The Hidden Cost of Managing HR Alone: Why Small Businesses Are Turning to PEOs

“That Sinking Feeling at 2 AM”

You know the drill. It’s midnight, you’re knee-deep in payroll spreadsheets, and you just remembered you never filed the new-hire paperwork… again. Your “HR department” is you, Google, and a half-empty coffee pot. Ring a bell?

Here’s the secret nobody tells you: Doing HR yourself isn’t free. It’s actually costing you more than bringing on a full-time HR manager. Let’s dissect the real cost of DIY HR—and why thousands of small businesses are abandoning the chaos for Professional Employer Organizations (PEOs).

The True Cost of In-House HR
As we consider HR, what comes to mind are the obvious costs: HR personnel salaries, benefits, and perhaps a few software solutions. But there’s more than meets the eye.

1. Financial Strain
• Salaries and Benefits: It’s expensive to hire a full-time HR professional. For example, the median salary of a Payroll Manager is approximately $70,184, and that of a Benefits Manager is approximately $78,031 per year.
• Training and Development: The HR environment is always changing. Maintaining your staff up-to-date means investing in training initiatives on an ongoing basis
• Software and Tools: Good HR management software is not cheap, and then there are the expenses of periodic updates and maintenance.
2. Time Consumption
• Each hour you or your team spends on HR work is an hour not spent growing your business. Routine administrative tasks such as payroll processing, checking compliance, and managing employee relations can take up a big part of your week.
3. Compliance Risks
• Employment laws are a moving target. Missing a change or misunderstanding a regulation can lead to costly penalties and legal battles. Small businesses often lack the specialized knowledge to navigate these complexities confidently.​

Enter PEOs: Your HR Lifesaver
So, what is a PEO? Think of your PEO as your HR department outsourced. They do it all from payroll and benefits administration to compliance management and employee training. Working with a PEO can revolutionize the way you manage your employees.

Benefits of Partnering with a PEO

1. Cost Efficiency
• Reduced Expenses: Outsourcing HR services to a PEO can result in substantial cost savings. Handling HR internally costs around $2,000 per employee per year, whereas a PEO can lower this to around $1,395 per employee.
• Economies of Scale: PEOs consolidate employees from various companies, enabling them to negotiate lower rates for benefits and insurance, which means savings for you.
2. Time Savings
• With a PEO taking care of the nitty-gritty of HR, you and your employees can concentrate on what you excel at—running your business. This reallocation can mean higher productivity and innovation.
3. Enhanced Compliance
• PEOs keep up to date with the constantly changing employment laws and make sure your company stays compliant, keeping you safe from legal trouble and fines.
4. Improved Employee Benefits
• Providing competitive benefits is important in attracting and keeping valuable employees. PEOs offer access to quality benefits that would otherwise be beyond the reach of most small companies doing it themselves.

PEOs vs. DIY: The Cost Breakdown
Let’s compare managing HR alone vs. outsourcing to a PEO:

 
Still on the fence? Let’s look at some compelling statistics:

• Business Growth: Companies that partner with PEOs experience growth rates 7-9% faster than those that don’t.
• Employee Turnover: Businesses using PEOs have employee turnover rates 10-14% lower than their counterparts.
• Survival Rates: Small and mid-sized businesses that use PEOs are 50% less likely to go out of business.

Weighing the Costs
While PEOs offer numerous benefits, it’s essential to understand their cost structures:

• Pricing Models: PEOs generally charge either a fixed fee per employee or a percentage of your overall payroll, typically between 2% and 12%.
• Additional Fees: Some PEOs charge setup fees, administrative fees, or fees for ancillary services. It’s important to have an open discussion regarding all possible costs.

Making the Decision
Transitioning to a PEO is a significant move. Here’s how to approach it:

1. Assess Your Needs: Identify which HR tasks are taking the most time and effort and creating the most aggravation.
2. Research PEOs: Not all PEOs are the same. Find one with experience in your market and a good success rate with companies of your size.
3. Evaluate Costs vs. Benefits: Though there is a one-time cost, the long-run cost savings and efficiencies frequently outweigh the initial cost.​
4. Seek References: Talk to other businesses that have made the switch to understand their experiences and gather insights.​

Conclusion

Handling HR in-house may appear to be a means of keeping things under control, but the covert costs in terms of cash, time, and risk can be high. Working with a PEO provides a means of not just relieving these costs but also setting your company up for success and growth. If you find yourself struggling with HR duties, it may be time to see how a PEO can help guide your company’s journey.​

Keep in mind, we’re here to work smarter, not harder. By outsourcing HR to the professionals, you’ll have more time to focus on what really counts—growing and creating your business. So don’t waste another evening searching online for “how to calculate overtime.” Call OEM America instead. We’ll take care of the HR headaches. You take care of the big dreams.