Does HR Outsourcing (PEO) Make Sense for Your Business

In order to lower the costs and risks of employee benefits, workers’ comp, payroll and HR, many small to mid-sized businesses have chosen to outsource HR with a Professional Employer Organization (PEO).  Since January 1st is the optimum time to begin a relationship with a PEO, let’s look at how to evaluate if this option makes sense for your business and, if so, what you should consider and why you need to start your evaluation right away.

What is a PEO and how does it work?
PEO’s help small to mid-sized businesses lower the costs and risks of employee benefits, workers’ comp, payroll and HR.   PEOs provide large company employee benefits, retirement, workers’ comp, HR management/compliance, and payroll to small/mid-sized employers at the discounts that larger employers typically receive.  Once a company contracts with a PEO, the PEO will then co-employ the client’s employees. In the co-employment relationship, both the PEO and client company have an employment relationship with the worker. The PEO and client company share and allocate responsibilities and liabilities. The PEO assumes much of the responsibility and liability for the business of employment, such as risk management, human resource management, and payroll and employee tax compliance. The PEO and the client will share certain responsibilities for employment law compliance. As a co-employer, the PEO will often provide a complete human resource and benefit package for worksite employees.  The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service.

Who uses a PEO?
Any business can find value in a PEO relationship. PEO clients include many different types of businesses ranging from accounting firms to high-tech companies and small manufacturers. Many different types of professionals, including doctors, retailers, mechanics, engineers and plumbers, also benefit from PEO services.

How do PEOs help their clients control costs and grow their bottom line?
The PEO’s economy-of-scale enables each client company to lower employment costs and increase the business’s bottom line. The client can maintain a simple in-house HR infrastructure – or none at all – by relying on the PEO. The client also can reduce hiring overhead. The professionals at the PEO can provide critical assistance with employer compliance, which helps protect the client against liability. In many cases, the client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by the PEO. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line.

How do employees benefit from a PEO arrangement?
Employees seek financial security, quality health insurance, a safe working environment and opportunities for retirement savings. When a company works with a PEO, job security is improved as the PEO implements efficiencies to lower employment costs. Job satisfaction and productivity increase when employees are provided with professional human resource services, training, employee manuals, safety services and improved communications. And in many cases, a co-employment relationship provides employees with an expanded employee benefits package, to include a 401(k), life insurance, discount plans, a flexible spending plan (FSA) and more.

Is partnering with a PEO right for your company?
Since PEOs handle employee benefits, retirement, workers’ comp, HR management/compliance, and payroll, look at how you are doing in these areas in terms of controlling costs and managing risk.  Are your benefits costs increasing more than 10-15% per year (or are you having to offer less and less to your employees in order to keep costs down)?  Are you spending time and money staying in compliance with ever changing HR regulations (or perhaps falling behind and increasing your risk of an audit or employee complaint)?  Have you had an employee complaint, high turnover, or low employee morale in the past two years?  Even if you use a payroll service, are you spending time and money doing what should be a simple task (or if you do it yourself, are you sure you are keeping up with all of the new regulations)?

What are your options?
Due to certain tax regulations, January 1st is an optimal time to partner with a PEO.  So, if you are at all considering a PEO, now is the time to look into it – don’t delay.  PEOs come in all shapes and sizes, and they all offer different services within the bundle they provide.  There are a few large, national PEOs and many, smaller local PEOs.  Some include more services in their PEO offering and others offer some lesser used services as a la carte.  And, there are a variety of ways that each bills for service.  So, start by deciding if you prefer working with a large, national company or a smaller, local firm.  Then, look at what services are most important to you – Lowering the cost of benefits? Getting HR under control?  Offering more benefits to your employees (i.e. 401k, FSA, etc)? Getting a handle on workers’ comp and safety issues?  Recruiting?  Payroll? Finally, try to quantify the time and money you are spending on these areas and what the value would be of instead using that time focused on the business of your business.

For more information about the YPP PEO service:
For a small/mid-sized business, choosing a smaller, local PEO is a wise choice in that we afford you the high touch service and flexibility that you will not find with the large, national, call center PEO’s.  And, as YPP is one of California’s oldest PEO’s (founded in 1984), we also offer the experience and stability of a larger provider that most small PEO’s cannot.  YPP is really the best of both worlds.

Give us a call and we would be happy to do a free cost comparison for you:

Central Coast: (805) 928-5725

San Francisco Bay Area: (415) 495-2510

Toll Free: (800) 445-4737




  1. Hello, I am starting a small business with 5 employees in the California. I would like to know how your services work and how much it cost. Thank you.
    Ruben Morancy

    • Hi Ruben, thanks for contacting us. YPP helps small to mid-sized businesses lower the costs and risks of employee benefits, workers’ comp, payroll and HR by offering PEO services. PEO is Professional Employer Organization and we provide large company employee benefits, retirement, workers’ comp, HR management/compliance, and payroll to small/mid-sized California employers at the discounts that larger employers receive.

      Our PEO fees are based on the number of employees you have (a flat fee per employee, scaled based on headcount). This is all inclusive, with payroll taxes, workers’ comp, and optional employee benefits just being passed through with no extra fee or mark up. Our employee benefits include a variety of medical, dental and vision plans, along with a Flexible Spending Plan, 401k, Employee Assistance Plan, life insurance, and an employee discount program.

      In addition, we have recently helped other companies lower their employee benefits cost by tens of thousands of dollars per year, offsetting some or all of our fees. We were able to do this because our PEO services allow us to pool your organization into a “large group”, something a broker simply cannot do. Although every situation is unique, it is very possible that we might be able to do the same for your organization in that, quite simply, large groups get better rates than small groups.

Comments are closed