requires considerable time and effort. Outsourcing more traditional HR tasks such as payroll, tax administration, and benefits administration to experienced PEOs introduces efficiency and accuracy. Additionally, PEOs can often employ advanced technology and systems—such as the Ethan Allen HR Cloud—to streamline these processes, which enables your business to run more smoothly than ever.

Employee Retention and Recruitment

Worried about getting or keeping the best talent? The allure of competitive benefits packages that PEOs provide can aid in retaining current employees and attracting prospective talent. As an added bonus, partnering with a PEO enhances an employer’s branding and market attractiveness by showcasing its investment in employee welfare and development.

PEO Misconceptions, Fears, and Protections

Unfortunately, even after learning of the benefits and protections, some leaders still hesitate to engage with PEOs due to misconceptions and unfounded fears. Let’s take a moment to dispel some of these myths and take the fear out of the process.

Companies Lose Employees to PEOs

Some people conflate PEOs and employee leasing businesses. These two concepts certainly overlap, but there’s a crucial difference between the two: PEOs represent a co-employment model in which the client company retains full control over employee management and operations. At no point will you “turn your employees over” to a PEO. The workers on your premises remain your workers.

A History of Trouble in New York

Historical complications with workers’ compensation programs in New York State have unfairly tarnished PEOs. For example, the 2009 lawsuit between The New York State Workers’ Compensation board and CRM Holdings, which underestimated workers’ comp liabilities of the companies it represented. CRM’s inaccurate records allowed it to charge lower premiums, leaving companies with insufficient reserves to cover liabilities. While it’s certainly an egregious case, it does not—and should not—reflect poorly on all PEOs.

Consumers Have Protections

Contrary to the unfounded fears above, New York State has gone out of its way to protect the consumer when dealing with PEOs. This includes an annual certification process, which calls for a quarterly audit of payrolls to protect clients. Additionally, there is a voluntary IRS certification—which Ethan Allen has—that includes an annual financial audit of the PEO, providing even further protection.

Resistance to Change

There’s an old adage, “This is not how my father ran the company,” which underscores the feeling of hesitation among potential customers. This is less a misconception and more a mental roadblock, but it must be dispelled, nonetheless. The business world never stops moving, and as we all know, adaptation is key to survival and growth.

Just remember that PEOs work for you, offering advice, consultation, and encouragement. They do not dictate terms; instead, they enhance your control over necessary business functions.

The transformative potential of partnering with a PEO is enormous for small businesses. From achieving greater buying power to streamlining HR processes, the benefits can take an enormous weight off the collective shoulders of your workforce. Small businesses must constantly think of new ways to stay agile and grow in an increasingly crowded marketplace—utilizing a PEO’s services can be a pivotal decision in your company’s growth trajectory. Once you take a chance on the right PEO, you may find that you’ve unlocked the power to finally take your business to the next level.


Ready to explore how a PEO can empower your business? Reach out to Ethan Allen HR Services to unlock the potential of your workforce.