4 Small Business HR Challenges PEOs Can Solve

Quick look: While leading a small business is incredibly rewarding, it also has its hurdles. Luckily, professional employer organizations (PEOs) specialize in helping these companies not just resolve problems but perform better than before. This Small Business Saturday, review small employers’ top HR challenges and how a trusted PEO partner can guide and empower them every step of the way.

Small Business Saturday is here! The initiative, which falls on November 30 this year, aims to celebrate and support small businesses and the many ways they contribute to their communities.

Founded in 2010 by American Express, Small Business Saturday has become a pillar of the holiday shopping season. According to the American Express’s 2023 Small Business Saturday Consumer Insights Survey, U.S. consumers spent approximately $17 billion at independent retailers and restaurants on Small Business Saturday that year.

As local stores open their doors and encourage consumers to “Shop Small,” it’s a reminder of the hard work business owners put in each day. But behind the scenes, many of these companies face significant human resources (HR) challenges, from stretching their budgets to retaining employees.

Small- and medium-sized businesses (SMBs) often choose to outsource HR functions so they can address these issues while continuing to focus on growth. Professional employer organizations (PEOs) are one type of HR outsourcing partner that enables them to do this.

While PEOs assist with numerous HR functions, here are four common HR challenges for small businesses they can solve:

1. Cost efficiency concerns

While inflation is dropping, budgeting smartly continues to be a goal for organizations of all sizes.

According to a recent PwC Pulse Survey, 80% of chief human resource officers (CHROs) said their business is doing more to address cost optimization than a year ago. Further, 79% report hiring fewer employees, and nearly 90% claim they’re upskilling their workforce to increase productivity.

Recent market conditions have limited the number of benefit options available to small employers, impacting their ability to provide affordable, high-quality health insurance for employees and their families.

This is one area where a PEO can prove valuable. By leveraging a PEO’s economy of scale, SMBs can potentially save money on employee benefits, so funds can be reinvested in areas like workers’ salaries or other strategic company initiatives. These investments allow SMBs to retain high performers and compete with larger organizations when recruiting talent.

PEOs also provide risk and compliance expertise to keep SMBs compliant with all federal, state, and local HR and employment laws and regulations, including ACA, COBRA, ERISA, and more—mitigating the potential of costly penalties.

2. Adapting to the use of artificial intelligence (AI)

AI is making a splash in the workplace. According to Microsoft and LinkedIn’s 2024 Work Trend Index Annual Report:

• 75% of people use AI at work
• 90% say it helps them save time
• 79% of business leaders agree their company needs to adopt AI to stay competitive

However, despite these trends, just 39% of workers have received AI training from their employers.

By partnering with a PEO, SMBs can take advantage of the latest AI tools in multiple ways. On one hand, a PEO’s recruiting experts can aid in securing top talent who are skilled in AI. And on the other hand, the PEO may use AI-based recruiting tools to identify and hire the workers small businesses need the most (whether those roles involve utilizing AI or not). Some PEOs, like ExtensisHR, offer DEI-focused sourcing from AI technology that can extract candidates from dozens of platforms and millions of profiles.

As companies begin incorporating AI into their processes, they must remember technology performs best when paired with a human element. Empathy, creativity, and critical thinking are essential in a business’s customer service, complex problem-solving, and relationship-building capabilities.

3. Employee skills development

Teaching workers new skills is a hot topic. According to LinkedIn’s 2024 Workplace Learning Report, 90% of organizations worry about retaining their staff (more on that later), and providing learning opportunities was the top method to keep them. In fact, a strong learning culture was associated with a 57% higher retention rate.

PEOs can assist small business leaders on this journey with their expertise in designing professional development and learning and development (L&D) pathways. Certain PEOs may also offer affordable access to industry-leading employee engagement and performance platforms.

4. Workforce engagement and retention

While the job market is cooling down, engaging and holding on to talent remains a priority for businesses.

Per a recent Gallagher study, organizational leaders must keep an eye out for “company seekers,” or those who are content in their roles but may still seek other opportunities if they’re not satisfied with their level or pace of career development. It’s estimated that “company seekers” comprise 20% of each organization’s workforce.

To mitigate potential loss, business leaders should regularly revisit their engagement strategies and focus on the top drivers of employee engagement, which, according to Gallagher, include:

• Sound career development pathways
• High confidence in the organization’s products/services
• Trust in senior leadership
• A culture of respect and inclusivity
• Relationship health and overall connectivity with manager/supervisors

Partnering with a PEO can simplify this process by helping businesses gain deeper insights into what employees truly value and what’s needed for them to stay. From there, they can create a personalized strategy to “re-recruit” staff and highlight a company’s value, including elements like consistent communication, customized employee benefits, and establishing a re-onboarding program.

Additionally, PEOs can provide additional resources, like guides and best-practice materials, to help small business leaders with workplace culture and engagement initiatives.

Picking the right partner to solve your small business HR challenges

HR concerns can prevent many SMBs from reaching their full potential.

Limited budgets, evolving employee benefits expectations, recruiting difficulties, and compliance complexities can impact any employer, particularly small ones.

However, leveraging an HR outsourcing solution, such as a PEO, equips small businesses to overcome these challenges and turn them into competitive advantages that positively impact their recruiting efforts and bottom line.

By researching PEOs and other forms of HR outsourcing, business leaders can better understand how these solutions work and what this type of partnership would mean for their organization and employees.

But, with hundreds of PEOs in the country, how do business leaders choose a potential partner? Some factors to consider include:

• Comprehensive HR solutions: Does the PEO offer customizable benefits packages, risk and compliance services, and dedicated HR Managers?
• Level of customer support: Does the PEO rely on support ticket systems and automated phone trees, or do they have a dedicated customer service model including in-house experts that can resolve issues the same day?
• Recruiting capabilities: Does the PEO provide recruiting services, and if so, is there an associated fee? (While most PEOs charge for recruiting support, ExtensisHR includes these services in its PEO solution at no additional cost.)
• Employee development offerings: To drive success, PEOs should have an on-demand knowledge base, give guidance on mentorship programs, and offer optional services like access to industry-leading employee engagement and performance platforms, such as 15Five.
• Qualifications: Choosing a trusted PEO is important. Only 1% of PEOs hold all top three industry credentials: ESAC Accreditation, Certification Institute (CI) for Workers’ Compensation and Risk Management, and IRS Certified PEO (CPEO) designation. Does the PEO you’re evaluating maintain those?
• Positive reputation: HR providers’ average net promoter score (NPS) is 46%. Where does the PEO fall relative to that?

ExtensisHR is proud to empower SMBs to overcome their HR challenges with a comprehensive suite of solutions and unmatched customer support. With tailored HR services, an array of credentials, and a customer service team that answers the phone in 10 seconds or less, we have what it takes for small businesses to succeed on Small Business Saturday and beyond.

Want to learn more about how ExtensisHR can streamline your HR? Explore our PEO solution, or connect with our experts today.