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4 Common Small Business HR Challenges a PEO Can Help Solve

Due to changing market conditions and shifting employee expectations, small employers face significantly greater challenges than ever before.

Human resources in particular has become increasingly more time-consuming in recent years, especially around the Affordable Care Act and other employment law compliance.

Considering the importance of HR and compliance, small and medium-sized business (SMB) leaders cannot afford to make mistakes. Otherwise they risk fines and penalties for non-compliance, as well as negative employee sentiment if issues arise with payroll, benefits, or workplace culture (which can lead to employee turnover).

To overcome HR challenges, SMBs are increasingly looking to outsourcing as a cost-effective option. Professional Employer Organizations (PEO) are one solution that can help SMB clients overcome various HR problems and achieve the growth and bottom-line results that are desired.

While PEOs can help with numerous HR issues, there are four common challenges that cause small business leaders to seek out this solution.


Perhaps the biggest driver for smaller employers to consider HR outsourcing (HRO) as a business solution are the rising costs associated with in-house HR.

This is especially true when it comes to employee benefits – health insurance in particular – and HR technology.

Over the last few years, there have been a number of major healthcare providers who are either reducing the number of small group plans they offer, or exiting the market all-together. 

These market challenges have limited the number of options available to small employers which has impacted their ability to provide high quality and affordable health insurance for employees and their families.

Additionally, with HR and employment compliance more complex than ever before, and penalties associated with non-compliance extremely severe, SMB leaders can often feel overwhelmed.

Working with an HR outsourcing provider like a PEO can help to alleviate this stress, lower HR costs, and ensure compliance at every level (federal, state, and local).

Because a PEO has group purchasing power for health insurance, they can often get their clients the same quality and quantity of benefits as Fortune 500 organizations. 

PEOs also provide regulatory, risk management, and compliance experts to their clients who can enhance or create workplace policies, and keep clients compliant with all HR and employment laws and regulations.


With HR administration becoming more cumbersome and time-consuming, SMB leaders need to spend additional hours and resources on this important function. However, this means spending less time on other activities that help to drive the business forward, achieve growth, and increase the bottom line.

One of the major benefits of outsourcing HR to a PEO is gaining back valuable time that leaders can use on more business-focused activities, and not have HR tasks suffer.

Also, in addition to compliance experts, clients gain accessibility to a wide-range of experts, including HR managers and benefit administrators. All of these experienced professionals help clients streamline HR services, and give back time to leaders.

By working with a PEO, small and medium-sized business leaders can spend significantly less time on HR, and instead focus all of their energy and work on the mission of the business.


We have written before about employee engagement, and the even more-important employee experience. These two areas of HR are critically important for building a strong workplace culture and a happy, productive workforce.

However, this is an area of major concern for smaller employers, especially those with employee benefits that may be lacking in their industry or area.

PEOs can help their clients address employee engagement issues and provide clients the resources that are needed to improve the employee experience.

Access to higher-quality benefits, formal learning and development resources, modern, easy-to-use HR technology, and access to HR experts all help smaller employers address engagement concerns and build a great company culture.

Additionally, PEOs can provide additional resources (such as guides and best-practice materials) that can help their clients with workplace culture and engagement initiatives.


Recruiting today is cited as one of the top challenges facing employers, regardless of company size. With the current talent shortage, and the importance of passive candidates, smaller employers are often at a disadvantage when competing for the best talent.

This is often due to a lack of employer branding and offering employee benefits that are below industry standards. The latter can also negatively impact employee turnover, which can prevent business growth and cost organizations a lot of money in trying to hire a replacement.

In a recent survey we conducted with CEB, now Gartner, we asked our clients which drivers most impacted the ability to attract and retain employees.

88% said the number one driver was the quantity and quality of benefits offered.

This is one of the major advantages to partnering with a PEO – gaining access to Fortune 500-level employee benefits. These go beyond the traditional benefits like health insurance, 401(k), vision, and dental.

Today, voluntary benefits are quickly becoming seen as essential when building benefit plans. Working with a PEO can provide a small or medium-sized employer with a complete benefits package that can help them better compete with larger organizations when recruiting talent, and prevent current high-performers from leaving.

Great recruiting and high retention are critical to business growth and success!


For many SMBs, HR challenges and issues can prevent a company from reaching their full potential.

Whether it’s high HR costs, poor employee benefit offerings, difficulties with recruiting, or compliance issues (just to name a few), any of these can result in problems for an employer.

However, seeking an outsourcing solution, such as a PEO, can help overcome HR challenges and turn them into competitive advantages that help a company stand out in the crowded recruiting landscape, while also achieving bottom line growth.

Researching PEOs and other forms of HR outsourcing can help a business owner better understand how these solutions work, what this type of partnership will mean for an organization and its employees, and ultimately whether there is a fit for a partnership.

What’s the difference between co-employment and employee leasing? Check out our eBook, Co-Employment vs. Employee Leasing: The Differences Brokers (and Clients) Should Know, to learn more about how different they really are!

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