An executive summary of the related trends and benefits of employing a PEO.
What is a PEO?
Simply put, a Professional Employer Organization (PEO) is an umbrella organization under which client firms (who are often small businesses) can outsource employee management tasks, such as employee benefits and payroll, as well as secure access to competitive insurance and healthcare rates.
Why do I need one?
According to a number of in-depth studies across a variety of industries, the data shows that small businesses who partner with PEOs have a higher rate of growth, a reduced rate of failure, and more competitive access to high-skill talent.
How can they help my company?
Depending on the individual needs of your firm, PEOs can help in a variety of ways. Small firms will find PEOs immensely helpful when it comes to HR administration and infrastructure. PEOs also take on other administrative tasks such as payroll, benefits, recruiting, regulatory compliance, and risk reduction. Furthermore, as an umbrella corporation, PEOs are able to negotiate for their clients competitive insurance and healthcare rates and benefits that reduce costs and promote employee satisfaction.
Generally speaking, PEOs are most useful to companies that do not have a dedicated HR department. This means that almost all small to mid-sized companies, and some larger firms, could benefit substantially from partnering with a PEO. PEO services are also often offered a-la-carte in order to complement the existing capabilities of many client firms.
Key PEO industry trends and statistics:
- Nearly half of all small businesses fail in the first five years; two-thirds fail within a decade.
- The smallest firms paid 36 percent more per employee to comply with federal regulation compared to their larger peers.
- 8 percent of all businesses in the United States fail per year. Only 4 percent of firms that employed a PEO for four consecutive quarters fail per year.
- Average employee turnover in the United States is 42 percent per year. PEO clients had a 10 percent lower employee turnover rate.
- 47 percent of employees surveyed cited retirement benefits as “very important”.
- PEO clients are 3 times more likely to offer retirement benefits.
- Employment growth of PEO clients has been 9 percent higher than the small business sector, and 4 percent higher than employment growth in the U.S. economy as a whole.
Top 5 trends and benefits of a PEO-client relationship:
- PEO clients are able to offer a broad array of benefits at a lower cost than their competitors who do not use PEOs.
- Employees of PEO clients participate in retirement and health benefits at a higher rate.
- Employers in a PEO relationship have lower rates of employee turnover.
- PEO clients have higher rates of long-term survival.
- PEO clients displayed higher rates of sustained growth.
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- “SBA: Frequently Asked Questions”
- “Professional Employer Organizations: Fueling Small Business Growth”
- “Professional Employer Organizations: Keeping Turnover Low and Survival High”