Popularity of PEO outsourcing growing
According to the ADP Research Institute, small and midsized businesses (SMBs) added nearly 80% of all new jobs in January 2016, demonstrating that employers are seeing opportunities to strengthen and grow their businesses. However, with limited resources and personnel, business owners are often caught between developing and executing business strategies or handling administrative tasks like benefits administration, payroll, talent recruitment, employee training, and more. The good news is that many SMBs have uncovered a solution that allows them to tackle it all: A Professional Employer Organization.
Through a unique co-employment relationship, companies are able to outsource HR and benefits administration to a PEO partner. Not only does this allow business owners to focus on their bottom line and operations, it also permits them to retain day-to-day control over employee management while the PEO navigates critical HR and employee benefits responsibilities.
In a recent pulse survey by ADP, small business owners stated that they struggle with basic hiring tasks such as finding qualified and reliable candidates. This may be due to the fact that eight of 10 small businesses do not have any employees with formal HR or hiring expertise. As a result, companies are spending an average of 32 hours per new hire as well as nearly $1,000 on processes such as screening and interviewing candidates, onboarding hires and navigating paperwork (in addition to the cost of lost productivity). In addition to the headache of sourcing employees, business owners also revealed that their biggest concern is whether new hires will stick around in their positions.
This may be because employers mistakenly believe that financial and time investments in new team members stop once the search is over. In reality, limiting on-the-job training and investments in the workforce can have negative consequences for a company. As millennials continue to dominate the workforce, and baby boomers head into retirement, the needs of today’s employees are changing rapidly and many employers are finding engaging and retaining top talent to be quite a challenge.
Gallup research from January 2016 found that only 32% of U.S. workers were considered engaged in their jobs. Through a PEO, companies can gain access to a larger suite of offerings, which in turn helps businesses provide more robust benefits in an effort to attract and retain employees. Some of the advantages that good PEOs offer are:
· Fortune 500-caliber health benefits
· Access to a 401(k) retirement savings plan and full plan administrative services
· Help from a dedicated HR professional
· Employee development programs
· Recruiting support
· Career development training
Given the benefits associated with hiring a PEO, how many companies are taking advantage of this seemingly well-kept secret? According to a recent survey by the National Association of Professional Employer Organizations (NAPEO), the largest trade association for professional employer organizations, between two and three million Americans are currently co-employed in a PEO arrangement and in each of the last 30 years, the industry has added, on average, roughly 100,000 worksite employees and 6,000 net new clients.
Future prospects for PEOs look bright as well. At ADP specifically, we recently announced the following results pertaining to our PEO ADP TotalSource:
• Revenues increased 18% compared to last year’s second quarter
• Average worksite employees paid by ADP TotalSource increased 14% for the quarter to approximately 403,000
• ADP now anticipates 16% to 18% revenue growth in its TotalSource business compared with prior forecast of 15% to 17%.
Our focus, of course, is on the many small and midsized business owners across the country who are still struggling to navigate the HR landscape on their own. As HR legislation continues to change – new leave and sick pay laws, minimum wage increases and the Affordable Care Act – as well as employees’ demands for richer benefits, SMBs will need expert assistance now more than ever to stay compliant with regulations while driving successful and profitable businesses.