American business is undergoing a painful transitional period as the economy has hit rock-bottom, but looks poised to slowly rebound. How long the recovery will take, however, no one knows. Many employers have laid off staff, while many others were prepared to do so. This second group is now now caught in a quandary – keep the staff on, hoping for a quick recovery, or let them go, continue to shave costs, and dig in for the long haul? Not simple questions.
Exacerbating the situation are complex employment regulations, rising insurance costs, and increasing labor-related lawsuits that weigh upon small employers like an albatross. The feeling of despair is pervasive amongst small employers, as shown in surveys and polls across the country. It is this economic environment that Professional Employer Organizations (PEOs) and Human Resources Outsourcing companies are thriving.
The growth of the PEO and Human Resources Outsourcing industry.
Despite the sluggish economy, the HR Outsourcing and PEO industries continue to post positive gains. Last month, the Market Research Group reported that the Third Party Processing (TPP) market grew by more than 11% in 2008, to reach $61.9 billion. It is also poised to jump to 57% throughout 2009. Leading the TPP field is the Human Resources Outsourcing industry.
There are several factors driving the growth of the industry.
- Over the last two decades, the nation has seen a significant increase in employment-related federal, state, and local laws and regulations.
- The expertise required to manage a small to mid-sized business has outgrown the experience and training of many entrepreneurs who started these businesses.
- Working Americans demand comprehensive, affordable health care, retirement savings plans, and other employee benefits for themselves and their families.
- The volatile economy has forced employers to streamline operations and reduce unnecessary spending and overhead.
- Layoffs and downsizing have exposed small businesses to new employment risks they have not faced in recent years.
It is in response to these challenges that the PEO and HR Outsourcing industries are thriving.
Helping Entrepreneurs With the “Business Of Employment”
PEOs offer their clients and worksite employees the services and expertise of a personnel department typically found within a large corporation. Few, if any, small businesses can afford a full-time staff consisting of an accountant, a human resource professional, a lawyer, a risk manager, a benefits manager, and a manager of information services. PEOs offer this expertise to their clients.
The PEO and Client enter into a Co-Employment relationship, through which the PEO offers its services. By providing these services, PEOs enable their clients to concentrate on their core business without the challenges and distractions associated with the “business of employment.” As a result, PEOs enhance the profitability of their client companies. The PEO’s economy of scale enables each client company to lower employment costs and increase the business’s bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. Costs related to monitoring of, and compliance with, employment laws are reduced, as are the often significant costs of failure to comply with such laws.
Furthermore, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line.
Helping American Workers and Their Families
In addition to providing important services to their business clients, PEOs offer substantial advantages to worksite employees. In many cases, these employees would not be provided the number, or quality, of benefits that a PEO can offer. These benefits may include:
- health insurance
- retirement savings plans
- disability insurance
- life insurance
- dependent care reimbursement accounts
- vision care
- dental insurance
- employee assistance plans
- job counseling
- educational benefits.
Each individual small business’s cost of establishing and administering this range of plans would be prohibitive. However, due to economies of scale, PEOs can sponsor and offer these plans at an affordable cost.
If you are looking for ways to cut HR costs, reduce overhead, and improve employee productivity and morale, the PEO and HR Outsourcing industry might be just what you are looking for. Contact us today for a complimentary HR Cost Analysis.
The buzz on the street for small business has slowly been shifting from the economy to health insurance. While President Obama failed to push his health care agenda through Washington before the summer break, most believe it is just a matter of time before he succeeds.