7 Advantages of a PEO for Small Businesses

Quick look: Managing human resources (HR) can be difficult for any organization, but even more so for small- and medium-sized businesses (SMBs). With limited resources and staff, these companies often need help navigating complex HR tasks like attracting and retaining top talent, maintaining compliance, and creating a positive workplace culture. So, when HR becomes too complicated for SMBs to handle independently, working with a professional employer organization (PEO) could be an ideal solution.

Small businesses play a crucial role in driving economic growth, and National Small Business Week (NSBW) is the perfect time to celebrate their contributions to communities and economies across the country.

As we honor these businesses, it’s essential to recognize and address their unique HR challenges and offer them the support needed to succeed. Here’s a look at the importance of NSBW and how PEOs help SMBs grow, develop engaged and productive workforces, and strengthen their company cultures.

All about National Small Business Week

The U.S. Small Business Administration (SBA) has celebrated the accomplishments of small businesses in America for over 50 years. This year, National Small Business Week takes place May 4-10 and includes virtual events, conferences, seminars, information sessions, and networking opportunities.

SMBs are the backbone of the U.S. economy, driving job creation, innovation, and economic growth. Consider these eye-opening statistics:

• 99.9% of American businesses are classified as small
• Nearly 35 million small businesses exist in the country
• 45.9% of U.S. employees, or roughly 59 million people, are employed by small businesses
• Small businesses account for over 43% of the country’s gross domestic product (GDP)

Unfortunately, an average of 50% of businesses close within five years of opening their doors. Since workforce management and labor account for nearly 70% of business costs, it’s wise to explore how a PEO can help streamline operations and mitigate expenses.

PEO: a brief overview for small business owners

A PEO is a company that delivers cost-effective, outsourced HR, payroll, employee benefits, recruiting, and risk and compliance services. By offloading these tasks to a PEO, businesses can spend more time on revenue-generating activities.

PEOs and their customers engage in a co-employment relationship. This means that a PEO handles daily employee management tasks but does not control business operations or organizational decision-making. This dynamic has multiple advantages. According to the National Association of Professional Employer Organizations (NAPEO), companies that partner with a PEO:

• Grow twice as fast
• Experience 12% less turnover
• See a 27% ROI in cost savings
• Are 50% less likely to go out of business
• Experience a 16% increase in profitability

Why use a PEO? 7 challenges PEOs help small businesses overcome

In today’s competitive economy, operating a successful small business is harder than ever. From attracting potential employees to controlling rising healthcare costs, here are seven key areas of HR where a PEO can prove beneficial.

1. Compliance with employment laws 

One of the most critical HR responsibilities is maintaining compliance with federal, state, and local employment legislation.

SMBs may lack the in-house resources needed for complete HR compliance. This task often falls on the owner, which can be time-consuming and stressful due employment laws’ complexities and ever-changing nature.

Working with a PEO provides companies access to seasoned compliance and risk management professionals who ensure they continually abide by all legislation. With frequent employment law updates, a PEO partnership allows small business owners to worry less about compliance and potential penalties for violating legislation.

2. Managing healthcare costs

Rising healthcare costs are a significant challenge for employers, particularly small businesses.

Insurance costs are expected to increase again this year, causing many SMBs to experience financial strain, limited ability to attract and retain staff, and reduced overall growth. As such, managing employee benefits and associated costs has become a priority for many organizations.

PEOs can help overcome this challenge by providing SMBs with Fortune 500-level healthcare options. With access to cost-effective large-group insurance plans, PEOs enable small businesses to enjoy competitive benefits without breaking the bank.

Additionally, a PEO can negotiate with insurance carriers to get the best possible rates for their customers, further reducing costs. PEOs also handle benefits administration tasks like enrollment, processing, and compliance.

The right PEO can tailor healthcare plans to an individual business’s location, industry, and employee demographic. This is a key benefit of a PEO partnership, as personalized healthcare benefits are critical for recruiting and retention.

3. Hiring and keeping top talent

To recruit and engage workers, small businesses must differentiate themselves from their competition. One way to accomplish this is by offering benefits geared toward today’s diverse workforce.

Impactful inclusion initiatives, employee recognition programs, and learning and development resources can also boost happiness and engagement—two critical retention aspects.

Additionally, some PEOs provide talent acquisition services. For example, ExtensisHR’s full-cycle recruiting services are available at no additional cost and include:

• Recruiting for most staff-level positions
• Job advertisement creation
• Salary surveys
• Skills assessments
• Interview assistance
• Offer letter consultations
• And more

4. Accessing enhanced benefits and perks

Many employers focus on improving their current benefit offerings to meet the expectations and demands of today’s workers. However, selecting appropriate benefits and managing costs can be challenging for smaller companies.

Working with a PEO enables SMBs to acquire the same quality and quantity of benefits as large employers, including:

• Personalized health insurance plans
• Retirement savings benefits
• Voluntary benefits (e.g., accident insurance, family-forming support, legal services benefits, pet insurance)
• Complimentary benefits (employee assistance programs, exclusive discounts)

A PEO also remains aware of the latest benefits trends and best practices to ensure its customers remain informed and poised to adapt.

5. Supporting professional development

Workers today, especially younger generations, highly value learning and development (L&D). Many expect employers to have a formal L&D program to help them progress in their careers, something smaller businesses can leverage to stand out.

Some PEOs offer learning and development services that customers can share with their employees. This may include on-demand courses available on the PEO’s HR platform, live training, how-to guides, or access to employee engagement applications like 15Five that facilitate goal setting, manager feedback, and one-on-one meetings.

6. Adopting HR technology

Until recently, most modern HR technology was only accessible to larger companies with bigger budgets and staff to maintain the platforms.

However, small businesses can now affordably access these tools through outsourcing partners, like a PEO. This technology enables SMBs to streamline various daily HR activities, including:

• Payroll
• Paid time off (PTO) requests
• Compliance
• Reporting and analytics
• Employee management

For example, ExtensisHR’s Work Anywhere® platform and mobile app allow distributed workforces to conveniently access their HR data from anywhere at any time. Users can request PTO, complete their annual benefits enrollment, update their personal information, and more.

7. Leveraging additional HR expertise

One of the biggest advantages employers gain from a PEO is their strategic partnership and guidance. In a PEO partnership, business leaders can focus on expansion and supporting staff instead of reviewing the organization’s compliance or deciding the best way to design its benefits package.

Many companies experience growing pains, but PEOs can ease the burden. If a small employer outgrows its current benefit offerings, a PEO can make recommendations and provide new options that satisfy the organization’s needs in its current stage.

Additionally, as SMBs develop, so do their payroll and legal requirements. A PEO partner can prepare business owners for these changes and ensure compliance as organizations move forward.

PEOs can also answer employees’ HR-related questions. However, not all PEOs have the same caliber of customer service. While some deliver prompt, attentive support, others may leave customers waiting endlessly on hold.

Is ExtensisHR the right PEO for you?

Small businesses represent the ambition of millions of Americans and are a cornerstone of the nation’s economy. ExtensisHR, a highly certified, nationally recognized PEO, proudly helps them prosper by enabling them to:

• Reduce or stabilize long-term benefit costs
• Improve the efficiency and cost-effectiveness of their HR workflow
• Consolidate vendors
• Reduce HR-related costs
• Hire and keep the right talent
• Maintain compliance
• Foster an engaged, productive workforce

Additionally, ExtensisHR’s customer service team offers quick, personalized support, answering phone calls in 10 seconds or less and resolving 95% of issues same-day.

Ready to learn more about how ExtensisHR can help your small business reach its goals? Explore our PEO solution, or contact us today to start a conversation.