So you’ve heard about PEOs and HR administration outsourcing. Everybody is talking about benefits and how PEOs can help you grow your startup company. What every startup needs to know about PEO services.
No plans for growth? Using a PEO might not be for you.
Unless your business development plan includes additional hiring, to begin with, a PEO would not be as useful to you until the point that you do, in most cases.
Partnering with a PEO will most likely increase your costs at this stage.
However, in some cases, it will not, depending on your particular situation.
As an example, we paired a PEO with a two-person company that was spending a large amount of money on an executive health plan for both employees and their families.
The PEO was able to offer them a similar plan at a fraction of the cost. Those savings were larger than the PEO administrative fees and the end result was better service at lower cost while benefiting from all the other PEO perks (read more about PEO advantages).
A PEO is likely to be the wrong choice when startup founders expect:
- high employee turnover;
- low level of employee benefits or none at all;
- employees are not viewed as an asset.
Good PEOs serve as a long-term platform where startups can upgrade on service and employee benefits.
Accelerating your growth.
Many startup companies begin with one or two employees. Their goal is to generate enough revenue to sustain the business and as profits become available, reinvest these to grow the company. PEOs can be very helpful in accelerating this process.
Some startups rely on multiple rounds of funding to accomplish several milestones such as revenue targets, profitability ratios, etc. PEOs eliminate many distractions so that management can spend their time focusing on those milestones.
Two to ten employees and growing? PEO is a good partner.
If your expectations are that your 2 to 10 employee startup company will continue to grow, then a PEO is more viable for you.
Partnering with a PEO allows a startup company to gain an immediate infrastructure without the need to hire Human Resources people.
In turn, a startup company becomes scalable (prepared for an increase or decrease in employee count), acquiring room for growth at a lower cost.
Be more productive with a PEO’s help.
As your company experiences growth, while in the care of a good PEO, you can, through their assistance and services, reduce wasted time and resources to keep up.
Most startup companies’ management would agree that their time is best spent focusing on their core purpose rather than worrying about regulatory compliance, HR administration, employee benefits, worker’s compensation, etc.
By concentrating on providing the goods and services your startup company was established to provide, you can outsource the above-mentioned functions to a PEO and be more productive while reducing risk.
Stay compliant with various laws.
PEOs reduce the risk of failing by helping you comply with federal, state, and local labor laws. This is an area that has become critically important and difficult to manage, as the regulatory environment has gotten more cumbersome.
The increased regulation is a trend that is not likely to reverse itself anytime soon. Risk is also reduced through the help of a PEO with regard to lawsuits, such as sexual harassment, wrongful termination, and discrimination.
PEOs conduct prevention training as well as they keep your start-up employee handbook up to date and in accordance with regulations and your company culture.
They can also step in on your behalf in a disgruntled employee situation or the termination of an employee.
Attract top talent by offering rich benefit packages.
Your startup company can utilize the PEOs employee benefits which most often are more robust and less costly than your company can provide on its own.
By offering rich benefit packages to your employees, your startup company is more likely to attract and retain top talent.
These key qualified employees, in the aggregate, will be instrumental in the success of your company.
Cost considerations as mentioned before are another important factor to consider such as your current health insurance costs which can often be reduced. PEOs, through economies of scale, have insurance plans that rival “Fortune 500” companies.
Because of the PEO’s careful risk management of their health plan through proper client underwriting and constant management of it, they are able to keep premiums lower.
Workers’ Compensation is another area where some companies have reduced their current costs as well.
A startup company with a reduced risk model, good infrastructure, cost efficiency, and the ability to attract top talent, is always more attractive to investor capital than the contrary. A PEO helps with all four areas leading to the eventual sale of the business and a great start to the end goal and exit strategy.
Choosing the right PEO service provider is not an easy task. We are PEO brokers who have a deep understanding of the PEO industry and can help you identify the factors that are most important to you in a PEO partner.
We will help you to find and choose the best PEO for your startup, free of charge.