The Benefits of PEOs for Small Business Growth - A NAPEO Study

A new study found that companies who outsource to a PEO grow faster, have lower employee turnover, and have a significantly higher rate of survival.



According to a study by McBassi and Associates, small businesses that outsource HR services to a PEO (Professional Employer Organization) grow faster, have lower rates of employee turnover, and have higher rates of business survival than other comparable small businesses.

"A company’s ability to survive and profit increasingly hinges on the degree to which it can manage its employees more effectively than its competitors can manage theirs."

Numerous research studies have found that those companies best at managing their people are subsequently more likely to enjoy success in the marketplace and have a greater appreciation in their share price than their competitors.

Achieving sustainable competitive advantage through better management of employees is a huge challenge for even the largest and most sophisticated companies, but that challenge is even greater for small businesses and mid-size organizations.

PEOs help their clients tackle this by managing the “people side” of their businesses more effectively, avoiding compliance pitfalls, and creating key benefits for the business and its employees while simultaneously freeing up time for owners and executives to concentrate on growing their businesses by focusing on operations, strategy, and innovation.

At Stratus HR, we've mastered the art of turning HR hurdles into strategic assets for small businesses. Don't let HR complexities slow you down. Elevate your business with our expertise. Book a free consultation with our HR experts today and unleash your business's true potential.

The Strategic Advantage of PEOs for Small Businesses

As a small business owner, you understand the importance of effective Human Resources (HR) management in driving the success of your venture. HR is critical in hiring, retaining, and developing talent, ensuring compliance with regulations, and fostering a positive work culture. 

However, managing HR can be a significant challenge for small businesses with limited resources and expertise.

An inefficient HR approach can lead to negative consequences like high turnover, compliance violations, payroll errors, and time wasted on administrative tasks that could be better spent on core business activities. This is why a Professional Employer Organization (PEO) is a game-changer for small businesses.

Here’s a deeper look at why hiring a PEO for small businesses is a great strategic move that would set up your growing business for long-term success.

What is a Professional Employer Organization (PEO)?

A Professional Employer Organization (PEO) is an HR outsourcing company that partners with small and medium-sized businesses to provide comprehensive HR services. When you engage a PEO, they become a co-employer for your workforce, sharing responsibilities for HR management. While this partnership allows the PEO to handle various HR tasks, you retain control over your business operations and day-to-day activities.

According to a study by McBassi and Associates, companies that outsource HR to a PEO develop 7 to 9% faster and are 50% less likely to fail. Throughout the United States, PEOs outsource HR services to nearly 4,000,000 worksite employees from 173,000 small and midsize businesses (NAPEO). Of those 173,000 businesses, 98% would recommend a PEO to a small business colleague (NAPEO Study)

Services typically provided by a PEO for Small Businesses

PEOs offer a wide range of services designed to address the unique HR challenges faced by small businesses. Some common services provided by PEOs include:

  • HR Administration: Handling paperwork and legal forms, employment verifications, onboarding and offboarding processes, employee handbooks, etc.
  • Payroll Services: Processing payroll and ensuring employees are paid correctly and on schedule.
  • Benefits Administration: Managing employee benefits, such as health insurance, retirement plans, and other perks.
  • Compliance Support: Staying up-to-date with HR regulations and ensuring your business is in compliance.
  • Risk Management: Procuring workers’ comp, mitigating HR-related risks, and providing guidance on employee-related legal matters.
  • Employee Relations: Assisting with conflict resolution, developing rewards and incentives programs, and creating/maintaining a positive workplace culture.

The Unique HR Challenges of Small Businesses

Small businesses face several specific HR challenges due to their size, such as:

  • Limited Resources and Expertise. Small businesses often lack dedicated HR staff, making it challenging to handle complex HR tasks effectively.
  • Compliance Complexities. Staying compliant with ever-changing HR regulations can be overwhelming for small businesses.
  • Employee Recruitment, Retention, and Benefits Administration. Attracting and retaining top talent and managing employee benefits can be a daunting task for small businesses.
  • Taxes and Payroll Taxes Accuracy. Manually processing payroll can lead to errors, potentially resulting in financial and legal issues.
  • Scalability. Small businesses aiming for growth need HR practices that can scale with their expanding workforce.
  • Cost Management. HR-related costs can be unpredictable, affecting a small business's financial stability.
  • Strains on Time Management. HR responsibilities can consume valuable time that could be better spent on core business activities.

How Can PEO Companies Help Small Businesses?

Now that we understand the challenges faced by small businesses, let's explore how PEOs can be the solution.

Most smaller organizations usually have only a “bare bones” HR functionality, which typically focuses on the most basic HR needs. Even these basics can be time-consuming, distracting, and fraught with potential for error.

When a small business works with a PEO for HR, the PEO typically takes over these key HR responsibilities for their clients, administering employee payroll and benefits, personnel management, workers’ compensation services, and monitoring and managing risk in these areas.

In addition, PEOs make available to their clients a broad array of additional employee-related services and hands-on expertise, including the ability to advise on issues such as workplace diversity, employee retention, and up-to-date information on changing employment laws that may affect clients.

Each of these other services generates advantages for the business and/or its employees.

Expertise and Support

One of the most significant advantages of partnering with a PEO is gaining access to a team of HR experts. These professionals possess in-depth knowledge of HR regulations, employment laws, and best practices. They can provide valuable guidance and support to small business owners, ensuring their HR processes are compliant, efficient, and aligned with industry standards. 

With the expertise of a PEO behind you, you can confidently navigate HR challenges, handle employee relations, and implement effective talent management strategies.

Reduced Compliance Risks

Staying compliant with ever-changing labor laws and regulations is an ongoing challenge for businesses of all sizes. This can be particularly overwhelming for small businesses due to limited resources and time constraints. PEOs are dedicated to keeping up-to-date with the latest HR regulations, so your business will be well-informed and protected from compliance pitfalls. 

By partnering with a PEO, you can significantly reduce the risk of costly penalties, audits, and legal disputes, allowing you to focus on your business growth with peace of mind.

Enhanced Benefits Packages

Attracting and retaining top talent is essential for the success of any business, but small businesses often struggle to offer competitive benefits packages due to their size and scale. Because PEOs are able to pool together employees from client companies, they create greater purchasing power due to a larger employee base. 

With economies of scale on their side, PEOs then provide small businesses access to a broader range of employee benefits at affordable rates. This gives you the competitive advantage of offering Fortune 500-level benefits to attract high-quality candidates and increase employee retention, fostering a positive and motivated workforce.

Accurate Payroll and Taxes

Handling payroll and tax compliance accurately is critical to maintaining employee trust and ensuring legal compliance. However, processing payroll with minimal expertise can lead to errors, potentially resulting in financial and legal issues. 

PEOs take on the responsibility of payroll processing, ensuring that your employees are paid correctly and on time. They also manage tax compliance, reducing the administrative burden on your business and minimizing the risk of payroll-related errors.

Scalability and Flexibility

Small businesses often experience fluctuations in their workforce size as they grow and adapt to market demands. Likewise, scaling HR operations accordingly can be challenging and time-consuming. PEOs offer flexible HR solutions that can easily accommodate changes in your workforce size and needs. 

Whether you're hiring new employees or experiencing workforce reductions, a PEO can adjust HR services to match your requirements, ensuring efficiencies and cost-effectiveness throughout your business's journey.

Cost Savings

Outsourcing HR functions to a PEO can lead to substantial cost savings for small businesses. Building an in-house HR department with qualified professionals can be a significant financial investment, especially for businesses with limited budgets. 

By partnering with a PEO, you gain access to a team of HR experts without the costs associated with hiring, employee training, and maintaining an internal HR team. Additionally, PEOs can negotiate better employee benefits and insurance rates due to their collective purchasing power, further reducing HR-related expenses.

Time Efficiency

Small business owners often find themselves wearing multiple hats, including managing HR responsibilities. However, HR tasks can be time-consuming and divert attention from core business operations. 

You and your team can focus on strategic business activities and revenue-generating tasks by delegating HR responsibilities to a PEO. This increased time efficiency can lead to improved productivity and overall business performance.

Can a PEO help streamline HR processes?

Yes, a PEO can streamline HR processes by providing expert guidance, handling compliance, payroll, and employee benefits administration, and offering scalable solutions for small businesses.

How to Choose the Right PEO for Your Small Business

When selecting a PEO for your small business, consider the following factors:

  • Service Offerings: Assess the range of HR services the PEO offers and ensure they align with your specific business needs.
  • Industry Experience: Look for a PEO service provider with experience in serving businesses similar to yours, as they will better understand your unique HR requirements.
  • Technology and Integration: Check if the PEO uses advanced HR technology that can integrate with your existing systems for seamless data transfer.
  • Client Reviews and Testimonials: Read reviews and testimonials from other small businesses that have partnered with the PEO to gauge their level of satisfaction.
  • Compliance Support: Ensure the PEO has a strong track record of keeping clients compliant with HR regulations.

See a list of the Top PEO companies here. 

Unsure about your business size and its HR needs? Check out this article where we break it down for you. From small startups to large enterprises, finding the right balance is crucial.

A Look at Stratus HR's PEO Services Tailored to Small Businesses

At Stratus HR, we understand the HR challenges faced by small businesses and we tailor our PEO services to address your unique needs. Our comprehensive solutions cover all aspects of HR management, from payroll processing and benefits administration to risk management and compliance services. With decades of experience and a team of certified HR experts, Stratus HR is your small business's strategic partner to thrive.

See more on how our PEO services can help grow your business (with customer stories and quotes). 

What makes Stratus HR stand out from other PEOs?

Stratus HR stands out with tailored PEO services for small businesses, decades of experience, a team of dedicated HR experts, cutting-edge technology, and a focus on client satisfaction. 

Elevate Your HR Strategy with Stratus HR

Understanding that effective HR management is crucial for the success of any small business, hiring a PEO is a game-changer. With Stratus HR by your side, you reduce compliance risks, enhance employee benefits, ensure accurate payroll and taxes, achieve scalability, manage costs, gain a team of professionals with HR expertise, and free up time to concentrate on your core business operations.

Don't let limited HR resources hold back your small business's growth. Partner with Stratus HR and gain a strategic advantage through our PEO services. You can now focus on growing your business by outsourcing your HR functions.

Book a free consultation today to learn more about what your small business can gain from our PEO services. We can help you maximize your business potential

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