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Get to Know Your PEO: Human Resource Outsourcing for SMEs

Professional employer organizations (PEOs) level the playing field for small and mid-sized businesses by assuming responsibility for human resource management. By outsourcing human resources to a PEO, a small business taps into the efficiencies and discounts available to a large-volume player. Saving time and resources, PEOs allow clients to focus on the core business rather than administrative logistics.

How PEOs Work

For both the client and service provider, the PEO business model is a win-win. Large enterprises already enjoy volume discounts on human resource outsourcing services. By contracting with a PEO, smaller businesses can gain the same advantage.

Professional employer organizations manage human resource outsourcing on behalf of many business clients, serving as the employer of record for all their clients workers. The PEO files tax and insurance paperwork on behalf of their clients, and takes care of human resources administration. Services include:

  • Payroll administration
  • Employee benefits management
  • Workers compensation
  • Recruitment
  • Tax administration

The client, meanwhile, manages the day-to-day activities of the workers. As the legal employer of all its clients workers, the PEO is able to streamline HR administration on behalf of a high volume of employees, investing in an efficient, technologically sophisticated HR management system. In addition, the PEO leverages the collective negotiating power of this aggregated workforce to secure significant discounts (on health insurance premiums, for example), dramatically lowering the cost of human resource administration.

The Payoff for Small and Mid-Sized Businesses

Clients of professional employer organizations benefit in three ways by outsourcing their human resources to a PEO.

  1. Lower Cost. Companies benefit from the discounts and efficiencies of a high-volume outsourced operation
  2. Greater Management Bandwidth. Human resources administration can bog down a smaller business in-house managers. Outsourcing HR functions to a PEO allows the business to focus top talent on high-value business development processes rather than administrative red tape. Managers are more productive and able to focus their resources on growing the business rather than simply managing day-to-day operations
  3. Better Benefits and Service for Workers. PEOs take advantage of the volume of their aggregate headcount to provide access to better benefits programs and sophisticated human resources information systems. The result is a better experience for workers--and by extension, a better means for businesses to attract top talent

The author of a white paper on the HR outsourcing trend, "No Sweat HR Efficiency," explains the advantage smaller businesses gain from outsourcing human resources: "PEOs help small and medium enterprises (SMEs) that often lack internal resources to develop and deliver full-scale HR services of their own to cut costs and focus their management bandwidth on core processes."

In todays dynamic economy, its crucial for businesses to make optimal use of available resources. PEOs allow small and mid-sized businesses to take advantage of the volume efficiencies available to larger players while maintaining their key advantage: maintaining a lean, flexible enterprise.


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