Running a new business or tech startup with full-time staff members isn’t easy. Three out of ten new firms don’t last two years! Chances of survival are much greater, however, when young companies turn to a PEO to help them with payroll and HR responsibilities. But, when your business grows up to more than 50 employees, your needs change and sticking with a PEO no longer makes sense. When you start to grow, it’s time to move out of your PEOs basement and get your own place.
Are You Ready to Grow?
The average PEO client has about 22 employees. Their staff is too small to invest in internal human resources and payroll and it make more sense for the founders to concentrate their resources elsewhere. Rather than become a statistic of failed start-ups, partnering with a PEO is often the best choice for companies with less than $1 million in funding, as revenue is crucial to cover costs early on. Once you cross the threshold of making a profit, however, you may have already outgrown your PEO.
Is Your PEO Holding You Back?
While PEO partnerships can be beneficial for startups with a small number of resources and employees, you may find gaps in the service as your business grows.
Benefit Thresholds – Small businesses get a select set of decent benefits packages with PEOs, but in time, large businesses gain negotiating advantages for health insurance and retirement benefits through the open market.
Calculated Risk – PEOs aren’t always stable. They can go out of business and while many are protected by the Employer Services Assurance Corporation (ESAC), some are not.
Purchasing Power – Workers’ compensation is a big motivating factor for small businesses to use PEOs. Unfortunately, the costs and fees that PEOs charge can eventually become too expensive.
Points of Contact – Startups that make HR a secondary function don’t need a PEO point of contact available 24/7. But large companies that have outgrown “the basement” do.
Technology – Many PEOs aren’t set up so that managers and employees can access relevant data they need to run their business and make strategic decisions that could affect the company’s bottom line. At a certain point, this becomes unacceptable for large businesses.
Employee Ownership – PEOs work through what is called “co-employment in which your employees become the employees of the PEO under the PEOs federal tax ID. This limits you from customizing your hiring experience and benefits offerings.
What’s the Alternative?
The Roommate Approach
Some businesses outsource to different vendors for each service after leaving a PEO instead of getting out of the basement. They deal with multiple roommates who cause more work and ultimately higher cost from data errors and lost time.
Getting Your Own Place
Are you ready to build your own HR department in house? Along with assessing and determining needs in the areas of staffing, budget, employment law, tax obligations, benefits, payroll and much more, you might also need to hire two or more people to run the department.
The People Operations Model
To attract and hold on to your high value talent, you have to understand and take care of them. Base employee choice on analytics, instead of emotional mandates.
Provide a technical and services solution for both the employees and the HR, payroll and benefits professionals (allowing them to work together instead of siloed), which will save them time and reduce their cost.
In this way, your people are your true customer, an idea that is gaining traction in companies that compete for talented individuals. Retention is a science and HR isn’t just about filling out forms. It’s about how well companies attract and manage innovative employees.
By combining HR, payroll and benefits data into one single source solution, the entire People Operations team can gain the control and visibility they need to grow the company like never before. One partner, one system, one dataset that enables human resources, payroll and finance professionals to more effectively and efficiently support employees, contain costs, ensure compliance and reduce risk.