Small businesses using PEOs see more growth, profitability

Date posted: September 8, 2017

Annual revenue growth doubles for firms that use PEOs. Photo: Shutterstock
Annual revenue growth doubles for firms that use PEOs. Photo: Shutterstock

Small businesses that use the services of a professional employer organization not only see better annual revenue growth, but are also more likely to see an improvement in profitability.

That’s according to a studyreleased by the National Association of Professional Employer Organizations and conducted by economists Laurie Bassi and Dan McMurrer of McBassi and Associates, which finds that annual revenue growth doubles for firms that use PEOs, as opposed to comparable firms that do not use them. In addition, companies that use a PEO are 16 percent more likely to report an increase in profitability.

PEOs provide payroll, benefits, regulatory compliance assistance and other HR services to small and midsized companies. They provide small business employees with access to benefits typically provided by large companies, such as 401(k) plans; health, dental, life, and other insurance; dependent care; and other benefits.

Earlier studies by Bassi and McMurrer have found that businesses in PEO arrangements grow faster, have lower employee turnover and have a significantly higher rate of business survival than businesses that don’t use PEOs.

PEO users, according to this latest study, are also significantly less concerned about their ability to handle key business challenges, such as hiring employees, raising capital, or funding and boosting revenues. Specifically, the study finds that while 70 percent of non-PEO firms say hiring employees is a “moderate” or “major” concern, only 45 percent of PEO clients say so.

Also, 90 percent of non-PEO clients say that increasing revenues is a “moderate” or “major” concern, compared with 73 percent of non-PEO firms; and while 45 percent of non-PEO firms say raising capital/funding is a “moderate” or “major concern, just 18 percent of PEO clients say so.

The study also finds that PEOs provide significant advantages for employees. In fact, compared to employees at businesses that are not PEO clients, employees working at businesses using PEOs “are significantly more likely to report that their employer demonstrates a commitment to them, has good HR policies and practices and provides good training and development opportunities.”

The business owners themselves also seem pleased, with 98 percent of business owners who are PEO clients saying that they’d recommend a PEO to a small business colleague.

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