Am I Too Big For PEO?

Partnering with a Professional Employer Organization (PEO) is a smart, cost-effective choice for nearly all small- and medium-sized businesses. Startups, boutique operations and growing businesses all benefit from the broad range of services a PEO provides. But is it possible that your company is too big to take advantage of a PEO?

First, let’s consider a PEO’s core functions: payroll, benefits administration, HR guidance, workers’ compensation, and training. That’s an overwhelming list of responsibilities for a small business, but it can be equally daunting (and more expensive) for a medium-sized business with 250 employees. It’s possible to administer some of these services in-house when a company is large enough but is absorbing the cost -- and more importantly, absorbing the risk if it isn’t done properly -- worth it?

The right answer depends on your business’s unique situation. Some sectors have a relatively easy time managing their employees’ needs in-house when they’re around that 250-person level. They tend to be in slow-growth industries with lower-skilled employees (with few training requirements) and very little turnover. As far as human resources go, that’s a fairly friendly setup.

But most mid-sized businesses don’t have it so easy. They’re working with more volatility, and they’re growing -- or looking to grow -- more quickly. They’re competing throughout their state, nationwide, or even internationally for the best talent that they hope to secure, develop, and keep. HR and its related tasks are dynamic and constantly in flux, and that requires serious expertise. You can outsource that to a strong PEO, or you can do it yourself and hope to get a better result.

The long saga of the Affordable Care Act showed medium-sized businesses just how useful (and comforting) it is to hand HR over to the guys who do it best. Before ACA was passed, speculation about what would change, how, and when brought brutal waves of uncertainty to all business owners. They tried to keep up with the developments on the federal and state levels, but the consensus was to tighten hiring and investment until the details were sorted out. Once Obamacare became law, businesses had to adapt to a new, broad set of regulations that, in many cases, upended business as usual. It was a tough time for HR and executives.

The mid-sized businesses with in-house operations struggled mightily when it came to parsing the changes, and they had their fingers crossed that they were doing it right (as management and ownership felt the stress). Even now we’re waiting to see which provisions of the law will stay intact or be changed. It is perpetually unsettling, but PEOs have proven to be an excellent, stable resources throughout the process. It’s their job to figure out and respond to regulatory changes -- and even for mid-sized businesses, outsourcing that responsibility allows you to focus on what your business actually does, not what the government does.

There is a point at which companies grow large enough and develop their own unique requirements that may not fit with an all-encompassing PEO model; they’re better off doing everything themselves and customizing each facet of employee administration to their company’s individual needs. Until businesses hit that point, though, PEOs offer a host of services that match a company’s growth, from the need for increased training, more targeted hiring practices, or easing into a full in-house operation.

Analysts and advisors love to throw out hard ceilings on just when it stops making sense to work with a PEO, but the real question isn’t whether your company is too big or too small for a PEO -- it’s which PEO is the best fit for the unique needs of your business.