Why Partnering With a PEO Makes Sound Business Sense

Jan 1

Written by: Brian Michaud, Senior Vice President, ADP TotalSource®. Download full article here.

The Origins of PEOs Underscore the Value They Provide

Small and midsized businesses are increasingly turning to professional employer organizations (PEOs) for support with critical and strategic HR management so they can focus on what they do best: create, enhance, and sell the products and services that made their names.

PEOs Rise to Solve a Big Problem

Predecessor companies to modern PEOs began in the 1970s, as firms that provided staffing and HR administration services to employers. Small businesses benefited most from government compliance, payroll administration, and workers’ compensation solutions these companies offered.

In the 1990s, the industry evolved to take on additional challenges facing employers, like providing competitive insurance offerings and helping to manage complex employment laws. During the 90s, the industry changed its name with the help of our industry association, NAPEO, to Professional Employer Organizations or PEO. The PEO moniker better fit the evolution of the industry as one that addressed a broader spectrum of employment issues under a construct of co-employment.

The co-employment model offered more comprehensive services than employee leasing companies had provided and a shared risk platform to help insulate client companies from the complexities of employment regulation.

Today, PEOs serve as the employer of record for their client companies for tax purposes, but a strong PEO can provide so much more. The PEO helps manage payroll and HR, leaving the client organization free to pursue its business goals.

Staying Ahead of Business Challenges

Organizations want to provide high-quality health plans to their employees at affordable prices. PEOs provide access to secure high-quality, cost-effective health insurance with efficiencies typically not available to small and midsize employers. A PEO can also help administer plans with efficiency and minimize commissions from the cost of coverage. This enables client organizations to offer health care plans that attract and retain workers.

Recruiting and retaining quality employees becomes easier with a PEO. A high-quality PEO that has deep understanding of the job market, can help clients attract and retain the talent
necessary to thrive. Lastly, government regulations change rapidly and can be highly complex. Compliance can seem confusing, overwhelming, and at times unnecessary to business owners, but it cannot be overlooked. PEOs can help a company stay compliant with healthcare, tax, workplace safety, and other regulations.

Growth of a Trusted Resource

By helping protect clients from liability, (link to PEO blog 2) increase their efficiency, and concentrate on their core missions, PEOs help their client companies grow nearly 10 percent faster than their competitors, with as much as 14-percent lower turnover, according to NAPEO. PEOs have become a highly trusted resource as evidenced by their growth to more than 900 PEOs co-employing 3.7 million employees from 175,000 client companies in 2018 and earning $176 billion, according to the National Association of Professional Employer Organizations (NAPEO).

Partnering with a PEO will pay increasingly valuable dividends as the PEO industry continues to evolve. A high-quality, forward-thinking PEO can use data insights, evolving technology, and skilled advisors to help clients respond strategically to regulatory changes and workforce trends, allowing their clients to remain competitive and maximize growth.

PEOs: A Trusted Compliance Solution

Compliance can be difficult to manage, even when business proceeds smoothly. Employers managing everyday operations and working to grow their bottom lines might not have the time or resources to keep up with changing regulations.

Unfortunately, one oversight or employment claim can seriously challenge an organization that’s unprepared. A claim or violation can take focus away from activities that drive profit, strain resources and finances, and potentially damage personal and company reputations. Luckily, expert assistance is readily available. Companies can partner with a professional employer organization, or PEO, for help navigating the ever-evolving regulatory landscape.

Simplify Compliance

Compliance encompasses a broad range, including, but not limited to, tax reporting requirements, unemployment and workers’ compensation insurance, Affordable Care Act, COBRA (Consolidated Omnibus Budget Reconciliation Act), and employment laws, such as Americans with Disabilities Act, Fair Labor Standard Act, and EEOC (Equal Employment Opportunity Commission) regulations.

PEOs offer risk and compliance experts who keep up with ongoing changes to tax, benefits and HR regulations and can help businesses respond to changes that affect them.

Carry Compliance Through Your Organization

Organizations should, as a best practice, explicitly outline their compliance policies and their strategies for upholding them. A PEO can help companies develop handbooks, training, and proactive strategies to help protect themselves from fines, claims, and penalties. They can also answer any questions employees may have during training sessions and throughout the course of business. Education and training can go a long way toward shaping behavior and norms in the workplace. Laying a strong foundation of understanding can help lessen and prevent infractions.

Fortunately, PEOs are also the best partners for handling internal investigations into employee claims or regulatory infractions, should these occur. PEO objectivity and expertise helps ensure that these investigations are carried out appropriately and lawfully.

Compliance may seem like a daunting business challenge, and it can be. Partnering with a PEO can give your business peace of mind, knowing that you have experts in all areas of compliance looking out for the health of your business. After all, business owners shouldn’t fret over complex employment issues, but rather focus on what they are passionate about: their business.

PEOs Lead Business Forward with Data-Driven Insight

Professional employer organizations (PEOs) have become a trusted and vital partner for
businesses seeking expert guidance and management of essential HR functions like payroll, benefits, and talent management.

PEOs started out mainly as payroll and workers’ compensation providers. In the more than three decades since the PEO industry began, it has grown to cover more areas and offer a lot more
to its clients. Due to changing regulations for business, evolving economies, and advancements in technology, PEOs are now more like partners in business growth. A PEO can help clients respond
effectively to current trends, like talent shortages and the growing emphasis on how employer brand perception can affect a company’s bottom line, and provide valuable strategic guidance.

Moving Beyond HR Administration

Some PEOs have expanded into talent acquisition and management, areas that we know are increasingly essential to business success. PEO providers with access to data on workforce trends and analytics can provide their clients with the information they need to help them succeed in the current labor market. U.S. job openings reached a record high of 7.3 million at the end of 2018, according to data released in February by the Department of Labor. According to the ADP Research Institute®, job switchers benefitted from an average wage increase of 5.8 percent, while those who stayed with their employers saw a 4.7 percent increase. Employees have incentive to look for new jobs.

A PEO with access to data and insights can help its clients attract and retain the best talent in any labor market. Data answers questions that are critical to success: How much do you pay? Which skill sets best match an opening? Which departments need more employees? Who is performing well? Which employees are on the verge of leaving?

Using Data to Gain a Business Advantage

With more than three petabytes of data covering almost 30 million workers and more than 90,000 organizations in the U.S. alone, ADP is in a unique position to understand how organizations are structured, change, and work.

For example, a benchmark might indicate a company has a higher percentage of turnover for a specific position than the industry average. Data may show that low wages coupled with periods of consistent overtime are causing employee turnover. We can use this information to help a company realign their business practices to improve retention and lower turnover.

Clear insights into how employees work and what they think about work can be a powerful tool in developing focused initiatives to keep employees challenged and satisfied. The ADP Work Life Study discovered four core employee needs that, when met, dramatically increase employee satisfaction and retention:

1) to feel productive,
2) to have a sense of belonging,
3) to be inspired,
4) to feel uniquely valued.

As the study recognized, a strategic approach to talent management is necessary in the current workplace environment, and can be a growth driver for business.

Savvy businesses may want to partner with a PEO that does its own research into workforce trends that goes beyond benchmarking data. The insights from this type of research offers unique value and support to client organizations. Just as businesses must continue to evolve to stay apace with technology, the economy, and government regulations, so must PEOs evolve – not only in their ability to support clients, but in their technological innovation and data insights.

As Balance of Power Shifts, Employees Opt for Flexibility and Values

Low unemployment and digital technology are shifting the balance of power to employees, who want more flexibility and better values from their employers. For now, the future of work appears to be in the hands of the workers.

Thanks to the lowest unemployment in nearly 20 years and the growing boom in digital technology, the balance of power in the workplace is shifting from employer to employee, said Brian Michaud, SVP of ADP TotalSource®. With the ability to work from anywhere and little incentive to show company loyalty, American workers are discovering they have a unique kind of leverage—and are using it to demand a new kind of work experience.

“There’s a little of what I would call power to the people right now,” he said. “It’s a full economy—the lowest unemployment we’ve had in decades—so you and I can go work wherever we want to work.” In many cases, that means choosing to work for companies that demonstrate strong values. “Nobody wants to work for that company that’s in the headlines or has EEOC violations,” said Michaud, referring to the U.S. Equal Employment Opportunity Commission.

It also means choosing companies that let them work how they want to work. The mass availability of cheap technology has been a double-edged sword for employees, noted Casey Slater, SXSW® Conference Programmer. On the one hand, it’s made it harder for them to unplug, leading to widespread complaints of burnout, even among 20- and 30-year-olds. “We are continuously connected, no matter what,” she said. “I have my Apple Watch on, I have my phone. There’s no reason for me not to answer a
work email.”

Meanwhile, the kinds of benefits that once inspired company loyalty — pensions or even 401(k) contributions – have largely evaporated.

The result, said Slater, is that younger employees are using their leverage to insist on flexibility, inclusion, and pay equity. “Millennials are now saying, ‘Well, if later in life we’re not protected, then we want quality of life right now,” she said. Michaud and Slater spoke at the ADP Commons at the 2019 SXSW Conference in Austin, Texas. Their conversation, the last of five daily fireside chats held in the Commons, focused on the key themes to emerge from the Future Workplace track, which was sponsored by ADP.

For employers, the challenge now is finding new ways to retain workers who insist on a higher degree of independence, said Michaud. “One trend I saw was bringing humanity back to work,” he said, “focusing on what it means for your employees to bring their best selves to work.”

Slater shared a personal example, citing the loyalty she feels toward SXSW after the company supported her through her recent cancer treatment. “They never questioned where I was,” she said. “I could work from the chemo chair. They gave me that flexibility and empowered me through my treatment.” “This is the longest job I’ve ever had, and there’s a reason for that,” she said. “I have a loyalty to my company now.” The degree to which workers are demanding a new deal was evidenced by the popularity of a session called “Mindful Self Care: The Antidote to Burnout at Work,” which was held twice to accommodate audience demand and ended up being one of the festivals most highly rated presentations. “It’s competitive out there,” said Slater, “and you’ve got to do the right thing.”