What is a PEO?


Human resources is one of the most challenging parts of running a business. From compliance and payroll to benefits and workers' compensation, it's easy to get lost in the scale and complexity of HR. Luckily, there's an easy way out. Thousands of businesses partner with Professional Employer Organizations (PEOs) to relieve their HR burdens and help them focus on tasks that generate growth.

PEOs are outsourced HR partners focused on helping businesses reduce their administrative headaches. On average, businesses that partner with PEOs grow 7 to 9 percent faster and experience far fewer turnover, compliance, and administrative barriers. But how do PEOs work, and how are they able to create this intense layer of value for businesses?

Let's take a deep dive into how HR and PEOs work together to help you achieve your business goals. Here's everything you need to know about the Cadillac of outsourced HR solutions. 

Should your business be partnering with a PEO? Learn more!

What is a Professional Employer Organization (PEO)?

A Professional Employer Organization (PEO) is an outsourced HR partner that provides end-to-end HR assistance across a wide variety of needs. The unique relationship that PEOs forge with their clients allows them unparalleled scalability and flexibility in the HR space. Employers can outsource many unique HR functions (e.g., benefits administration, workers' compensation, payroll, and compliance) to PEOs to ease their administrative burdens. Over 180,000 companies use PEOs to help them conquer their HR requirements with or without an internal HR team.

What Do PEOs Do?

Provide Economies of Scale Benefits

For smaller companies, benefits can be a serious growth barrier. The average SMB pays 18% more for benefits than their larger counterparts. Unfortunately, these costly benefits packages are often less comprehensive than the Fortune 500 benefits acquired by businesses with scores of employees. This is due to "risk pooling." 

A mere 5% of employees account for over 50% of healthcare and benefits spending. For insurance companies, this 5% costs them more than they receive monthly from their plan. To offset those costs, benefits providers rely on the other 95%. To calculate this risk, they consider the total number of employees in your pool.

PEOs are the only outsourced HR partner that can pool employees from other companies with your employees to reduce benefits risks. In other words, your PEO can take employees from all the companies they partner with and use them to negotiate Fortune 500-level benefits on behalf of all their clients. This results in better benefits at lower costs.

Handle Workers' Compensation Insurance

The average cost of a workers' comp claim is over $40,000. Many SMBs don’t have the time, expertise, or resources to cater to worker safety concerns.

When you partner with a PEO to manage your workers’ comp administration, you create a safer work environment. Effective safety practices, claims management of injuries, safety training, employee assistance plans, back-to-work programs, and drug-free workplace programs enhance employee safety and well-being.

PEOs will conduct your annual audits and renewal processes, not only reducing hard dollar costs, but also time savings and a hassle-free path to compliance. 

Relieve Administrative Burdens

Administration is the Kryptonite of productivity. The average office worker wastes 552 hours a year on mundane and repetitive administrative tasks. For business owners, the situation is even worse. The average business owner spends over 60% of their time working "in" their business on paperwork and administrative tasks, and less than 30% working "on" their business to produce growth. A large chunk of those admin tasks come from human resources.

PEOs unshackle those chains. Not only do PEOs handle the nitty-gritty details like employee handbooks and redundant paperwork, but they can help you build world-class administrative frameworks that bear fruit for years to come. Your PEO will completely take over payroll — a task that consumes 18 to 40 hours of business owner time per month — and remit taxes on your behalf. All in all, PEOs drastically reduce your HR administrative workload, giving you time to focus on growth, value, and sales.

Reduce Risk

Risk is the buzzword of the century. For small businesses, risk can be the difference between keeping the doors open and closing them up for good. Unfortunately, SMBs are notoriously bad at risk management. The average small business will spend $83,000 in their first year attempting to navigate the regulatory tidal wave. Many will fail. When it comes to smaller regulatory needs like state and local ordinances, a significant percentage of small businesses can't keep up.

PEOs help by taking over many of your compliance needs. To be clear, the cost of noncompliance is 2x more expensive than compliance, even if you invest in super-expensive strategies and processes. PEOs bring cost-effective compliance strategies to your doorstep. Remember, your PEO is filled with HR experts that spend their time dealing with compliance issues, including small ones. You want someone with boots on the ground that's familiar with your local ordinances and requirements.

Implement Best-in-Class Human Resource Information Systems (HRIS)

Human Resources Information Systems (HRIS) are holistic solutions that rally employee and HR data under a single architecture. Your HRIS should be able to handle benefits selection, PTO requests, payroll, and employee information. An HRIS is an incredibly powerful tool. It brings a variety of tangible benefits to your organization immediately — including payroll, benefits administration, and self-service options. Forty-eight percent of HR pros are increasing spending on employee experience and employee portal technologies in 2020. And we expect that trend to continue for at least the next decade.

PEOs bring their own HRIS to your company. Not only does this prevent you from having to spend on an HRIS, but it eliminates your need to learn and select the right vendor since your PEO will already have a vetted and proven solution.

What Are the Benefits of Working With A PEO?

PEOs have an average ROI of over 27%, and they create value across multiple layers, including:

  • Cost-effective benefits
  • Low-cost workers' comp insurance
  • Reduced time spent on HR administration
  • Effective and accurate payroll
  • Established compliance frameworks
  • Vetted HRIS

Companies that work with PEOs are 50% less likely to fail, experience 10 to 14 percent lower turnover, and show higher levels of job engagement than their non-PEO counterparts. To put it simply, the benefits of working with a PEO are so deep and so rich that it can't be explained in a few sentences. PEOs revolutionize your HR capabilities, and that carries both tangible and intangible benefits that produce growth.

A Trusted PEO Can Help You Grow Faster, Smarter, and With More Purpose

PEOs are outsourced HR partners that provide immense value by providing cost-effective benefits, HR administration, payroll services, compliance capabilities, HR technology, and plenty more to businesses looking to shed some of their HR responsibilities. PEOs are a surefire way to increase your HR capabilities without impacting your growth or capital. 

Finding and partnering with a trusted and local PEO doesn't just help you rest your eyes without having nightmares about payroll taxes and regulations. It enables you to turn your attention back to what matters: your business's growth. Want to learn more about PEOs? Check out our blog.

Should Your Business Be Partnering with a PEO?