For a growing number of small to mid-sized companies, working with a professional employer organization (PEO), has opened doors to significant HR cost savings. For many, this can mean the difference between staying in business for the long run or having to close their doors – a frightening possibility that becomes all the more real based on the 2020 coronavirus crisis and its economic implications.
Return on Investment: Where True Savings Occur
According to an extensive study completed last fall by the National Association of Professional Employer Organizations (NAPEO), companies who partner with PEOs achieve cost savings in three main areas:
- They heighten their ability to attract, motivate and retain top talent,
- Their leaders are able to focus on core business matters, while their PEO specialists handle HR matters, and
- They lower HR costs in other areas, including personnel expenses, health benefits, workers’ compensation and unemployment insurance.
After studying 132 companies that used PEOs and 44 that did not, NAPEO found that PEO clients realized an average return on their investment (ROI) of 27.2 percent in cost savings alone. (This figure did not incorporate the benefits of attracting and retaining employees or the redirection of senior management away from time-consuming HR duties.)
- ROI is the net benefit of an investment divided by the cost of that investment. The net benefit of hiring a PEO is equal to the savings a company experiences as a result, minus the costs associated with this arrangement. Dividing this figure by the cost yields the ROI.
- An ROI of 27.2 percent means that for every $1,000 spent on PEO services, a company saves $1,272, yielding a net benefit of $272. In the NAPEO study, the calculated ROI is an average figure, so roughly half of clients in the database would be expected to have an ROI greater than 27.2 percent, while the other half would have an ROI of less than this percentage.
For all the reasons cited in the NAPEO study, it’s not surprising that 98 percent of PEO clients said they would recommend a PEO to their business colleagues.
How a PEO Works
A PEO can function as an off-site HR department for your firm, working seamlessly with your on-site leadership team to handle a comprehensive menu of talent management services. These include:
- Benefits management: ACA compliance and reporting; plan negotiations; open enrollment; medical, dental and vision; Section 125 and FSAs; retirement plan options; premium reconciliation and payments, and COBRA, HIPAA and ERISA compliance assistance.
- Risk management: workers’ compensation coverage and procurement; safety plans and training; OSHA reporting and assistance; claims management; accident and fraud investigation, and liability insurance and worksite assessments.
- Tax and payroll administration and processing: direct deposits, checks and cash cards; FICA, FUTA and SUTA payments and filings; W-2 and W-3 filings; time and attendance interface; new hire reporting; immigration verifications; tax lien and garnishment processing; HRIS and employee file maintenance and storage, and wage verifications.
Want to Know More?
To learn more about the benefits of working with a PEO, contact Lyons HR today.