Professional employer organizations help free up business owners’ time to focus on generating revenue.
Most small-business owners know the frustration of spending more time than they want or should on non-revenue-generating activities. From payroll and human resource management to benefits and compensation, entrepreneurs can spend up to 40 percent of their precious day engaged in these necessary but time-sucking tasks.
The answer for many growing companies may be to hire one of the 700 professional employer organizations (PEOs) in the U.S. These companies become the legal employer of your staff and handle all the payroll, benefits and HR functions.
“Most small businesses are under 25 employees, and that means the owner is the most productive, is critical to the success of the business, and has to get out there and generate sales and products,” says Milan Yager, president and CEO of the National Association of Professional Employer Organizations. When small businesses outsource non-core activities, “they can focus on the business of their business,” says Yager.
But when does it make sense to hire a PEO? While PEOs aren’t for every company, those that do use them can often offer better benefit packages and thus hire better talent, says Ed Vargas, senior vice president of health and benefits at Aon Consulting. “We help them set up a Fortune 500 package of benefits,” he says.
In assessing whether or not you should hire a PEO, there are several questions to consider before you make a decision:
How big is your company?
Expert opinion varies on how large a company should be before it hires a PEO. A general rule of thumb is “when administrative processes begin slowing down the productivity of the firm,” says Dan Sheridan, president and chief operating officer of Extensis, a PEO. While it is different for every company, “this typically occurs when a business reaches 10 to 15 employees a week,” says Sheridan.Some PEOs won’t work with companies that have fewer than 10 employees.
“Once a company gets very big, then it is easier to have an in-house HR department,” says Janis Sweeney, owner of National Employee Management Resources, a PEO. The sweet spot for a PEO, she says, is between 16 and 80 people. The composition of your workforce is also important. Companies that only offer insurance to a few key executives wouldn’t benefit from PEOs.
How much does a PEO cost?
Remember — each PEO is different, and business owners would do well to read the fine print.
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Claire Harrison is the Founder and Managing Director of Harrisons, a flourishing HR consulting business that sprouted in 2009 from Claire’s passionate belief that inspiring leaders and superstar employees are the key success factor to any business. With over 20 years’ experience, Claire has worked as a HR Director of multi-national organisations, as a Non-Executive Board Director, and a small business owner. Claire’s corporate career includes working with companies such as BHP, Westpac, Fonterra and Mayne Nickless.