Outsourced human resources or PEO?

How to make the choice for your business.

 

Any small to mid-size business (SMB) owner knows that running a business is a ton of work. Their attention is pulled in dozens of directions, and it can be difficult to balance it all—especially while working toward growth. Enlisting the support of outside professionals in areas of accounting, marketing, information technology, and human resources can provide valuable efficiencies, ultimately saving both time and money.

For SMBs without adequate in-house human resources, there are a few options to consider.

Professional Employer Organizations (PEOs)

Also known as co-employers, PEOs assist businesses with human resources management. This can include payroll, employee benefits, workers’ compensation and tax administration, employee onboarding and training, and more. Under the joint-employment agreement, the SMB (now the client in this case) essentially leases its employees from the PEO, who serves as the employer of the client’s employees.

Under this arrangement, the SMB largely offloads the management of its employees to the PEO, which can also enable the business owner to offer more competitive benefits packages. Because PEOs co-employ employees from multiple client businesses—adding up to hundreds or thousands of employees—they can qualify for more comprehensive benefits at lower prices, which may include medical insurance, life insurance and disability, retirement plans, dependent care, and more.

While PEOs can be the right choice for some businesses, they can also have disadvantages. First and foremost, partnering with a PEO costs money, and it’s important to weigh the cost savings from lower rates on benefits with the fees associated with the contract. Secondly, benefits rates are not necessarily fixed and can be expected to fluctuate based on the PEO’s entire employee base. For example, if employees of the PEO’s other clients file workers’ compensation claims, rates can increase for clients across the board. And lastly, some business owners will feel that engaging with a PEO significantly impacts the company culture, or they don’t like giving up that much control over the business they have worked so hard to build.

Outsourced Human Resources

Like PEOs, firms that offer outsourced human resources (HR) will remove a lot of the burden from the plates of SMB owners and their teams. Outsourced HR services can include payroll, benefits administration, wealth management, employee engagement, onboarding and training, investigations, performance reviews, compliance, and more. The difference is that outsourced HR is like any other outsourced service, in which the business owner maintains complete ownership of the business and employees.

While outsourced HR is still an investment, it is often more affordable than a PEO and can nevertheless provide many cost efficiencies. For example, outsourced HR teams are well versed in the available benefits plans and can work with each of their clients to develop an approach with the best offerings to help mitigate the rising costs of healthcare.

Not sure which option is right for you and your business? Schedule time to talk with an Employee Retention Solutions consultant by calling 585-227-1300.