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The Power of PEOs: Why HR Outsourcing is Skyrocketing in Popularity

CoAdvantage- The Professional Employer Organization (PEO) industry is booming. A report from the National Association of PEOs looked at PEOs over the past decade and found an industry whose growth had outpaced even normal employee growth. Specifically, since 2008, the compounded annual growth rate of the PEO industry has exceeded the comparable growth rate of the U.S. employed labor force by 7.6 percentage points! 

In total, 487 PEOs with 173,000 clients collectively managed over 4 million worksite employees nationwide (150% more worksite employees than in 2008), representing 13.7 percent of all employment by private sector employers that have 10 to 99 employees.

This growth is astounding, and it begs the question…why have PEOs seen so much success?

What it comes down to is that the core function of a PEO is just incredibly valuable. It offers a genuinely useful service that isn’t otherwise available.

That’s because as soon as a business owner hires their first employee, they take on a new role on top of their role as owner to deal with all employee-related issues, government paperwork and personnel issues. “Employer” and “owner” are not complementary roles; they conflict because the “employer” roles will erode time, money, and resources away from the “business owner/manager” role.

Then, a PEO can also deliver big company advantages (like enterprise-grade benefits programs and Group Health plans) to small employers. That makes smaller businesses competitive in the talent marketplace even with their largest and most well-resourced competitors. In short:

  • A PEO can help you avoid the time-consuming tasks that are usually required to support functions like payroll, benefits administration, insurance, retirement programs, risk management, and more.
  • In fact, probably the biggest benefit of a PEO is that it can get the employer out of the employer business, so they no longer have to deal with liabilities like payroll taxes.
  • In turn, a PEO facilitates the efficiencies that result from economies of scale and having dedicated experts devoted to tasks within their realm of subject matter expertise.

At the end of the day, PEOs result in administrative costs are about $450 lower per employee and grow 9% faster than comparable businesses that don’t use a PEO.

PEOs also make businesses, especially small-to-midsize companies, more resilient against unexpected crises, which has been an existential issue during the pandemic. PEO clients were 60% less likely to shut down in the first months of the pandemic, for example.

Having the support of a partner like a PEO can be instrumental in navigating times of crisis. It doesn’t take a disaster however: even in normal times, PEO clients are 50% less likely to fail. Altogether, it’s no wonder the PEO industry has been skyrocketing in growth, given the advantages they reliably deliver for their clients

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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