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Why Should Small Business Owners Consider PEO?

ExtensisHR9 minute read

Quick look: HR management can be a difficult aspect of running any business, but the challenges can be even greater for small- and medium-sized businesses (SMBs). With limited resources and staff, small businesses often need help attracting and retaining top talent, managing complex human resources (HR) tasks, maintaining compliance, and creating a positive workplace culture. So, when HR becomes too complicated for an SMB to handle on their own, working with a professional employer organization (PEO) could be the perfect solution.

Small businesses play a crucial role in driving economic growth, and National Small Business Week (NSBW) is the perfect time to celebrate their countless contributions to communities and economies across the country. But as we honor these businesses, it’s essential to recognize and address the unique HR challenges facing SMBs and offer them the support needed to succeed.

Here’s a look at the importance of recognizing NSBW and how a professional employer organization (PEO) can help these organizations grow, build a strong and productive workforce, and foster a positive workplace culture.

National Small Business Week

The U.S. Small Business Administration (SBA) has celebrated the accomplishments of small businesses in America for more than 50 years. This year is no exception with National Small Business Week occurring from April 28 through May 4, 2024, when virtual events, conferences, seminars, information sessions, and networking opportunities will be held.

Surprisingly, most companies in the U.S. are defined as SMBs. Consider these eye-opening statistics:

  • 99.9% of all businesses are small businesses
  • 33.2 million small businesses exist in the country
  • 45.9% of U.S. employees are employed by small businesses
  • The professional and business services industry leads in job openings, signaling the need for these employers to prioritize attracting and retaining top talent (which PEOs can help them achieve)

Small businesses are a moving force for the economy, but it can be tough to stay in the game. Within five years of opening their doors, an average of 50% of businesses fold. Since workforce management and labor account for nearly 70% of business costs, it’s wise to explore how a PEO can help streamline operations and mitigate expenses.

PEO: a brief overview for small business owners

A PEO is a company that delivers cost-effective, outsourced HR, payroll, employee benefits, recruiting, and risk and compliance services. By offloading some of these tasks to a PEO, business owners and managers can free up more time to focus on revenue-generating activities.

As the employer of record, a PEO handles daily employee management tasks but does not take over business operations or control organizational decision-making. This co-employment relationship offers a myriad of advantages. According to the National Association of Professional Employer Organizations (NAPEO), businesses that partner with a PEO:

  • Grow 7% to 9% faster
  • Experience 14% less turnover
  • See a 27% ROI in cost-savings
  • Are 50% less likely to go out of business

Why use a PEO? 7 challenges PEOs help small businesses overcome

Today’s competitive economy and job market make being a small business harder than ever. From attracting top talent to controlling rising healthcare costs, here are seven key areas of HR where a PEO can prove beneficial.

1. Compliance with employment laws 

One of the most critical HR responsibilities is maintaining compliance with federal, state, and local employment legislation.

Small businesses tend to lack the in-house resources needed for complete HR compliance. This task often falls on the owner, which can be time-consuming and stressful due to the complexities and ever-changing nature of today’s employment laws.

Working with a PEO provides businesses access to seasoned compliance and risk management professionals who ensure SMBs continually abide by all legislation. Given the frequency of employment law updates, a PEO partnership can help small business owners worry less about compliance and potential penalties for violating employment legislation.

2. Managing rising healthcare costs

Rising healthcare costs are a significant challenge for employers, particularly small businesses. Insurance costs are expected to increase again this year, causing many SMBs to experience financial strain, limited ability to attract and retain top talent, and reduced overall growth and success. As a result, managing employee benefits and healthcare costs has become a top priority for many employers.

PEOs can help overcome this challenge by providing SMBs with healthcare options competitive to those of Fortune 500 employers. PEOs have access to large group insurance plans, which are often more cost-effective than individual plans and allow small businesses to offer comprehensive benefits without breaking the bank.

Additionally, a PEO can negotiate with insurance carriers to get the best possible rates for their customers, further reducing healthcare costs. A PEO also handles benefits administration tasks like enrollment, processing, and compliance.

The right PEO can tailor healthcare plans to an individual business’s location, industry, and employee demographic. This is one of the main benefits of a PEO partnership, as personalized healthcare benefits are critical for recruiting and retention.

3. Hiring and holding onto top talent

Recruiting the right workers is every SMB’s goal, but it’s also a challenge that keeps business leaders and hiring managers up at night. In today’s job market, finding the correct candidate is more complicated than ever, and the process can often feel like a never-ending maze.

Small businesses must differentiate themselves from the competition. One way to accomplish this is by offering modern, competitive benefits that are geared toward today’s diverse workforce.

Additionally, impactful DEI initiatives, employee recognition programs, and learning and development resources can help boost happiness and engagement—two critical retention aspects.

To further help SMBs conquer their recruiting challenges, some PEOs offer talent acquisition services. For example, ExtensisHR provides full-cycle recruiting services at no additional cost, which include:

Recruiting and retention will likely become even more difficult in the years ahead as the talent market grows increasingly competitive for employers. Small businesses can set themselves up for success by partnering with a PEO and improving their HR practices.

4. Enhanced benefits, workplace perks, and culture-building

Many employers are focusing on improving their current benefit offerings to meet the expectations and demands of today’s workers. In doing so, they make themselves more attractive to potential candidates and current employees, which helps reduce turnover.

However, enhancing benefits plans can be challenging for smaller employers, particularly when selecting appropriate benefits and managing the associated costs.

Working with a PEO enables SMBs to offer the same quality and quantity of benefits as large employers, including:

A PEO also remains well-informed on the latest benefits trends and best practices to ensure its customers offer the most compelling packages.

5. Employee learning and development

Workers today, especially younger generations, value learning and development (L&D) substantially. In fact, many expect employers to offer a formal L&D program to help them progress in their careers, and having one can help smaller businesses stand out.

Some PEOs offer learning and development services that their clients can provide to their employees. Sometimes, this is done through the PEO’s HR platform, which offers on-demand courses that staff can complete when they choose. PEOs may also provide business owners with materials to help them with other forms of L&D activities, like live training and guides.

6. HR technology

Technology is a critical aspect of our daily lives in today’s work-from-anywhere world. But until recently, most HR tech was only accessible to larger businesses with bigger budgets and staff to maintain their platforms.

However, technology has become more accessible and affordable, enabling small businesses to implement HR technology into their offerings to employees, primarily through outsourced solutions.

Many PEOs offer their clients HR tech access that enables them to streamline various day-to-day HR activities, including:

  • Payroll
  • Paid time off (PTO) requests
  • Compliance
  • Reporting and analytics
  • Employee management

For example, ExtensisHR’s Work Anywhere® platform and mobile app allow distributed workforces to conveniently access their HR data from anywhere at any time. Users can request PTO, complete their annual benefits enrollment, update their personal information, and more. Better yet, the platform is paired with personalized customer service and access to HR, benefits, and risk and compliance experts.

7. Expert HR guidance and support

Perhaps the biggest benefit employers stand to gain from a PEO is the strategic partnership and guidance they provide. When engaged in a PEO partnership, business leaders can focus on growing the business and supporting their employees instead of spending time reviewing the organization’s compliance or deciding the best way to design its benefits package.

Expanding a business comes with challenges, but a PEO can ease the burden. If a small employer outgrows its current benefit offerings, a PEO can make recommendations and provide new options that satisfy the organization’s needs in its current growth stage.

Additionally, as a company grows, so does its payroll and certain legal requirements. A PEO partner can help prepare business owners for these changes and ensure compliance as the organization moves forward.

Should business leaders (or employees) have HR-related questions, PEO professionals can assist and find solutions that ultimately benefit the company and its staff. However, SMBs should be wary of the fact that not all PEOs provide the same caliber of customer service. While some, like ExtensisHR with its 11-second response rate, deliver prompt, attentive support, others may leave customers waiting endlessly on hold.

The power of PEO for SMBs

Small businesses represent the ambition of millions of Americans and are a cornerstone of the nation’s economy. ExtensisHR, a highly certified national PEO, is proud to help SMBs grow and succeed by enabling them to:

  • Reduce or stabilize long-term benefit costs
  • Improve the efficiency and cost-effectiveness of their HR workflow
  • Consolidate vendors
  • Reduce HR-related costs
  • Hire and retain the right talent
  • Maintain compliance
  • Foster an engaged, productive workforce

To learn more about the value of a PEO and how ExtensisHR can streamline your HR functions and help your business confidently grow, contact us today.

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