Woman at Desk Smiling

Businesses are always looking for a way to improve their productivity, increase revenue, and get the best return on their investments. A Professional Employer Organization (PEO), which is basically a company that acts as your outsourced HR staff, can help you do all three—and more.

The National Association of Professional Employer Organizations (NAPEO), in conjunction with the independent research and analytics firm, McBassi & Company, recently released a white paper analyzing the sort of return that the average business could expect on its PEO investment.

I'd like to share some highlights of NAPEO’s findings with you, and offer insight on how using a PEO may help your business lower HR-related expenses.

Cost Savings of Using a PEO

There are many benefits to using a PEO for your business, including:

When looking at cost savings alone, NAPEO found that the annual ROI from using a PEO was 27.2%. They arrived at this estimate based on calculating cost savings for PEO clients in the following five HR-related areas:

  • HR Personnel Costs

  • Health Benefits

  • Workers’ Compensation

  • Unemployment Insurance (UI)

  • Other external expenditures in areas related directly to HR services (payroll services, benefits, etc.)

The estimated ROI of 27.2% per year was derived by calculating PEO-related cost savings per employee from the five expenditure categories noted above and comparing it with PEO-related costs per worksite employee from a 2018 NAPEO report.

They found that the average cost savings from using a PEO is $1,775 per year per employee, while the average PEO cost per employee is $1,395, yielding an annual ROI of 27.2%. By percentage, using a PEO results in the following savings:

annual-cost-saving-per-employee

Additional Value of Using a PEO

NAPEO’s analysis revealed the following three significant findings for businesses that use a PEO service:

  1. They experience notably lower employee turnover (both voluntary and involuntary). Taking both voluntary and involuntary departures together, total employee turnover among PEO clients was almost 20 percentage points lower than the national average.

roi-of-using-a-peo_annual-employee-turnover

  1. They have higher rates of both employee growth and business revenue growth. Comparing 2018 to 2019 growth rates in actual number of employees and in expected change in business revenues, they found notably higher growth rates for PEO clients versus non-PEO clients.

roi-of-using-a-peo_growth-rates

  1. Fewer expressed moderate or major concern about hiring, retaining, and motivating employees. For each of these business-related challenges, fewer companies that use a PEO service expressed concern than those that did not, with a particularly notable difference in concerns about hiring employees.

roi-of-using-a-peo_businesses-concerned-about

Hiring a PEO is like hiring an HR department but for less money and you gain valuable time. A PEO can save the day with their expertise plus you only have to work with one company. So the next time you feel like saving thousands of dollars in your pocket, think about hiring a PEO.