Study: PEO Clients Grow Faster and Show Greater Resilience than Non-PEO Businesses

According to a recent white paper published in September of 2024, PEO clients (companies who partner with a Professional Employer Organization, or PEO) are more resilient businesses and have lower turnover than those who do not outsource to a PEO.  

Here is a breakdown of the research. 

What PEOs Offer 

Professional Employer Organizations (PEOs) have become a cornerstone for many small and medium-sized businesses looking to outsource human resource management. PEOs offer comprehensive HR services, including payroll, employee benefits and benefits administration, and regulatory compliance. 

How PEOs Provide a Competitive Advantage 

By taking on the critical but time-consuming responsibilities of HR administration, PEOs allow business owners and managers to focus more on their core competencies—driving strategic growth, improving products or services, and building strong relationships with customers. 

One compelling advantage of partnering with a PEO is the significant difference in business growth, employee retention, and overall resilience that PEO clients experience compared to their non-PEO counterparts. 

Growth Rates of Businesses That Outsource vs. Those That Do Not Outsource 

According to data gathered from over 15,000 client businesses with more than 300,000 total employees, companies working with a Professional Employer Organization demonstrated an annual employee growth rate of 4.3% from January 2023 to January 2024. This is more than double the growth rate of 1.9% observed in a comparable group of businesses not working with a PEO. 

Such robust growth highlights the tangible impact that PEO services have in enabling companies to expand their workforce at a faster pace than those that handle HR management internally. 

Growth and Employee Turnover: Key Metrics 

The data underscores a striking trend: businesses that use a Professional Employer Organization (PEO) grow more quickly than those that do not. The 4.3% growth rate among PEO clients significantly surpasses other national benchmarks, including figures from the Bureau of Labor Statistics (BLS).  

Companies without a PEO, even when controlling for size and industry, cannot match this level of growth. 

Outsourcing to a PEO Leads to Higher Retention 

This accelerated growth is not solely driven by Professional Employer Organizations enabling companies to hire more people—it is also about fostering better employee retention.  

Clients of a Professional Employer Organization benefit from lower employee turnover rates than comparable businesses that are growing at a similar pace. In fact, turnover among PEO clients is 12% lower than that of non-PEO companies, with non-PEO businesses reporting a turnover rate of 57.6%, versus 50.4% for PEO companies.  

The analysis adjusted for variables like company size and growth rate, suggesting that employees are more likely to stay with companies that outsource their HR to a PEO. 

Why Do PEO Clients Grow Faster? 

There are several factors contributing to why Professional Employer Organization clients experience faster growth and lower employee turnover: 

1. Focus on Strategic Priorities

Outsourcing HR to a PEO frees up significant time and resources, allowing businesses to prioritize strategic initiatives. This means company leaders can focus on scaling operations, marketing efforts, and product innovation, which directly leads to faster employee growth and overall business expansion. 

2. Improved Employee Benefits

PEO clients typically offer a wider range of employee benefits compared to businesses that manage HR independently because of the co-employment relationship. This makes them more attractive employers, improving their ability to attract and retain top talent. Workers are more likely to stay with companies that provide robust benefits, fostering greater loyalty and reducing turnover. 

3. Professional HR Management

The certified HR expertise provided by PEOs ensures that clients have access to high-quality employee services, including compliance with labor laws, robust training programs, and conflict resolution strategies. These professional services create a more positive and stable work environment, which promotes both retention and growth. Companies also experience less liability through shared employment when outsourcing to a PEO. 

Resilience in the Face of Economic Challenges 

Resilience—the ability of a business to survive and thrive, even during economic downturns—is another crucial area where Professional Employer Organization (PEO) clients outperform their peers. 

PEO clients demonstrate greater resilience, as measured by business survival rates, than non-PEO businesses. The analysis shows that organizations not using a PEO are 50% more likely to go out of business annually compared to those that do use a PEO. 

This resilience is particularly noticeable during challenging economic conditions, such as recessions or periods of market volatility. The ability of PEO clients to maintain stable workforces and reduce turnover plays a significant role in their ability to weather economic storms. 

Businesses that have access to professional HR management, legal compliance assistance, and risk management through their PEO are better positioned to survive when times are tough. 

Industry-Specific Trends: PEOs for Small Businesses 

The benefits of working with a Professional Employer Organization are not evenly distributed across all industries. Some sectors experience even more pronounced advantages when it comes to resilience and growth, particularly for small businesses. 

The most substantial differences are observed in industries like Construction, Retail Trade, and Finance and Insurance. In these sectors, PEO clients see markedly higher growth rates and business survival metrics than non-clients. 

Conversely, industries such as Manufacturing and Health Care/Social Assistance show smaller, though still significant, resilience advantages when working with PEOs. 

Regardless of industry, the overarching trend is clear: PEO clients consistently show stronger business fundamentals than their non-PEO counterparts. 

Business Resilience and Survival 

Data from previous analyses show that Professional Employer Organization clients exhibit similar resilience benefits over time. (There is no distinction of this just being clients of a Certified Professional Employer Organization through the Employer Services Assurance Corporation and non-certified PEOs.)

For instance, a previous comparison of survival rates between PEO clients and non-clients showed similar trends to the current analysis. This consistency over multiple years suggests that the benefits of using a PEO are long-lasting and not merely a reflection of short-term advantages. 

The importance of the services PEOs provide cannot be overstated, especially for small business owners.  

For some struggling businesses, the difference between survival and failure hinges on the HR functions that PEOs offer, including payroll processing and management, access to health insurance, compliance with federal and state employment laws, workers' compensation, human resources (HR) support, and employee training programs. 

In many cases, the HR tasks a PEO completes make the difference between staying afloat and going under, particularly in industries with tight margins or high regulatory burdens. 

Conclusion: A Clear Advantage for PEO Clients 

In conclusion, the data clearly shows that businesses using Professional Employer Organizations grow faster, retain employees more effectively, and are more resilient in the face of economic challenges than those that do not use PEOs. 

The partnership with a PEO allows companies to focus on their strategic priorities rather than HR responsibilities, which in turn drives growth.  

With lower turnover rates and greater employee satisfaction, PEO clients are also better positioned to maintain stability and continuity, even in tough times. As a result, it is no surprise that PEO clients consistently outperform their peers, not only in terms of employee growth rates but also in overall business survival. 

For businesses looking to scale and succeed in today’s competitive environment, partnering with a PEO presents a compelling opportunity. Whether in periods of economic growth or downturn, the evidence points to PEOs as key drivers of long-term business success.  

Where Do I Find More Information about Professional Employer Organizations? 

For more information on outsourcing HR or to find the best PEO service, book a free consultation and our team will contact you shortly!