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Partnering with a more human resource

Got a PEO? Why not?

By Brian Michaud, Senior Vice President, ADP TotalSource®

A new study from the National Association of Professional Employer Organizations® (NAPEO) shows that small businesses that use a Professional Employer Organization (PEO) to manage HR for their employees actually see double the annual revenue growth than a company that doesn’t. That sounds like a pretty startling statistic, don’t you think? But when you look at the numbers, it’s actually pretty obvious – PEOs are lowering the stress levels and increasing the effectiveness of small business owners.

That’s because while business owners retain the day-to-day control over management of their employees, a PEO handles the HR and employee benefits administration responsibilities. Businesses who partner with a PEO gain access to a larger suite of offerings, including FORTUNE 500®-caliber health benefits and employee growth and development programs. These, in turn, allow clients to provide more robust benefits to help attract and retain employees.

There are a number of areas where businesses are benefiting from the value of outsourcing their HR. It’s a growing trend that just keeps growing!

For instance, according to the NAPEO® research, small and mid-sized businesses that used a PEO were significantly less concerned about their ability to handle a number of business challenges, such as:

  • Hiring employees: 45 percent of PEO clients reported this was a “moderate” or “major” concern, versus 70 percent of non-PEO firms.
  • Increasing revenues: 73 percent of PEO clients reported this was a “moderate” or “major” concern, versus 90 percent of non-PEO firms.
  • Raising capital/funding: 18 percent of PEO clients reported this was a “moderate” or “major” concern, versus 45 percent of non-PEO firms.

Those are pretty revealing numbers.

“This study proves through empirical data what we in the industry have known for years: PEOs provide critical competitive advantages to their clients that result in higher profitability, stronger revenue growth, and greater employee satisfaction,” said NAPEO President Pat Cleary. “Small business owners need to know that by not using a PEO, they’re missing out on an opportunity to help their business grow and thrive. That’s why thousands of savvy small businesses already rely on a PEO for their payroll, benefits, and HR needs.”

PEO-businesses also saw an increased level of employee engagement and intent to stay with their current employer until retirement, according to the NAPEO research. This may be because HR tasks are being managed more efficiently through a PEO rather than by an employee who’s not trained to deal with complex HR functions like talent management, compliance, HR policy enforcement, and employee safety.

This practice is more common than you’d think.

We’ve found that many HR duties in small and mid-sized businesses are handled by someone not formally trained for those tasks. We call them the ad-hoc HR manager, or aHRM. Often, out of necessity, this ends up being the business owner or a senior business manager. Using aHRMs may be inadvertently exposing small business owners to additional expenses and risk by managing crucial business functions themselves.

According to our 2017 ADP® study of U.S. small businesses, only one in five of these aHRMs say they are confident in their ability to complete HR duties without making a mistake and 90 percent of them say they would give up the responsibilities if they could. Surprisingly, however, 98 percent of small businesses say they have no plans to hire a full-time HR manager.

Additionally, aHRMs spend 20 percent of their time weekly managing HR duties. That nets out to more than $18,000 a year to have untrained staff manage their HR tasks, which equates to an annual total cost of $27 billion across the small business market.

If this seems like an inefficient way to manage HR tasks, it is. But there are more advantageous ways for small businesses to manage these functions as the NAPEO study points out.

Employees and bandwidth are precious commodities for small businesses. Yet, stretching those two resources is the norm today, and as a result, people are forced to take on roles outside of their remit that they don’t really like.

Small businesses can possibly avoid costly HR mistakes and potentially save precious time and money by outsourcing HR expertise to a PEO.

Amid an increasing war for talent, employee engagement is a commodity and benefits are your tools for activating your existing talent. For companies with more codified and organized HCM strategies, the evidence is clear that employees are more likely to remain happy and engaged.

So, how much more proof do you need? If you don’t have a PEO, why not? It might be worth investigating.

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