What Is A PEO?

PEO stands for Professional Employer Organization. If you want to condense the services of such an organization down to an illustrative term, think of it as an optimization resource delivering sustainable Return On Investment (ROI); or an outsourced ROI resource.

PEOs have been shown to save money for businesses large and small, facilitating statistically representative expansion--this is reflected in the size of the industry itself, which is between $136 and $156 billion. For some perspective, Ford Motor Company is a $151 billion dollar company.

Now, granted, that's a single business; the PEO industry represents many hundreds of separate providers. But the idea here is to communicate just how valuable these services are. And according to NAPEO, the National Association of Professional Employer Organizations, businesses who use PEO services experience a growth of between 7 and 9 percent annually. NAPEO goes on to point out that companies using PEO services are half as likely to go out of business.

To illustrate that numerically, if you would have grown $100 million in a year, PEO services would expand that growth to between $107 and $109 million. If you paid $2 million for what they provide (which overstates cost substantially for many PEOs), you see an increase on investment of between 250% and 450%. This can be achieved through several primary areas of operation including:

• Payroll
• Benefits
• Human Resources
• Tax Administration
• Regulatory Compliance

Core Prerogatives
Granted, you as a business are certainly capable of managing these things internally. However, ask yourself: is payroll, HR, benefits, tax management, and compliance core to the prerogatives which define your business? Or is your business about...something else?

Say you're in manufacturing, automotive, or the aerospace industry: is your core focus tracking federal employment regulations, or is your core focus centered around developing top-tier products which outshine competitors? Certainly, your focus is the latter. This means anything secondary to that focus cannot be the core prerogative of your company.

Accordingly, personnel working within your company will naturally be limited in their resources by existing prerogatives. Furthermore, providing internal employees resources likely won't be a ROI-rich investment, as there is an upper limit to even the best internal employee's ultimate scope.

Meanwhile, PEO organizations have as their core prerogative providing ease of personnel acquisition to clients. It is the center of their business to ensure you are in total regulatory compliance, even in regard to new strictures which weren't on the books a year ago. They make it their primary focus to ensure payroll and benefits management are streamlined such that there are no unnecessarily costly aspects of operation defining them. Saving you money in terms of taxes, and helping you avoid heavy penalties for improper tax management, is additionally a prime focus of PEO businesses. For them to experience profit, they must continually make breakthroughs in these areas.

Optimizing Your Business
The bottom line is, a PEO isn't strictly necessary, but the numbers indicate using such a group will expand your growth while streamlining operations and reducing fallout from under-informed decisions. There's a reason this industry is worth $130+ billion annually and growing.