What I Have Learned Watching HR and PEOs Evolve
When I first became involved in the PEO industry more than 16 years ago, human resources looked very different for most small and midsize businesses.
Payroll was often handled by a bookkeeper or office manager. An insurance agent helped with employee benefits and workers’ compensation. Hiring usually involved an application, an interview, and a handshake.
HR was generally considered an administrative function. It was not viewed as a major part of a company’s business strategy.
I have watched that change dramatically.
Today, business owners must deal with payroll taxes, employee benefits, workers’ compensation, workplace safety, hiring, onboarding, unemployment claims, employee handbooks, and an ever growing list of employment laws and regulations.
Employees also expect more from their employers. They want better benefits, easier access to information, modern technology, career development, and a positive workplace experience.
The owner is still expected to run the business while keeping up with all of it.
That is one of the biggest challenges I see when talking with small and midsize business owners. They did not go into business because they wanted to become experts in payroll, HR compliance, benefits administration, or employment law. They started their companies because they were good at construction, manufacturing, healthcare, hospitality, professional services, oilfield services, or another particular trade or profession.
Yet, as their businesses grew, managing their employees became more complicated and consumed more of their time.
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Small Businesses Face Big Business Responsibilities
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Large companies can afford to build entire departments around their workforce. They may have HR managers, payroll specialists, benefits administrators, safety professionals, compliance officers, recruiters, and employment attorneys.
Most small and midsize businesses cannot justify hiring all those people.
Instead, I often see these responsibilities placed on the owner, controller, office manager, or another trusted employee who already has a full-time job.
That person may be perfectly capable, but HR has become too complicated to manage casually.
A payroll mistake can affect every employee. A poorly handled termination can lead to an employment claim. An outdated handbook can create unnecessary risk. A workplace injury can hurt an employee while increasing the company’s workers’ compensation costs.
The business owner still has customers to serve, employees to lead, sales to generate, and cash flow to manage.
I have always believed that an owner’s time should be spent on the parts of the business that only the owner can do. Spending hours trying to solve a payroll problem, understand an employment regulation, or compare benefit plans is rarely the best use of that time.
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Why PEOs Became an Important Part of the Solution
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As HR became more complex, Professional Employer Organizations, commonly known as PEOs, became an increasingly important option for small and midsize businesses.
Before founding MPower Partners in 2011, I worked directly for a PEO. That experience gave me an inside look at how the PEO relationship works and the value it can provide.
It also taught me something equally important. One PEO cannot be the right answer for every business.
A PEO can bring payroll, HR support, employee benefits, workers’ compensation, safety, compliance assistance, and technology together through one relationship.
Depending on the PEO and the needs of the company, the services may include:
- Payroll processing and payroll tax administration
- Human resources guidance
- Employee benefits
- Workers’ compensation
- Workplace safety and risk management
- Employment compliance assistance
- Recruiting and onboarding tools
- Time and attendance systems
- Employee training
- Retirement plan options
- Employee handbooks, policies, and procedures
The business owner continues to run the company, supervise employees, and make business decisions. The PEO supports the employment responsibilities that can otherwise consume the owner’s time.
Over the years, I have seen the right PEO relationship transform how a business handles its people.
Instead of calling several unrelated vendors and hoping they communicate with one another, the business has access to an integrated team and system. Instead of relying on one overwhelmed employee to know everything about HR, the company can call experienced professionals for help.
That support can be especially valuable when something unexpected happens. That is usually when a business discovers whether its HR provider is truly a partner.
The Right PEO Can Be More Cost-Effective Than Doing Everything Yourself
Business owners sometimes look at the PEO’s fee and assume outsourcing must be more expensive than handling everything internally.
In my experience, that comparison is often incomplete.
The real question is not simply, “What does the PEO charge?”
The better question is, “What is our total cost of managing HR?”
That includes payroll processing, benefits administration, workers’ compensation, HR technology, safety resources, compliance support, internal employee time, and the time owners and managers spend resolving employment problems.
It can also include the cost of mistakes.
Hiring a payroll specialist, HR manager, benefits administrator, recruiter, safety professional, and compliance expert would be expensive for most smaller businesses. A PEO may give the company access to all those resources without requiring it to hire each specialist directly.
The right PEO may also help a business obtain better employee benefits, manage workers’ compensation more predictably, improve workplace safety, and give employees better technology and support.
Sometimes the most valuable savings do not appear as a line item on a proposal. They come from avoiding problems, reducing administrative work, improving employee retention, and allowing the owner to focus on growing the business.
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I Learned Early That Bigger Is Not Always Better
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When I founded MPower Partners, I made the decision to work independently rather than represent one PEO.
I made that decision because I had already learned that businesses are different, and PEOs are different.
A large national PEO may be the best choice for one company but a poor fit for another. A smaller regional PEO may provide exceptional service for a particular industry or location. One PEO may be strong in employee benefits, while another may be better equipped for workers’ compensation, high-risk industries, businesses operating in several states, or specialized technology.
Bigger is not always better.
I have worked with companies in construction, oilfield services, manufacturing, hospitality, home healthcare, staffing, logistics, professional services, and many other industries. Their needs are not interchangeable.
A PEO that works well for a professional office may not be equipped to support an oilfield service company, construction contractor, or staffing company.
That is why I begin by learning about the business instead of promoting a particular PEO.
How many employees does the company have? Where do they work? What type of work do they perform? What are the company’s benefit needs? What challenges is it experiencing with payroll, workers’ compensation, compliance, safety, or service?
Only after understanding the business can I determine which PEOs should be considered.
One size does not fit all.
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Price Matters, but So Does Everything Behind the Price
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I have reviewed many PEO proposals over the years, and one lesson continues to stand out. The lowest number on the page is not always the lowest total cost.
Some proposals appear inexpensive because important charges are presented differently, excluded, or difficult to identify. Others may look attractive initially but become much more expensive at renewal.
Service also matters.
A low price loses its appeal quickly when payroll problems are not resolved, calls are not returned, benefits are poorly administered, or the technology does not meet the company’s needs.
I tell business owners to understand exactly what is included, what is not included, how workers’ compensation is calculated, how benefits are priced, and what can change later.
Assume nothing.
When PEOs compete for the same business, the owner gains a much clearer picture of the marketplace. Competition can improve pricing, service commitments, and contract terms.
When PEOs compete, you win.
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Companies Already Using a PEO Should Keep Evaluating the Relationship
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My work is not limited to companies considering a PEO for the first time.
I also help businesses that are already using a PEO determine whether their current provider is still the right fit.
Businesses change. PEOs change. Pricing changes. Benefit plans change. Service teams and technology change.
A PEO that was the right choice several years ago may still be the best option. The business should not simply assume that it is.
I have seen situations where a current PEO suddenly became willing to improve its pricing after learning that the client was evaluating other options. That always raises an important question. If the PEO can offer better pricing now, why was the client not receiving it before?
Sometimes changing providers makes sense. Sometimes staying with the current PEO after renegotiating the relationship is the better decision.
My goal is not to move a company simply for the sake of moving it. My goal is to help the owner make an informed decision.
Sometimes you have to keep ’em honest.
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The Best HR Solution Gives the Owner Time Back
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After more than 16 years in this industry, I believe the greatest value of the right PEO relationship is not simply payroll, benefits, technology, or compliance support.
It is time.
Time to take care of customers.
Time to lead employees.
Time to pursue new opportunities.
Time to focus on the work that made the business successful in the first place.
A PEO will not operate the business for you, and it will not eliminate every employment challenge. The right PEO can provide the support, resources, and guidance that allow a small or midsize business to operate more like a much larger company.
I do not work for one PEO. I work for the business owner.
I help businesses evaluate their needs, compare qualified PEOs, understand proposals, negotiate the relationship, and select the provider that best fits their needs. There is no cost or obligation to the business for my assistance, and I remain available as an advocate after the PEO is selected.
HR has evolved, and business owners have more choices than ever before.
The key is knowing which choice is right for your business.
Choose wisely, my friends.
John W. Crochet
Founder and President
MPower Partners Inc.
Independent PEO Broker and Advisor
www.mpowerpartnersinc.com
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