Save Money by using a PEO

Woman holding money to illustrate cost savings through PEO services

Written by Blake Odom

President & COO

Applied Business Solutions

August 14, 2018

There are many benefits for businesses using PEO’s, namely, they allow your business to offer your employee’s competitive benefits at a lower cost to the company, such as medical and dental benefits, retirement benefits, and workers’ compensation. However, many businesses don’t quite understand what PEO’s are or how they really work. Here’s what you need to know.

How Using A PEO Can Save Your Business MoneyPEO’s Explained

In short, a PEO is a Professional Employer Organization. A PEO works with a number of small to medium-sized companies to assist them with the management and organization of various aspects of human resources, including but not limited to benefits, payroll, workers’ compensation, and compliance. A PEO will group small companies together to give them more leverage when purchasing benefits for their employees. For example, health insurance companies can offer large groups better rates. Essentially, a PEO makes a larger group out of several smaller ones, so growing businesses can reap the same savings as substantial corporations with many more employees.

Workers Compensation Advantages

Additionally, grouping several small to medium size businesses together provides an advantage towards workers’ compensation coverage. Traditional workers comp policies typically require a significant down payment and monthly payments based on an estimated payroll. At year-end, an audit is performed where an adjustment will be made to ensure the correct amount was paid based on the actual payroll. With a PEO, the workers comp is considered “pay-as-you-go”; meaning the exact amount required based on payroll is collected with the payroll so you stay fully compliant. This means no more audits and no more high down payments which can equal additional savings for your business.

Health Insurance Benefits

Health insurance is the primary area where PEO’s will save small businesses the most money. Healthcare costs are rising, and qualified potential hires are seeking more competitive benefit offerings when looking for employment. It’s not practical for companies to offer to cover half of the cost of an individual health care plan — to compete for top talent, companies must offer better benefits packages, despite the growth of healthcare expenses. Using a PEO is one way small businesses can offer competitive health care benefits at a reduced cost.

Other Ways to Save with a PEO

Other savings also exist for companies using a PEO. PEO’s can help small employers connect with trustworthy 401(k) providers that ordinarily wouldn’t offer much to businesses with few employees. However, by grouping employees from multiple businesses together and leveraging all the money from those 401(k) plans, providers will lower the fees and offer more incentive for the opportunity to secure so many new clients. The same concept can be applied to nearly any type of insurance, including workers’ compensation and retirement benefits. Additionally, some PEO’s can negotiate lower rates on travel expenses, such as reduced airfare and hotel rooms.

When a company is just getting started or needs to expand, it may not always make sense to grow the current HR or payroll staff, or to hire a new staff to handle your HR needs. In cases like this, outsourcing to a PEO can be a significant benefit. By outsourcing your payroll and/or HR functions, you can have an experienced human resources team at a fraction of what it would cost to hire in-house. The PEO provides the support you need, saving you time and money.

Is a PEO Right for You?

If you’re a small business struggling, consider working with a Professional Employer Organization. A PEO can make your business look much larger than it is to an insurance company, allowing you to access better benefits at lower rates. Not sure if a PEO is right for your business model? Contact us at (855) 792-2808. We’re available to answer your questions and help you learn more about how a PEO can benefit your company.

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Applied Business Solutions has 75+ years of combined Payroll, Insurance and Human Resources experience with companies ranging from 1 to 2,500 employees.