How a PEO Can Help Your Business

In times of economic uncertainty, it’s common for small business owners to reconsider growth initiatives or expansion plans. This can include delaying decisions that could otherwise be impactful, such as hiring new employees, investing in technology, or adding a strategic partner.

But economic uncertainty can also present an opportunity to future-proof your business helping you to weather any storms you may encounter. Engaging a professional employer organization (PEO) is one solution that can provide business owners with peace of mind. In fact, a 2024 study by the National Association of Professional Employer Organizations (NAPEO) indicates businesses that use a PEO grow twice as fast and are 50% less likely to go out of business.

Business owners often ask us how a PEO can help during periods of economic uncertainty. Here are some of their most common questions:

Q: How can a PEO help a business stay flexible during economic uncertainty?

One advantage of working with a professional employer organization is its ability to scale with your business as it grows — or as it contracts.

A PEO provides the HR infrastructure and support you need to adjust to any situation without significant disruptions. PEOs have teams of HR, payroll, benefits, compliance, tax, and workplace safety specialists to help their clients. So, when your business grows and your staffing levels increase, your PEO already has the resources in place to quickly adjust to your increasing HR needs.

The same is true if business is scaling back. In this situation, your PEO is able to scale down with you, while still ensuring your employees get the care they deserve.

Q: Can a PEO help a business control costs?

Absolutely. PEOs can help businesses control costs in several ways. Let’s explore a few.

First, PEOs co-employ tens of thousands of employees with their clients. (This is called co-employment.) This gives PEOs greater leverage to negotiate medical insurance, workers’ compensation, and other benefits at rates that are difficult to find on the open market. And the plans they offer typically include top carriers, multiple plan designs, and larger networks.

Second, as part of working with a PEO, you also gain access to HR technology – like payroll, onboarding, and benefits systems – that streamlines routine HR tasks and improves efficiency. Many PEOs also offer additional human capital management platforms, such as performance and learning management. These can be added to your plan and will help you optimize your workforce.

Third, noncompliance with federal and state labor laws can be costly, potentially leading to fines, penalties, or even lawsuits. But for many small- and midsized business owners, managing compliance and staying on top of the latest laws and regulations can be overwhelming. PEOs have HR compliance experts who can alert you to new or changing laws and regulations, then advise you on steps your business needs to take to avoid noncompliance.

void noncompliance. Lastly, costs associated with using a PEO do not significantly increase over time. And though increases to medical benefits are commonplace, PEOs typically experience more modest increases each year. Over time, that leads to lower benefits costs.

Q: How can a PEO help us with potential layoffs during an economic downturn?

An uncertain economy often leads business owners to delay hiring or make the difficult decision to reduce their workforce. PEOs can be an invaluable resource if a workforce reduction becomes necessary.

Remember that many PEOs include seasoned HR professionals who have helped countless businesses – during good and challenging times. They can advise you on strategic workforce planning and cost-cutting alternatives, such as reducing overtime.

As you prepare for possible layoffs, a PEO can help you develop a transparent and effective communication strategy designed to preserve trust and morale with your team. PEOs can also assist with conducting proper employee performance evaluations to avoid wrongful termination claims, which can be costly to defend and may damage your reputation.

Finally, a PEO’s compliance guidance is invaluable during this time as they know and understand the many labor laws that must be followed during layoffs and terminations. From paying out paid time off to issuing a final paycheck and managing unemployment claims, they can assist you with the administrative process and ensure you meet applicable employment law and regulation requirements.

Q: Can a PEO help improve employee retention?

The previously mentioned 2024 NAPEO study reported that businesses that use a PEO experience 12% lower turnover rates than businesses that do not utilize a PEO. Higher retention rates come from having experienced HR specialists who can advise you on effective retention strategies, such as improved recruiting, onboarding, and company culture.

Hiring the right candidate for your position impacts retention rates as well, and PEOs often offer in-depth recruiting expertise and services that can improve your recruitment strategy. A stronger onboarding program – buoyed by technology that streamlines processes and reduces the need to reenter data across systems – makes new hires feel more welcome and allows them to begin contributing to the business more quickly.

Most employees want to feel valued and cared for, and offering a robust benefits package is one way to demonstrate this. With a PEO, your business can build a more comprehensive and competitive benefits package that includes medical plans from top carriers and ancillary options such as retirement plans, dental, vision, life insurance, and employee wellness programs that rival those offered by Fortune 500 companies.

Q: Will a PEO take control over my employees?

This is a common misconception about working with a professional employer organization. When you hire a PEO, you enter into a unique arrangement known as co-employment. However, this does not give the PEO control over your employees. Rather, the PEO becomes the employer of record for your employees. As a result, you and the PEO share liability on employment-related matters.

What does this mean for your business?

You retain full control of day-to-day operations and management of your employees and business. The arrangement gives your PEO the authority to manage administrative tasks on your behalf, giving you and your team more time to focus on core business functions.

A PEO won’t tell you who to hire, fire, or promote. They won’t supervise your workers, get involved with operations or marketing, or determine the wages you pay.

They will help with processing payroll, procuring and administering benefits, building a safe workplace, managing workers’ compensation claims, assisting with compliance, providing guidance on workplace policies, helping with employee-related conflicts, and other HR-related functions.