Size matters. Most companies that use a PEO are small or mid-sized with under 50 employees. The National Association of Professional Employer Organizations reports that the average number of employees at companies using a PEO is 19. For larger companies, a PEO may work together with a company’s human resources staff to fill the company’s needs. In smaller companies, a PEO may take on more roles to fit the company’s needs, including some accounting. Companies with so few employees can find big discounts on health insurance by partnering with a PEO. Because their employees will be added into the PEO’s larger employee pool, the PEO will qualify for discounts that small companies would never be able to get on their own.
At a certain point and with a certain number of employees, paying for a PEO may get more expensive than it would be to hire in-house staff to cover the outsourced duties, or the costs can outweigh the health plan discounts. Many PEOs charge from two- to ten-percent of payroll for their services, (it may be a lower percentage for higher salaries.) Once you price out the PEO cost, you should compare it to the cost of hiring in-house staff. It could be beneficial to both hire a human resources staff member and use a PEO together. As a company grows, it can help to have someone in the office to help out with certain concerns while a PEO can handle the administrative duties.
It’s not all about whether your company is the right size for a PEO, it’s about finding the right PEO for your unique company. Once you’ve decided that a PEO will be cost-effective for a company of your size, you need to figure out which PEO is right for the company. Not all PEOs are the same, so it is important to find a PEO that operates in your area or with businesses in your industry. This way, the PEO will be familiar with all of the applicable laws as well as services that your business may need. PEOs may be able to help your company develop an employee handbook as well as a health and safety program, so it is good to find one that is familiar with your industry. You also need to find one that meets your company’s needs – current and projected. If you are considering outsourcing bookkeeping or other duties, see if prospective PEOs can meet those needs. Work with a PEO advisor or broker to compare PEOs, their services, and their prices so you can make sure that your company and your PEO are a good match.