Outsourcing HR to a PEO can have a high ROI. Unfortunately, many small companies don't take advantage of this opportunity. The problem stems from a common misconception that HR outsourcing is only suitable for large companies.
This myth gained momentum when some HR outsourcing solutions set minimal size and spend requirements for collaboration. However, top-notch PEOs still work with all companies regardless of the number of employees.
Small and midsize businesses can make the most out of this type of partnership.
Why do small businesses profit so much from partnering with a PEO?
Contrary to the myth, small companies can get more benefits from working with a PEO than enterprises can. In fact, smaller business are more likely to achieve a high ROI from HR outsourcing versus large corporations. Here is why:
Employee Satisfaction and Work Process Optimization
Small companies rarely have large HR departments that can deal with all aspects of human resources. From payroll to compliance, the work falls on the shoulders of:
- One or two HR specialists
- Other employees or business owner
As a result, all employees involved with the HR tasks feel frustrated and overwhelmed. They don't have time to focus on their core responsibilities. This hinders the work process and lowers satisfaction rates.
Eventually, overwhelmed and overworked employees make mistakes that cost small businesses money and their reputation.
By working with a PEO, you can delegate most HR functions to specialists and give your employees some breathing room.
With the average salary of an HR specialist in the USA exceeding $60,000, each new hire can be a burden. Small companies rarely have the resources to hire sizable HR departments.
When outsourcing HR to a PEO, the company doesn't have to hire new team members and spend time on recruitment, onboarding, training, and more.
Furthermore, PEOs enable a range of cost-savings mechanisms to lower the price of top-tier employee benefits.
Access to Better Benefits
Companies with few employees usually can't afford high-quality benefits for their teams. The premiums are too high to handle. This makes it hard to position the company as an employer of choice and attract top talent.
A PEO uses economies of scale to provide its clients access to Fortune 500 employee benefits at a reasonable price. This doesn't just cut costs but also improves employee satisfaction rates.
There is a good reason that the average ROI of using a PEO is 27.2%.
Compliance is a sizable part of HR. Even a small mistake could lead to a large fine. Staying compliant with federal, state, and local regulations requires regular monitoring, implementing specific measures, training employees, and much more.
Small companies rarely have the workforce to take care of all compliance issues in the most efficient way possible. By outsourcing HR compliance to a PEO, they delegate these tasks to a team of experts and ensure top results.
From ATS to payroll systems, staying on top of all HR functions requires an investment in a wide range of apps. Many businesses don't have the resources to purchase top-notch software that fulfills various functions. As a result, they end up doing some work manually, struggle with integration, and make mistakes.
When they partner with a PEO, companies gain access to top-of-the-line HR software that integrates payroll, pay stubs, time & attendance, benefits administration, employee onboarding, and other HR functions.
What limits do PEOs set on company size?
Different PEOs set different requirements for their partners. They fall into three categories: minimum spend, minimum number of employees, and no limits.
Some of the largest professional employer organizations agree to work with companies that have fewer than five or ten employees. However, they require such businesses to spend a minimum amount on their services.
Minimum Number of Employees
Many PEOs don't work with companies that have fewer than five employees. They say that it's not economically reasonable to provide services to a limited number of workers.
Some PEOs don't set any minimum requirements for the number of employees. Even if you are a company of one, you can still enter the partnership. Such PEOs add you to their benefits master plan and handle the HR functions that you want to delegate.
Myth: Partly Busted
While many PEOs have size or spend limitations, some accept businesses no matter how small they are. Even if your company consists of a single employee, you can still find a PEO that accepts you.
Since working with a PEO is highly advantageous for small companies, it makes sense to try and find a partner that accepts your business. By entering such a partnership, you can gain access to better benefits, reduce HR costs, increase employee satisfaction rates, and streamline compliance.