May 26, 2022 5 min read

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The advantages of working with a PEO

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Professional Employer Organizations (or PEOs) are starting to gain the attention of different industries. As of 2019, the ROI on PEOs was 27% with approximately $1,775 saved on cost per employee. and even these eye-catching numbers do not even take into account the time saved (and stress avoided) for managers and CEOs when  implementing a PEO.

But what exactly is a PEO, and how can you use it to save money and maximize ROI?

For those who aren’t familiar, PEO companies manage every aspect of employment for other businesses. They take care of tasks usually performed within a company, like launching recruitment campaigns, calculating and processing taxes, and handling payroll management –– among other functions. This in turn frees up leadership at client companies to focus on their own needs. It also simplifies the processes by which businesses expand (particularly across borders or into international markets, when complex documentation and delicate legal issues can come into play).

The demand for PEO services has expanded considerably as a result of their capacity to lighten the burden for managers, CEOs, and even entrepreneurs just starting out. But their rise in popularity is also due partially to the amount of money they can save an organization. Below, we’ll look a little more closely at how a PEO can reduce costs, and how working with one can help your business maximize its ROI.

Reduced HR related cost

As salaries increase and functions within an organization become more specialized, it has become necessary to implement a more rigorous approach to recruitment. Job postings offer more specific lists of requirements, and applicants advancing to the next stage have to go through a series of emails, online and live interviews, and assessments.

This process may prove effective, but it’s also a long one that consumes valuable time and resources. PEO solutions for recruitment liberate employees from these tasks, allowing them to focus on more immediate needs within their own organizations. They also result in significantly less spending on internal HR –– with costs of hiring and supporting HR personnel essentially eliminated. A 2019 white paper from the National Association of Professional Employer Organizations (NAPEO) estimated that 54% of the average annual cost savings per employee (the same $1,775 quoted above) would come from internal HR salaries and benefits alone.

In other words, entrusting recruitment and related tasks to a PEO will cost significantly less than hiring and maintaining an HR department to perform the same tasks.

Better and Less Expensive Talent

The pandemic may have forced companies and employees to adapt to remote work, but today many see this as part of a shift into more flexible working models. And one of the key benefits of transitioning toward managing remote employees is that it allows businesses to hire from a wider talent pool without necessarily having to expand operations. Forbes has referred to this as the “ultimate equalizer” for talent acquisition –– particularly given that even before the pandemic, some 83% of respondents in a global survey indicated a preference for flexible working conditions.

Given that they specialize in managing human resources for different types of organizations, and are not tethered to individual companies or even geographic areas, PEOs are ideally situated to tap into these wider talent pools of remote workers. You’ll be hiring better talent at lower cost.

Savings in Health Benefits

Companies generally aim to negotiate better insurance and benefits for their employees by offering related organizations the chance to support hundreds of clients at once. PEOs do the same, but on a much larger scale, given the number of people they manage for various businesses simultaneously. As a result, employees may find themselves obtaining much better insurance and benefits than usual when their companies operate through PEOs –– something that not only benefits them, but can also strengthen the reputation of a company as an excellent place to work.

37%
37% of the cost savings per employee come from savings on health benefits, as the NAPEO white paper mentioned previously.

Better Growth and Employee Retention

According to economic analysis done in 2021, there are now some 487 PEOs operating in the United States –– partnering with 173,000 businesses. This simply speaks to the significant experience PEOs have in the field, helping all kinds (and sizes) of businesses streamline their approaches to recruitment and hiring.

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As a result of this experience, studies have indicated that businesses working with PEOs grow 7-9% faster, and have 10-14% lower employee turnover rates.

Professional Employer Organizations offer a range of advantages for companies. And while different companies may take advantage of different tasks as needed, it’s clear that there are opportunities for savings and maximized ROI across the board. Particularly given the changes and challenges businesses face today, these services can be crucial to maintaining productive and efficient workplaces.

Do you wish to grow your organization with the help of a reputable PEO? Feel free to reach out and get a quote at your leisure!

Raine Bryson

She is a senior writer and blog contributor based in the UK. Having worked as a copywriter for various local and online outlets in the business and technology spheres, she now writes freely for a range of online publications.

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