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5 Questions to Decide if You Should Outsource Your HR to a PEO

CoAdvantage- Professional Employer Organizations (PEOs) can be an exceptional option for cash- and resource-strapped small to midsize business owners. They let these organizations gain access to enterprise-grade services and experts in recruitment, benefits administration, labor compliance, risk management, and more, all at economy-of-scale pricing. But how do you know when a PEO becomes the right option for your business? When is the best time to begin outsourcing some or all of your HR activities to a PEO? To answer those questions, it’s necessary to take stock of your business situation.

1: How big is your company?

In general, PEOs are ideal for small to midsize companies with around 15-80 employees. That said, it’s not really the raw number of employees that matters. Rather, you want to look at the point at which the administrative requirements of handling HR begin to outpace internal resources such that the business owner is spending too much time on the work and productivity begins to slow down.

2: Will the PEO successfully save you money?

Outsourcing almost always comes down to the money. “What drives the clients’ decisions is cost reduction,” said one respondent to Deloitte’s 2020 Global Outsourcing Survey. “If there is no positive cost case, it will not happen. It is always about cost.” That said, it is extremely easy for HR costs at small and midsize businesses to spiral, and it can be all but impossible to access cost-competitive pricing for benefit and other HR programs unless they outsource. When they do, they save. “Some 78 percent of GOS respondents said their HRO provider either met or exceeded objectives related to cost,” Deloitte also found.

3: Is the PEOs cost lower than the value it produces?

PEOs can be surprisingly inexpensive relative to the value they provide. The cost generally ranges between 2% and 15% of payroll, but raw costs are only half the story. The support PEOs provide can often produce unexpected and hard to quantify value. For example, according to a report from the National Association of PEOs (NAPEO), the support provided by PEOs was measurably beneficial in the aftermath of COVID-19: PEO clients were 60% less likely to permanently close and 119% more likely to receive Paycheck Protection Program (PPP) loans.

4: Are you struggling with any HR areas?

If so, you may benefit from a professional service. Consider recruitment and turnover: an estimated 80% of all turnover results from poor hiring practices, with an average annual turnover rate of around 19%. PEO clients, however, see 10% to 14% lower annual turnover rates than U.S. companies as a whole.

5: Are you taking on HR-related risks you don’t know about or can’t manage?

We’ve written extensively about HR-related risk management (see our series here: Intro, Part 1, Part 2, Part 3, and Part 4). Risk management, especially related to labor law and regulatory requirements, is a complex, confusing, and always changing field. Just having a partner on your side whose entire business model rests on staying on top of these issues can help to tangibly reduce risk.

CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about CoAdvantage’s ability to create a strategic HR function in your business that drives business growth potential, contact us today.

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