There’s one factor business owners think about first when considering a PEO: cost. And while the expense of working with a Professional Employer Organization should be top of mind, many owners fixate on the sticker price before fully understanding what’s included. PEOs may seem pricey at first glance, but when you take the time to break down the direct cost savings and indirect benefits for your business, PEOs offer a strong ROI.
Let’s explore what you’re really paying for when you work with a PEO and why it’s a strategic investment that will benefit your business.
What is a PEO?
Before we jump into a cost analysis of PEO services, let’s take a minute to review what a Professional Employer Organization is and what they can do for your business.
A PEO provides comprehensive HR solutions for small and medium-sized businesses including payroll, benefits, HR support, tax administration, regulatory compliance, safety and risk management, and recruiting. Using a co-employment model, the PEO co-employs your staff and handles complex HR tasks, allowing you to focus on day-to-day business operations and your employees’ activities. With the expert guidance of a PEO, you’ll be able to grow your business while reducing your employer liability, saving time and money in the process.
According to NAPEO, the industry’s professional organization, businesses that work with a PEO grow 7 to 9 percent faster, reduce employee turnover by 10 to 14 percent, and are 50 percent less likely to go out of business. In costs savings alone, using a PEO offers businesses an average ROI of more than 27 percent.
PEO Costs vs. In-House HR Expenses
When calculating the costs of a PEO service, it’s important to look at traditional in-house HR expenses for comparison. While the cost of a PEO varies, price is generally determined using factors such as the size of your business, the number of employees on your payroll, and which HR services will be outsourced. Based on these details, PEOs generally charge either a flat fee per employee or a percentage of total payroll.
There are also some standard costs that will be included in your PEO fees such as federal and state unemployment taxes, FICA costs, workers’ compensation, and Medicare. These are expenses your business is always responsible for. However, when you work with a PEO, they manage and pay these fees on your behalf.
Given these upfront costs, many business owners are surprised to learn that working with a PEO can save their business hundreds of dollars per employee. To understand the real benefits of partnering with a PEO, let’s take a closer look at what you’re paying for and how a PEO saves you money.
The Hidden Value of PEOs
One of the biggest benefits a PEO provides small businesses is better buying power. On their own, small businesses will struggle to secure comprehensive benefits and services because they lack the volume that drives discounts. With a PEO, a business is essentially pooling its resources with other small businesses to create a larger entity with buying power that secures better rates and services for all. Thanks to this collective bargaining power, PEOs can provide services like health insurance and workers’ compensation at lower rates, allowing business to offer more robust benefits packages that satisfy employees and help them retain staff in competitive labor markets.
Beyond these obvious cost savings, PEOs also help small businesses reduce their administrative costs. By outsourcing most HR responsibilities to the PEO, business owners can free up resources that would otherwise be spent on payroll, administration, and compliance. For example, staying up to date with constantly changing employment laws is a huge burden on small businesses and minor infractions can lead to significant financial penalties. When you partner with a PEO, they’ll navigate the complex labyrinth of state and federal regulations for you, reducing your legal risks and ensuring your business is compliant. Ultimately, with these time and energy savings, organizations can instead focus on revenue generating activities that grow the business and benefit their bottom line.
A Comprehensive HR Solution
When you decide to partner with a PEO, you’re paying for more than basic HR services and improved buying power. A PEO is a comprehensive solution that assists with all areas of your business operations, leading to long-term savings and business growth. Here are a few more of the long-term benefits that PEOs can offer:
Complex Payroll Administration
As your business grows, so will your payroll and tax administration responsibilities. With a PEO managing your payroll, you can rest assured that your business will remain compliant and your employees will be paid on time. With Ethan Allen’s HR cloud, you have a complete view of your payroll operations in one system. By mapping directly to your general ledger or cost centers, our system integrates seamlessly with your business and all payroll costs are taken care of with one payment.
Employee Recruitment and Retention
Searching for and hiring quality candidates for your open positions can be a time-consuming process. That’s why the best PEOs also provide recruitment and retention support for your business. From crafting a great job description to managing the applicant tracking system and screening and interviewing potential candidates, a PEO can save you considerable time and expense. At Ethan Allen, we have deep roots in the New York staffing and recruiting space and we bring our 50 years of talent acquisition expertise to work for our clients, helping them find and retain top talent.
Quality HR Services
As a small or medium sized business, managing your HR functions entirely in-house costs substantial time and energy. However, big payroll companies and national PEOs often come with their own hidden costs and downsides. This is where regional PEOs like Ethan Allen come in. Providing customized HR solutions that cater to your unique business needs, regional PEOs offer the perfect balance, adapting as your business grows while ensuring your business gets what it needs at every stage – without hidden fees or needless add-ons.