A Professional Employer Organization, or PEO, is a business model that helps small to mid-sized businesses manage the everyday HR needs that smaller businesses struggle to handle alone, such as paying employees, filing payroll taxes, providing health insurance (and other benefits), getting workers’ compensation coverage, developing employee policies, managing employee issues, and more.
This is no small thing, considering labor is the largest expense for most architecture firms. Labor isn’t just salaries, it includes the cost of payroll taxes, group health & other benefits, hiring and terminations, plus the cost of administering associated HR requirements. The average employee cost is now $93,744, up almost $1,500 from the previous year according to the Deltek’s 38th edition of the Clarity Architectural and Engineering Industry Study, which is quite an investment – and with 11% turnover in the industry, managing employees is nothing to take lightly.
How Does a PEO Help?
A PEO manages the entirety of the employee life cycle—consolidating your vendor relationships and ultimately, freeing you up for everything else that matters to your business. By mastering these essential touch points, your firm will minimize risk and maximize your return on your employee investment.
- Recruiting—attract the employees who will help drive your business and increase profits.
- Hiring —effective hiring processes help employees get up to speed and become productive quickly.
- Compensation—determine competitive wages so you can attract better employees.
- Benefits—a comprehensive employee benefits package helps you retain and attract high quality employees.
- Payroll & Tax Administration—employee productivity is your return for your investment of wages, but it is a highly regulated administrative function that must be done properly to avoid penalties and fines.
- Performance Management—gauge the performance of your employees and your firm in order to maintain realistic expectations and improve employee productivity.
- Workers’ Compensation & Liability Management – mitigate risk of fines, lawsuits, and poor return on wage dollars spent, by reducing the likelihood of workplace injuries and employee conflicts.
- Compliance—employment is one of the most regulated and therefore risky aspects of running a business – which is why you must have a plan to protect your firm from fines and litigation.
- Documentation Management—high quality record-keeping is essential because it is:
- required by law,
- protects companies from frivolous litigation, and
- helps drive employee productivity.
- Employee Separation—employee departures can be the riskiest point in the employment relationship because of its regulation and potential impact on your customers, revenue, and other employees.
These 10 critical points of the employee lifecycle are often neglected because they are not perceived as value-added tasks. But by improving some of these critical points, companies experience greater productivity and reduced risk, attract better employees, retain current employees, and reap even more benefits. Learn how a PEO works in this short video: https://www.youtube.com/watch?v=1_E54w8mqNk&t=12s
How Does a PEO work?
A PEO standardizes and harmonizes critical employee management processes.
- A PEO standardizes—by creating uniformity in payroll, benefits admin, and HR processes that help you more consistently meet cost and business objectives.
- A PEO harmonizes—by handling many of these specific processes and making sure they all fit together harmoniously.
When you establish this level of consistency, a series of things can happen:
- Processes become more consistent, and therefore more reliable.
- With fewer inconsistencies, you can mitigate the risk of unexpected costs, lower the maintenance costs of employee management processes, and increase business agility.
- With better systems and practices in place, you can reduce the likelihood of error and miscommunication (whether between technology systems or departments).
- And ultimately, you get more control over business operations.
How does a PEO help you? According to the Deltek A&E Industry survey, architectural firms’ top two business development challenges are:
- Finding the time to nurture client relationships; and
- Limited business development resources & time.
You need more time—and you need more resources! With a PEO, you are able to maximize your business efforts, giving you more time and access to resources to accomplish those very things.
What does a PEO achieve? The employee cost for smaller firms (50 or less employees) was $87,173 in 2017. While larger firms may have more time and resources to focus on employee retention and compete for top talent than small firms, a PEO can help remedy that so your firm remains competitive.
With more time and freedom to devote to business development that increases your profitability, and more controlled spending by stabilizing costs, a PEO that takes on these time-consuming parts of your business will help your firm be competitive and successful.
What are the Advantages of Working with a PEO?
Because a PEO can standardize predictable administrative requirements and manage the unexpected, businesses working with a PEO experience more growth, lower turnover, and less risk. The National Association of PEOs (NAPEO) finds that:
- Businesses grow 7 to 9% faster with a PEO
- Businesses experience 10 to 14% lower turnover when using a PEO
- Businesses are 50 % less likely to go out of business when using a PEO.
Want to know more? XcelHR provides PEO services to more than 600 businesses and 8,000 worksite employees. Our HR and benefits experts can help answer your questions. If you are interested in learning more, visit the AIA Trust webpage about PEOs by clicking here—OR—contact Xcel HR directly and be sure to tell them you’re an AIA member.