The Professional Employer Organization (PEO) industry continues its steamrolling success at a hefty growth rate of almost 30% per year- and that number increases each year! In 2017, PEO companies provide services to between 156,000 and 180,000 small and mid-size businesses, employing between 2.7 and 3.4 million people.
There are many reasons why employers turn to these companies for help with administrative and business matters. Employers want to focus their time and energy on running their business and not on the paperwork, liabilities and obligations of having employees.
Many small business owners do not have the mandatory training they need to perform human resource, payroll and accounting tasks that every business needs. They also might not have expertise in risk management or compliance to keep their business liabilities low. And since employee insurance programs continue to increase in difficulty and cost, some employers are not able to offer their employees access to these essential benefits.
PEOs take these burdens off the table and allow employers to refocus their attention to the parts of their company that need their proficiency. They have experts on staff to handle all of the HR, payroll, and workers’ compensation insurance hassles that take up so much valuable time. Plus, they give small-group markets access to many employee benefits and employment amenities they would not have otherwise.
A PEO’s economy of scale enables each of its clients to increase their bottom line by keeping their costs low. Plus, they provide time savings by handling regular occurring and time consuming tasks that become more or less “busy work” for them and their employees.
Between 1980 and 2000, the number of labor laws and regulations grew by almost two thirds, according to the federal Small Business Administration. This same study estimated owners of small or mid-sized business spent up to a quarter of their time on employment-related paperwork. Using a PEO company for these matters frees up the business owner so he/she can concentrate on sales and growth.
According to a recent study done by McBassi and Company for NAPEO (the National Association of Professional Employer Organizations), business owners who use PEOs have an edge over their competition when it comes to business growth. They found that businesses who use these services:
Had revenue growth that was twice that of those who do not (10 percent versus 5 percent);
Had expected revenue growth that was 40 percent greater than those who do not (14 percent versus 10 percent); and
Were 16 percent more likely to report an increase in profitability (58 percent versus 50 percent).
In addition, the same study (titled PEOs: Good for Businesses and Their Employees, September 2017) found that employers were happy in their outsourcing relationship. Findings include that:
98 percent would recommend a PEO to a small business colleague;
70 percent report that their revenues have increased since becoming a client; and
66 percent report that their pro tability has increased since becoming a client.
Employees who work for businesses using these companies are happy with the relationship, as well. This study shows that those employees report significantly higher scores on key measures related to employee satisfaction and confidence in company management, such as:
Levels of employee engagement (+5);
Intention to stay with their current employer until retirement (+8);
Belief that employer is taking the right steps to be competitive (+8);
Trust that employer is supporting employees in delivering excellent customer service (+7); and
Confidence in employer’s approach to growing the company (+5).
Almost any business can find value in a PEO relationship- clients range from accounting firms and construction to manufacturers and government agencies. The average client is a small business with an average of 19 employees, but some clients have fewer than three employees. Increasingly, larger businesses are signing up, too.