PEO Mythbusters 2: You Have to Replace Your HR Team

The efficiency and convenience of outsourcing made it a popular choice for many small and midsize businesses. As a result, some internal teams have shrunk or disappeared. That’s why many HR professionals worry that HR outsourcing can leave them without a job.

Since many companies have outsourced entire departments, myths surrounding PEOs (Professional Employer Organizations) have flourished. The misconception about HR team replacement comes from the confusion over how PEOs can provide such a strong return on investment.

Let’s take a closer look at why working with a PEO doesn’t mean replacing your HR team. 

What is the Role of a PEO in Human Resources? 

A PEO can provide various HR services, from creating job descriptions to administrating benefits. These outsourcing solutions have teams of experts that are ready to dedicate themselves to different aspects of your HR structure, including:

• Payroll administration  

• HR compliance  

• Benefits administration  

• Risk management  

• Performance management  

• Safety policy/program design

• Employee handbook design

• Job descriptions

• FLSA audits

• Employee/manager training 

However, you aren’t obligated to use all the PEO’s services. When signing a contract, you decide which aspects of HR you want the PEO to cover. For example, you may choose to outsource HR compliance but deal with risk management independently.

For some companies, it may be convenient to outsource all administrative HR functions. Others prefer to delegate whatever their internal HR team doesn’t have time to handle.

Essentially, a PEO strengthens your internal HR team, allowing its members to focus on recruitment issues, company culture, and conflict management. 

What Is The Role Of In-House HR Employees? 

If you already have an HR team, it’s handling a significant number of HR tasks. The goal of outsourcing some of them to a PEO is to make time for other important work. This includes:

• Making arrangements for strategic hiring decisions 

• Improving company culture 

• Resolving employee conflicts 

• Creating an appealing workplace environment

• Fostering employee engagement

• Supporting DEI (Diversity, Equity, Inclusion)

• Improving employee communication

• Working on better retention practices 

With a PEO’s assistance, your internal HR team gains time to focus on the human aspect of HR, leaving administrative, manual, and time-consuming tasks to a qualified outsourcing partner. 

Isn’t the ROI from PEOs Based Upon Replacing Employees?  

Working with a PEO can have an average ROI of 27.2%. Contrary to the common misconception, this high number doesn’t come from replacing HR employees. A reliable outsourcing solution can:

• Give your employees better and more affordable employee benefits by using economies of scale.

• Minimize litigation risks.

• Reduce the number of workers’ compensation claims. 

• Provide access to a lower experience modifier for your workers’ compensation insurance (in some states). 

• Prevent you from recruiting, hiring, onboarding, training, and retaining extra HR employees. 

All the above benefits cut HR costs substantially, bringing the ROI of working with a PEO to a higher level. 

Distributing the Load 

One of the most important factors influencing the ROI is taking administrative tasks off your HR team’s shoulders. 

Instead of calculating payroll, scanning the constantly changing employment laws, and struggling with complex benefits administration, your HR employees can focus on enhancing and strengthening your workplace environment.

As a result, you improve retention efforts and become the employer of choice for top talent. This, in turn, contributes to the company’s bottom line. Considering the shocking 57.3% turnover rate across U.S. industries, the importance of retention is hard to ignore. 

Myth Partially Busted: You Shouldn’t Replace Your HR Team  

While outsourcing your entire HR department is possible, it is not a good idea. Without an internal team, you lose an opportunity to mitigate day-to-day conflicts, learn what your employees need, increase engagement, and foster retention.

An HR team is an integral part of any company’s success. However, not too many SMBs have the resources to hire large HR departments. That’s where a PEO takes over.

A reliable HR outsourcing solution is an external arm of your HR department. Instead of replacing your employees, a PEO handles time-consuming administrative tasks, giving your team an opportunity to focus on core HR functions.