The ROI From Using a PEO is 27% According to Latest NAPEO Report

Sep 30, 2019
| Michael Altiero
ROI from Using a PEO

The growth of the professional employer organization (PEO) industry, especially in the last decade, is staggering.

A significant reason for this success has been the involvement of the National Association of Professional Employer Organizations (NAPEO), the official trade association of the PEO industry.

Research studies conducted by NAPEO have helped shine a light on the value a PEO can provide to small and medium-sized employers. Past reports have found these eye-opening PEO statistics:
 
Now, NAPEO has released their annual white paper, which this year uncovered data that many business owners and brokers want to know – the ROI of using a PEO.
 

The Value of a PEO to Business Owners

NAPEO's The ROI of Using a PEO White Paper starts out by identifying 3 ways PEOs deliver value to their clients:
 
  • Help recruit and retain employees
  • Allow business owners to focus on core business activities
  • Lower HR-related costs

As shown in some of the stats earlier, NAPEO has conducted research to show how PEOs help with recruiting/retention and time allocation. This year’s study focused solely on how PEOs help lower HR-related costs, and the results don’t disappoint.

Based on the research conducted, the conservative estimate of the expected return-on-investment (ROI) based on cost savings alone for PEO clients is 27.2%.

This estimate is based the cost savings for PEO clients in these 5 areas of HR:
 
  • HR personnel costs
  • Health benefits
  • Workers’ compensation
  • Unemployment insurance (UI)
  • Other external expenditures in areas that relate directly to HR services such as payroll, benefits, etc.

To get the expected ROI, NAPEO calculated the PEO-related cost-savings per employee from the five expenditures above and compared this number to PEO costs per worksite employee (WSE).

According to the survey, “the average cost savings from using a PEO is $1,775 per year per employee, while the average PEO cost per employee (gross profit per WSE in the FROS) is $1,395, yielding an annual ROI of 27.2 percent.”

To get more information on how the ROI was calculated, click here to view the official press release and download the full report.
 

Additional Findings from NAPEO’s 2019 White Paper

In addition to the ROI data, NAPEO also found additional statistics to further back up findings from past surveys and reports.

These included:
 
  • PEO clients see notably lower employee turnover than non-PEO clients (both voluntary and involuntary turnover)
  • Employee growth and business revenue increases are higher for PEO clients
  • Business owners who partner with a PEO are less concerned about hiring, retaining, and motivating employees
  • PEO clients are more often able to add new employee benefits (life insurance, retirement plans, and health benefits are the most popular)

You can view the full report to get more details about each of these findings and what they could mean for business owners and brokers.
 

PEOs Can Help Business Owners, Brokers, and Financial Professionals

Once again, NAPEO has released data that shows just how valuable PEO services can be for small and medium-sized employers. Brokers, too, can gain benefits and competitive advantages with a PEO partners, especially by working with a Broker-Only PEO.

Pat Cleary, the President & CEO of NAPEO, best sums up the results from The ROI of Using a PEO White Paper: "We have known for some time now that using a PEO is good for a company in a variety of ways, and we now have a compelling and impressive number on the actual ROI of using a PEO. When you put this new data on costs savings and ROI together with the data we already had on business growth, turnover, survival and employee satisfaction, it's clear that there really is no better value proposition than PEOs in the HR space."

As PEOs have grown in demand by business owners, so too have the number of myths that exist about them. But are they true? Our latest eBook explores 12 of the most common PEO myths and explains why they have been busted!

12 Common PEO Myths
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