4 Small Business HR Challenges PEOs Can Solve

Quick look: Small Business Saturday highlights the vital role local businesses play in their communities, and the challenges they manage behind the scenes. As small companies navigate growth, rising costs, talent pressures, and complex compliance requirements, many are turning to human resources (HR) outsourcing for support. Partnering with the right professional employer organization (PEO) can help them operate more efficiently, stay compliant, and attract and retain talent.

Small Business Saturday, falling this year on November 29, celebrates the important role of small businesses across the country.

Since its launch in 2010 by American Express, the day has grown into a key part of the holiday shopping season. In fact, the company’s 2024 Small Business Saturday Consumer Insights Survey found that U.S. shoppers spent about $22 billion at independent retailers and restaurants on last year’s event, underscoring the power of “Shop Small.”

While this day honors small business owners’ dedication, many face daily hurdles behind the scenes, like tight budgets, talent management, and the administrative burden of HR overall. To ease these pressures, many small and medium-sized businesses (SMBs) turn to HR outsourcing. One popular option is partnering with a professional employer organization (PEO), which can take on HR responsibilities and provide essential support.

While PEOs offer a wide range of services, they are particularly effective at addressing four common HR challenges for small businesses:

1. Navigating growing pains

As businesses expand, they face an increased level of employment laws, state and local regulations, payroll tax complexity, misclassification risks, leave laws, and more. During growth, the administrative workload (payroll, HR operations, benefits administration, etc.) balloons and often, many SMBs lack the headcount or infrastructure to scale HR efficiently.

How a PEO helps

A PEO provides HR and compliance expertise to monitor regulatory changes, manage payroll tax filings, ensure correct classification of workers, and implement compliant policies, all reducing risk and administrative burden. By offloading these functions to a PEO, business owners free up time and internal resources, allowing them to prioritize growth rather than HR operations.

2. Rising labor and benefits costs

Small businesses are feeling the squeeze as wages rise to keep pace with everyday living expenses, while payroll and benefits costs continue to climb. These financial pressures can make it difficult for SMBs to remain competitive in the talent market while still protecting their bottom line.

How a PEO helps

Because a PEO groups many small businesses together, it can negotiate better group rates through economies of scale for health insurance, retirement plans, and other benefits. This enables SMBs to offer comprehensive benefits more cost-effectively and reinvest savings in other areas to strengthen their business stance.

3. Attracting, retaining, and developing talent

SMBs often face an uphill battle when it comes to finding and holding onto top talent. Widening skills gaps (particularly in areas like AI and other specialized fields) and rising employee expectations make recruiting increasingly competitive.

At the same time, rapid automation and digital transformation are prompting companies to continuously invest in learning and development to keep their workforce current. For many SMBs, maintaining this momentum can be tricky without dedicated HR resources.

How a PEO helps

PEOs provide end-to-end support across the talent lifecycle, from recruiting to learning and development. They help small businesses access professional recruiting resources, streamline hiring processes, and create a stronger candidate experience. Once employees are onboard, a PEO can introduce structured training programs and help create mentorship programs, encouraging employees to grow within the organization and improving retention.

4. Adopting responsible AI usage

As AI becomes more intertwined in business operations, small companies face the complex task of integrating these tools into their processes responsibly. This includes developing clear policies around AI use, safeguarding employee data, and ensuring that AI-assisted recruiting practices remain ethical and compliant. For SMBs with limited technical know-how or HR bandwidth, keeping up with these standards and regulations can be overwhelming.

How a PEO helps

PEOs guide SMBs in adopting AI tools responsibly, including drafting AI usage policies and combining humans and technology in recruiting. ExtensisHR, for example, offers complimentary recruiting services that blend human expertise with AI-powered tools, helping businesses attract and assess candidates efficiently while maintaining fairness and compliance.

ExtensisHR: dedicated to small business success, all year long

SMBs often struggle to reach their full potential when consumed with HR challenges. Tight budgets, shifting employee expectations, hiring difficulties, and complex compliance requirements can create significant obstacles, especially for smaller employers.

Partnering with an HR outsourcing provider like a PEO can transform these pain points into strategic advantages that strengthen recruitment efforts and improve overall business performance.

While outsourcing can be an effective way to manage HR challenges, SMB owners should carefully evaluate which approach and which partner best fits their needs. With hundreds of PEOs nationwide, identifying the right provider requires consideration of several factors:

• Tailored HR services: Look for a PEO that offers customizable benefit options, risk and compliance support, and direct access to dedicated HR experts who understand the needs of your specific industry and goals.
• Quality of customer support: Are clients routed through ticket systems and automated menus, or can you speak directly with in-house specialists? Fast, personalized support makes all the difference.
• Recruiting services: Does the PEO provide recruiting services, and is there an extra fee? Unlike many competitors, ExtensisHR includes these services in its PEO offering at no added cost.
• Employee development resources: Effective PEOs offer robust learning tools, mentorship guidance, and optional access to leading engagement and performance platforms like 15Five.
• Proven credibility: Only about 1% of PEOs hold all three top industry credentials: ESAC accreditation, CI certification, and IRS Certified PEO status. Does the provider you’re reviewing have these qualifications?
• Reputation: The average net promoter score for HR providers is 48%. How does the PEO compare?

ExtensisHR combines national reach with a boutique service approach, helping SMBs tackle HR challenges with a complete suite of services and exceptional customer support. Backed by extensive credentials, an NPS approximately double the industry average, and a service team that answers calls in under 15 seconds, we empower growing companies to succeed on Small Business Saturday and beyond.

Want to learn more about how ExtensisHR can help your small business shine? Explore our PEO solution or reach out to our team of experts today.