Growth Is Exciting Until Your Workforce Outgrows Your HR Infrastructure
Growth is a great challenge, but it’s a great problem as long as your HR processes can handle it.
Rapidly hiring dozens or even hundreds of employees can result in problems with payroll, benefits administration, worker orientation, compliance, HR policies and workforce management. The methods that are effective with 20 employees can be ineffective, costly and risky when you start adding 100, 500 or more employees.
That’s where a Professional Employer Organization (PEO) can help.
By offering a wide range of HR capabilities, a PEO can assist companies with vital employment duties while they concentrate on development, clients, and main activities. Whether it’s handling payroll and benefits, dealing with compliance, or managing employee administration, a PEO can offer the backbone businesses need to grow their workforce more efficiently.
This guide will cover some of the ways that a PEO can assist in handling rapid growth of the workforce, explore the benefits of PEO services, and outline what a company needs to consider when selecting a PEO partner.
What Is a PEO?
A Professional Employer Organization (PEO) is a company that collaborates with employers to offer outsourced HR and other employment related services.
Under a typical PEO arrangement, the PEO and business enter into a co-employment relationship. The business retains responsibility for the day-to-day affairs of employees, including job roles, performance and company culture, and the PEO is responsible for or supports administrative HR responsibilities.
Depending on the provider and agreement, PEO services may include:
- Payroll processing
- Employee benefits administration
- HR administration
- Workers’ compensation support
- Employment compliance
- Employee onboarding
- Tax administration
- HR technology
- Risk management
- Employee handbooks and policies
- HR support and guidance
By combining technology with know-how and administrative assistance, an organization can greatly simplify the process of recruiting employees.
Why Rapid Workforce Growth Creates HR Challenges
Quickly hiring is associated with the pressure on an organization, which can sometimes be invisible during the hiring process.
A company may be hiring 50 new employees, and be able to do so, but then find that there is no HR system in place to manage the extra workload.
Common challenges include:
1. Payroll Complexity
The more people you have on staff, the more complex your payroll becomes. The salary and working arrangements, deductions, tax rates, bonuses and benefits of new employees may differ.
What was once effective manual steps can become time-consuming and error prone for a large team.
2. Employee Benefits Administration
As more employees are added, so will more be enrolling in health insurance, retirement plans, paid leave plans and other benefits?
Caring for eligibility, enrollment, changes, and employee questions can become a challenge in terms of administration.
3. Employment Compliance
Employment laws are subject to certain variations depending on the location, classification of the employee, industry, and size of the company.
Compliance is crucial in expanding businesses. Failure to meet any requirements or mishandling of an employment situation may create financial and legal liability for a company.
4. Employee Onboarding
A structured onboarding process is necessary when hiring quickly.
HR teams can find it difficult to gather employee data, fully document information, set up payroll, sign employees up for benefits, and provide the essential resources for new employees when systems are not in place.
5. HR Team Capacity
A company’s recruitment division may possess skills that help staff members, but a series of fast hires may still overwhelm the recruiting team.
Instead of focusing on strategic areas like staff retention, employee engagement, corporate culture, and professional growth, a human resources specialist may need to dedicate a considerable amount of time to regular administrative tasks.
How a PEO Can Help Businesses Manage Rapid Workforce Growth
A PEO can offer companies the HR facilities and know-how to assist in their growth without having to develop all the capabilities themselves.
A few of the major ways a PEO can help in the quick expansion of a workforce.
1. Streamlines Payroll Management
One of the key duties that come with an increasing workforce is payroll.
A PEO can streamline payroll management and take care of numerous repetitive tasks. This can minimize administrative duties like calculating wages, handling deductions, taking care of tax-related needs, and keeping track of payroll records.
As a growing business, a scalable payroll system can help to maintain the accuracy and timeliness of employee payments as the business expands.
2. Simplifies Employee Benefits Administration
Competitive benefits can play an important role in attracting and retaining employees.
But with more people on board, managing benefits becomes more complex.
Depending on the provider and arrangement, a PEO can also help businesses manage their benefits and offer their employees access to benefit programs offered by the PEO.
This can make things easier when you are doing things like:
- Benefits enrollment
- Employee eligibility
- Plan administration
- Benefits communications
- Employee questions
- Reporting and documentation
This will decrease administrative complexity, which will allow companies to offer a more uniform employee experience.
3. Helps Businesses Address HR Compliance
Compliance is more complex as organizations expand.
A PEO can offer HR expertise and support on employment legislation, work environment policies and documentation, and other HR compliance duties.
PEO professionals can assist businesses to remain updated on relevant requirements and put in place suitable HR processes.
It’s important to note that working with a PEO does not automatically eliminate an employer’s legal responsibilities. Businesses need to know what obligations lie with them in their PEO contract.
4. Accelerates Employee Onboarding
Onboarding processes need to scale for rapid growth.
A PEO can offer systems and workflows that can help smooth out tasks including:
- New-hire documentation
- Employee data collection
- Payroll setup
- Benefits enrollment
- Policy acknowledgments
- HR record management
A more formalized orientation can assist newly hired staff to be productive quicker and decrease administrative work for HR teams.
5. Gives Small HR Teams More Capacity
The greatest benefit of a PEO is the ability to complement an internal HR staff.
HR professionals can save hours of repetitive administrative tasks and focus more time on strategic priorities like:
- Talent acquisition
- Employee retention
- Workforce planning
- Leadership development
- Company culture
- Employee engagement
- Performance management
This enables HR to transform from one of the business’s administrative arms to a more strategic partner in the growth of the business.
6. Provides Access to HR Expertise
Fast-growing companies may have limited budgets that do not allow the employment of specialists in human resources functions.
A PEO allows for use of specialists in human resources, pay and benefits administration, and other areas.
This can be especially helpful for businesses that are growing at a faster rate than their in-house HR team can grow.
7. Supports Multi-State Workforce Expansion
Staffing in various states may add other compliance and administrative factors.
There may be varying state laws and regulations for employment, payroll, workers’ compensation and employee policies.
As companies grow and expand to other states, a PEO with multi-state capabilities can offer centralized HR administration and assistance.
This can lead to a less complicated market entry in new markets.
8. Helps Improve Risk Management
HR and workplace risks can escalate as there are more employees.
A PEO may provide resources related to:
- Workplace safety
- Workers’ compensation
- HR policies
- Employee documentation
- Risk management
- HR compliance support
The aim is to help businesses to structure their work processes in a more uniform way as their employees expand.
9. Creates Scalable HR Infrastructure
Infrastructure is essential for rapid growth, and should grow as the business grows.
Businesses can streamline several HR functions through a PEO platform, rather than installing new HR systems each time they need to scale their business.
A PEO technology platform can include aspects like:
Payroll → Benefits → HR → Compliance → Time & Attendance → Employee Data
It can increase visibility and minimize the need to deal with isolated systems.
10. Helps Businesses Focus on Core Growth
One of the greatest advantages is the opportunity for leadership to concentrate on what the business does.
When HR administration becomes challenging, managers and executives may end up spending far too much time on issues concerning payroll, employee documentation, benefits inquiries, and compliance matters.
A PEO can handle or help manage many of these duties, freeing business leaders to concentrate on:
- Revenue growth
- Product development
- Customer acquisition
- Market expansion
- Business strategy
- Talent strategy
This can lead to a more scalable operating model.
PEO vs. Building an Internal HR Infrastructure
For businesses with a quick-growing workforce, there might be a dilemma as they scale up, whether to hire more employees for their existing HR team or to work with a PEO.
Neither model is right in every situation. The best model will depend on the size of the company, its growth rate, budget, complexity of its workforce, and other factors.
| Factor | PEO | Internal HR Team |
| HR expertise | Access to a broader range of specialists | Depends on internal hiring |
| Payroll | Outsourced/supported | Managed internally or through software |
| Benefits administration | PEO-supported | Internal responsibility |
| Compliance support | PEO provides expertise and resources | Internal HR/legal resources required |
| Scalability | Designed to support growing organizations | Requires additional hiring and infrastructure |
| Control | Business retains operational control but shares certain employer responsibilities | Greater direct control |
| Technology | Often integrated into PEO platform | Business selects and manages systems |
| Administrative workload | Reduced | Primarily internal |
Some companies are compatible to their internal HR unit and can have a PEO complement it.
When Should a Business Consider Using a PEO?
There is no magic number where a business should implement a PEO.
But a PEO can be a good option for businesses that are going through:
- Rapid headcount growth
- Increasing payroll complexity
- Expansion into multiple states
- Challenges in managing employee benefits
- HR compliance concerns
- Insufficient in-house Human Resources capabilities
- Increasing employee administration
- Difficulty scaling onboarding
- A need for more sophisticated HR technology
A company doesn’t necessarily need to wait until HR problems become serious. Developing the scalable infrastructure early can make the future expansion more manageable.
How a PEO Supports Different Stages of Business Growth
Startups
A PEO can offer HR facilities to the startups without the need of a large HR team in-house.
This can enable the founders and leadership team to focus more on business building and leave critical HR-related functions to a third-party service provider.
Growing Small Businesses
HR complexities can escalate quickly as a small business transitions from a handful of employees to a larger workforce.
A PEO can help establish standardized processes for payroll, benefits, onboarding, and HR administration.
Mid-Sized Companies
Mid-sized organizations may already have their own HR personnel, but require more technology, expertise, or administrative resources.
A PEO can be used in this case to augment the existing HR function.
Rapidly Scaling Companies
When companies are increasing number of their employees at a rapid pace, they will benefit from scalable human resources systems and centralized administration.
A PEO can be useful in establishing the infrastructure that will facilitate the growth without having to develop each and every HR function at the same pace.
What to Look for When Choosing a PEO
The selection of a PEO is a business decision that ought not to be taken lightly. Providers should be assessed on the company’s particular worker needs.
Consider the following factors:
Technology
Look for a solution that allows you to manage payroll, benefits and HR administration processes easily.
HR Expertise
Assess the depth and availability of HR professionals in your organization.
Compliance Support
Know what services the PEO offers that you are responsible for complying with, and which services are PEO’s responsibility.
Benefits
Research options, requirements, costs, and employees’ support for benefits.
Geographic Coverage
If you have multiple locations or are considering adding more, ensure the PEO can service your locations.
Pricing and Fees
Know all costs involved in pricing – administrative fees, benefits costs, workers compensation, etc.
Customer Support
Inquire about the speed that businesses can access HR, payroll and benefits professionals in case of an issue.
Contract Terms
Carefully read through these things: termination, responsibilities, data ownership, service commitments.
Common Misconceptions About PEOs
“A PEO Takes Over My Business”
A PEO doesn’t take over your company’s day-to-day operations.
The choices made in hiring, pay, job duties, performance, and culture of the company remain much the same as before.
“PEOs Are Only for Small Businesses”
PEOs can be used by organizations in various stages of growth. Their value is more related to the company’s requirements and HR complexity, which isn’t always size.
“Using a PEO Means I Lose Control”
The PEO assumes responsibility for the HR and employment aspects that have been agreed upon, and the business is responsible for the execution of its core business and workforce management.
The exact responsibility division will, however, vary from PEO agreement to PEO agreement.
“A PEO Eliminates All HR Risks”
PEO can provide valuable HR knowledge and resources for risk management, but it does not mean that every employer’s obligations are gone.
Companies should know what are their obligations, and work with a right lawyer or HR expert if needed.
Conclusion: Build HR Infrastructure That Can Keep Up With Growth
Growth can be a challenge, but if it comes quickly, so can be the administration without having the scalable HR infrastructure.
A PEO can support a business’s rapidly expanding workforce with the payroll, benefits, onboarding, compliance, HR administration, risk management, and employee management.
Outsourcing administration is not the biggest benefit. It is building an HR base to grow with the company.
As businesses grow rapidly, they require the necessary systems to handle this change. A suitable PEO partnership can offer that vital structure all while letting management and HR teams focus on the personnel and tactics that lead to lasting success.
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FAQs
1. What is a PEO and how does it help growing businesses?
PEO, or Professional Employer Organization, is a company that offers outsourcing of Human Resources (HR) and employment-related services including payroll, benefits administration, HR support, compliance assistance and risk management. This can help growing businesses deal with growing complexity of their workforces.
2. Can a PEO help with rapid hiring?
Yes. A PEO may offer scalable systems and administrative support to help onboard, set up payroll, enroll in benefits, maintain employee records, and more for employees hired onto the system.
3. Does a PEO handle payroll?
Typically, payroll processing and related administration are among the services offered by PEOs. Specific services may differ from provider to provider and agreement to agreement.
4. Can a PEO help businesses expanding into multiple states?
Numerous PEOs will help employers that operate in more than one state and offer HR, payroll, and compliance tools to companies with workers in more than one state.
5. Is a PEO better than hiring an internal HR team?
No one solution can be given as a universal answer. A PEO offers outsourced knowledge and resources, and an in-house HR team offers in-house capabilities. The two options can be compared in terms of size of the workforce, growth plans, budget, and HR needs of the business.
6. When should a company consider a PEO?
PEO partnerships can help lower some administrative expenses by combining HR technology, services, and knowledge. Actual savings depend on the service provider, pricing model, employee base, and the services offered.
7. Can a PEO reduce HR costs?
One way to lower administrative costs is to bundle these HR services, technology and know-how into a PEO arrangement. Actual savings vary by provider, pricing model, workforce and services utilized.
8. Does a PEO become the employer of my employees?
It is common for PEO relationships to include co-employment. Employer responsibilities are allocated according to the agreement and the law in effect, so businesses should take the time to carefully review the terms of the PEO agreement.
