Noted economists Laurie Bassi and Dan McMurrer have conducted a series of research studies to determine the advantages of companies working with professional employer organizations (PEOs), and the results have been released by the National Association of PEOs (NAPEO). In previous research, Bassi and McMurrer found that most companies using a PEO enjoyed higher profitability and growth, increased employee satisfaction, and lower staff turnover. The team’s newest report focused solely on the cost savings associated with a PEO partnership, though all these areas closely tie together. And again, findings pointed sharply towards the benefits of such a working relationship.
The latest Bassi and McMurrer study looked at PEO-related savings in five areas of HR: personnel costs, health benefits, workers’ compensation, unemployment insurance, and other external expenditures such as payroll and benefits.
The Bottom Line: A 27.2 Percent ROI
A conservative estimate of the expected return on investment (ROI) for PEO client companies, according to this study and based on cost savings alone, is 27.2 percent.
- ROI is the net benefit of an investment divided by the cost of that investment. For a PEO client, the net cost savings benefit of hiring a PEO is equal to the savings they experience as a result of using a PEO, minus the cost of being a PEO client. Dividing that by cost yields ROI.
- The most significant cost savings experienced by PEO clients are in the areas of HR personnel and health benefit costs.
- An ROI of 27.2 percent means that for every $1,000 spent on PEO services, an average client saves $1,272, yielding a net cost savings benefit of $272. This ROI is based only on cost savings and does not incorporate the additional benefits that come from improving a company’s ability to attract, motivate and retain good talent – plus have more time to focus on their core business as a result of their PEO partnership.
One hundred thirty two PEO clients and 44 non-PEO clients were included in the Bassi and McMurrer research.
More Key Findings
Analysis by this research team also reveals that:
- There is notably lower employee turnover, both voluntary and involuntary, among PEO clients;
- There are higher rates of both employee and business revenue growth among PEO clients;
- Fewer PEO clients have serious concerns about hiring, retaining and motivating their workforce; and
- New PEO clients typically can add a variety of new benefits for their employees, most frequently life insurance, retirement plans and health benefits.
Looking for More Information?
When it comes to ROI, the proof is in the numbers, and these research results tell a compelling story of the benefits of working with a PEO. The choice is yours to make, but if you’d like to dive more deeply into the specifics of PEO partnerships, contact Lyons HR today. Based in Florence, AL, we’re an Employer Services Assurance Corporation (ESAC) accredited and were the first IRS certified PEO, which ensures we provide the highest level of services with demonstrated financial security. With 10 operations centers, we serve hundreds of clients and thousands of workplace employees from coast to coast. You can feel confident we’ll help steer your business in the right direction toward long-term growth and success.