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Why Should Small Business Owners Consider PEO?

ExtensisHR9 minute read

Quick look: HR management can be a challenging aspect of running any business, but for small- and medium-sized businesses, the challenges can be even greater. With limited resources and staff, SMBs often need help to attract and retain top talent, manage complex HR tasks, keep up with compliance, and maintain a positive workplace culture. So, when HR becomes too complicated for an SMB to handle on their own, working with a professional employer organization could be the perfect solution.

Small businesses play a crucial role in driving economic growth, and National Small Business Week (NSBW) is a perfect time to celebrate their contributions to communities and economies across the country. But as we honor these businesses, it’s essential to recognize and address the unique HR challenges facing SMBs and provide them with the support they need to succeed.

Here’s a look at the importance of recognizing NSBW and how a professional employer organization (PEO) can help these organizations grow, build a strong and productive workforce, and foster a positive workplace culture.

National Small Business Week

The U.S. Small Business Administration (SBA) has celebrated the accomplishments of small businesses in America for more than 50 years. And this year is no exception with National Small Business Week scheduled from April 30-May 6, 2023, where virtual events, conferences, seminars, information sessions, and networking opportunities will be held.

Surprisingly, most companies in the U.S. are defined as SMBs. Consider these eye-opening statistics:

  • 99.9% of all businesses are small businesses
  • 46.4% of U.S. employees are employed by small businesses
  • 12.9 million jobs have been created through small businesses
  • The professional and business services industry created over 1.1 million new jobs in the last year alone

Small businesses are clearly a moving force for the economy, but it can be tough to stay in the game. It’s been reported that within five years of opening their doors, an average of 50% of businesses fold. And since workforce management and labor account for nearly 70% of the business costs, it’s wise to explore how a PEO can help.

PEO: a brief overview for small business owners

A professional employer organization, or PEO, like ExtensisHR, is a company that delivers cost-effective, outsourced services for HR, payroll, employee benefits, recruiting, risk management, and compliance–giving business owners and managers more time to focus on revenue-generating activities. 

As the “employer-of-record,” a PEO handles daily employee management tasks but does not take over the day-to-day business operations or control any organizational decision-making. Because of the relationship with a PEO, businesses see countless advantages.

According to the National Association of Professional Employer Organizations (NAPEO), businesses that partner with a PEO:

  • Grow 7% to 9% faster
  • Experience 14% less turnover
  • See a 27% ROI in cost-savings
  • Are 50% less likely to go out of business

How PEOs help small businesses overcome workforce challenges 

Today’s competitive economy and job market makes being a small business harder than ever. From attracting top talent to managing HR tasks to controlling rising healthcare costs, here are seven key areas of HR where a PEO can be especially beneficial.

1. Compliance with employment laws 

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

Small businesses tend to lack the in-house resources needed for HR compliance. Often this task falls on the owner, which can be time-consuming and stressful due to the complexities involved with today’s employment laws.

Working with a PEO provides business owners with access to compliance and risk management professionals who help ensure SMBs stay up-to-date with all legislation. Given the frequency of employment legislation updates, a PEO partnership can help small business owners worry less about compliance and potential penalties that can come from violating employment legislation.

2. Managing rising healthcare costs

Rising healthcare costs are a significant challenge for employers, particularly small businesses. Insurance costs are expected to rise 5.4% this year, with many SMBs struggling to keep up. This can put a strain on their finances, limit their ability to attract and retain top talent, and hinder their overall growth and success. As a result, finding ways to manage employee benefit and healthcare costs has become a top priority for many employers.

PEOs can help overcome this challenge by providing small businesses with healthcare options that are similar in quality to Fortune 500 employers. PEOs have access to large group insurance plans, which are often more cost-effective than individual plans and allows small businesses to offer competitive benefit packages without breaking the bank.

Additionally, a PEO can negotiate with insurance carriers to get the best possible rates for their customers, further reducing healthcare costs. A PEO also handles administrative tasks related to healthcare and employee benefits, such as enrollment, processing, and compliance with regulations.

A good PEO will be able to tailor healthcare plans to the individual business based on location, industry, and employees. Considering how important healthcare benefits are for recruiting and retention today, this is one of the main benefits to a PEO partnership.

3. Recruiting and retention

Recruiting top talent is a goal for every SMB, but it’s also a challenge that keeps business leaders and hiring managers up at night. In today’s job market, finding the right candidate is harder than ever, and the process can often feel like a never-ending maze.

Small businesses must separate themselves from the competition. One way to accomplish this is by offering modern, competitive benefits, and having great health insurance options is a major component that workers look for.

Additionally, DEI initiatives, employee recognition programs, and learning and development resources are other areas that can help boost happiness and engagement – two critical aspects of retention.

To even further help small employers manage their recruiting challenges, ExtensisHR offers its full-cycle recruiting services at no additional cost, which include:

Recruiting and retention will likely become even more difficult in the years ahead as the talent market grows more competitive for employers. Small businesses can set themselves up for success by partnering with a PEO and improving many of their HR practices.

4. Enhanced benefits, workplace perks, and culture building

As employers of all sizes struggle with recruiting and retention, many have focused on improving current benefit offerings to meet the expectations and demands of today’s worker. In doing so, employers make themselves more attractive to not only potential candidates, but also current employees which helps to reduce turnover.

But enhancing benefits plans can be challenging for smaller employers, especially when selecting the appropriate benefits and the associated costs.

Working with a PEO enables small businesses to offer the same quality and quantity of benefits as large employers. These can include:

A PEO also keeps a pulse on the latest benefits, trends, and best practices to ensure their customers are offering the most competitive and attractive packages.

5. Employee learning and development

Workers today, especially younger generations, place substantial value in learning and development. In fact, many expect employers to offer some type of formal L&D program to help in their career progression.

Some professional employer organizations offer learning and development services that small businesses can then provide to their employees. In some instances, this is done through the PEO’s HR technology, which offers on-demand courses that workers can take when they choose. But a PEO could also provide materials to business owners to help them with other forms of L&D activities such as live training courses and guides.

Having a learning and development program can be a great differentiator that can help smaller businesses attract and retain talent.

6. HR technology

In today’s work-from-anywhere world, technology is an important part of every aspect of our daily lives. But until recently, most HR tech was only accessible to larger businesses with bigger budgets and staff to maintain their platforms.

However, as technology has become more accessible and affordable, small businesses have been able to implement HR technology into their offerings to employees, primarily through the use of outsourced solutions.

Many PEOs offer their clients access to HR technology, helping business owners, managers, and employees handle many day-to-day HR activities. These include:

  • Payroll
  • PTO requests
  • Compliance
  • Reporting and analytics
  • Employee management

Business owners and leaders can simplify their HR responsibilities and improve the employee experience through the use of technology, which a PEO partnership can provide.

ExtensisHR’s Work Anywhere® platform and mobile app is one such example. Designed for today’s distributed workforce to conveniently access their HR data from anywhere at any time, users can manage tasks like request PTO, complete their annual benefits enrollment, change personal information, and more. Better yet, the platform is paired with personalized customer service and access to HR, benefits, and risk and compliance experts.

7. Expert HR guidance and support

Perhaps the biggest benefit employers stand to gain from a PEO is the strategic partnership and guidance they provide, helping you focus on growing your business and supporting your employees.

A growing business has its own challenges associated with it, but a PEO can ease this burden. If a small employer outgrows its current benefit offerings, the PEO can make recommendations and provide new options that satisfy the needs of the business in its current growth stage.

Additionally, as a business grows, so too does its payroll and certain legal requirements. A PEO partner can help prepare business owners for these changes and ensure compliance as the company moves forward.

And should business leaders (or employees) have questions at any time, team members from the PEO are there to assist and help find solutions that ultimately benefit the company and employees. In the case of ExtensisHR, our professionals have a proven 11-second response rate when a customer reaches out for assistance.

The power of a PEO partnership for small businesses

In the spirit of Small Business Week, consider the benefits partnering with a PEO can provide. In addition to the above, a PEO partnership can also help SMBs:

  • Reduce or stabilize long-term benefit costs 
  • Improve the efficiency and cost-effectiveness of their HR workflow
  • Consolidate vendors
  • Reduce HR-related costs

Learn more about the value of a PEO and how ExtensisHR can streamline your HR functions so you can grow your business with confidence. Contact us today.

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