Business Finance: Is a PEO a Cost-Effective Way to Outsource Human Resources?

Running a business of any size can be a complex feat. Hiring a PEO (Professional Employers Organization) can be a cost-effective way to outsource human resources so that you can give your attention to business tasks that only you can complete.

PEOs won’t be right for all businesses, but companies that do rely on their services can typically hire better employees because they are able to offer greater benefits.

Businesses should first approximate their total HR function cost so that they can really see whether or not hiring a PEO can help with costs. The price of PEO services varies greatly on the business but is typically between 2-11% of wage cost.

Cost can also be apportioned per employee, which might cost about $500-1,500 annually. Very small businesses with less than five employees could be quoted $150/month for PEO services.

To see if hiring a PEO is a cost-effective decision for your organization, consider the following:

The Size of Your Business

Usually, the point during which production flow becomes hindered by administrative tasks is when a business can realistically consider a PEO. A business is better off having an HR department working in-house when it gets very large and the tasks begin to inhibit productivity.

“Businesses who have between 16 and 80 employees are the ideal size for considering a PEO. Also, your workforce configuration may determine whether or not a PEO could be a right fit,” stated Layne Davlin, founder, and CEO of Net PEO.

How Much Power You Want over HR Tasks

A PEO might make suggestions regarding HR tasks that a business owner should consider and follow through on if they want to strengthen their HR team. If you are not willing to consider recommendations, hiring a PEO might not be a beneficial decision. Companies only lose some flexibility through the coverage options they can provide their employees with.

Which Services Your Business Needs

The PEO that your business selects should have experience in your industry and should serve your area. Certain PEOs work best by offering in-person support, while others are skilled in providing a digital approach. It’s important to realize that each PEO is unique, and company owners should be cautious when selecting one.

Numerous company owners are familiar with the pain of having to dedicate too much time to activities that don’t generate revenue. From human resource administration and payroll to compensation and benefits, business owners have been found to spend 40% of their work time during the day focusing on these kinds of tasks that tend to be more inefficient.

A solution for numerous expanding businesses could be to hire a PEO. There are more than 700 capable organizations in America alone. These organizations step in as your staff’s legal employer and manage all of the HR functions, benefits, and payroll duties.