Knowing the PEO industry as I do, I have often shared that if I were operating a small business, I would run to a Professional Employer Organization (PEO). At Genesis HR Solutions, we know the PEO value proposition is essential for small businesses and those who work for them. Now, it appears researchers agree.
In the white paper PEOs: Good for Small Businesses and Their Employees, researchers concluded that “PEOs have a significant positive impact on their clients in a variety of important ways.” The numbers seem to support that notion. Data indicates the following:
- 70% of business that partner with PEOs report increased revenues after becoming a PEO client.
- 66% of the same group report increased profitability.
- 98% of those businesses would recommend a PEO to a small business colleague. (We have found this notion to be accurate, since most of our new business do indeed come as the result of client referrals.)
So what does the data show are advantages of using a PEO for small businesses?
The report’s summary indicates the following:
- Annual median revenue growth for PEO users was twice that of comparable non-PEO firms.
- Expected annual median growth for PEO clients is 40% greater than that of comparable non-PEO firms.
- PEO client firms were 16% more likely to report an increase in profitability.
Retention & Development
All businesses strive for high employee retention rates. The business cost of employee turnover is significant, as virtually all studies on the subject have shown. Employees who work for a PEO client are far more likely to report that their employer:
- Demonstrates a commitment to them as employees.
- Has good hiring practices.
- Has good HR policies and practices.
- Does a good job of designing employees’ jobs.
- Provides employees with good training and development opportunities.
Furthermore, employees of PEO clients also report significantly higher scores on key measures related to employee satisfaction in company management in the following areas:
- Levels of employee engagement.
- Intention to stay with their current employee until retirement.
- Belief that the employer is taking the right steps to be competitive.
- Trust that the employer is supporting employees in delivering excellent customer service.
- Confidence in employer’s approach to growing the company.
It is refreshing to see a report like this validate what we’ve known since 1991.
And while I firmly encourage every small business to consider a PEO, there is more to contemplate—some estimates have shown that as many as 800 PEOs are operating in the United States. Given the plethora of federal, state, and local laws and regulations that apply to the industry, it is important that every small business partner with PEOs that are licensed or registered (as required) to do business in your states of operation. Also important is to ensure that the PEO has been certified as a CPEO by the Internal Revenue Service.
Additionally, consideration should be given to PEOs accredited by the Employer Services Assurance Corporation (ESAC). This designation ensures that the PEO has achieved the gold standard for best practices and financial reliability.
And of course, it is always a sound business practice to check PEO client references before entering into a partnership with a PEO. Given that 98% of PEO clients would recommend a PEO, it is clear that if your small business plans to partner with a PEO, you will be on solid footing.