CFOs Picking PEOs: Why CFOs Often Prefer PEOs Over In-House HR Departments


Human resource departments cost companies a lot of money. In addition to paying HR employees their salaries and benefits, businesses have to spend money on things like regulatory compliance, onboarding, and lowering churn rates. The complexities of managing a workforce and meeting regulations, however, means that you need an experienced professional working for you.

Instead of building an HR department, you can get better results and save money by outsourcing your HR needs to a Professional Employer Organization (PEO).

PEOs Can Lower Your HR Costs

Human resources departments add high costs to your company’s payroll and operations. The median pay for an HR manager comes to $56.11 per hour ($116,700 per year). That doesn’t include the manager’s benefits, offices, equipment, and supplies.

An HR specialist makes considerably less, but those professionals still add to your costs. HR specialists earn a median of $29.77 per hour ($61,920 per year).

Hiring a manager and two specialists means that your company spends about $240,540 per year on HR salaries.

Outsourcing your HR services to a PEO can help your business save money. You only pay for the services that you need, and you can find affordable packages that fit into your budget.

Using a PEO Means You Lower the Costs of Regulatory Compliance

A survey from the National Small Business Association finds that small-business owners spend about $12,000 adhering to local, state, and federal regulations. Most of the burden comes from federal regulations.

More than 40% of responders say that the Affordable Care Act is “very burdensome.” Nearly 40% say call the Federal Tax Code “very burdensome.” Other regulatory areas that force businesses to spend a lot of money and time include:

  • Overtime rules.
  • State licensing requirements.
  • Independent contractor tests.
  • Reporting pay by gender and race.

Businesses Spend a Lot of Time Dealing With Regulations

Small businesses also spend a lot of time making sure they follow regulations.

  • 25% of small businesses say they spend 1 to 10 hours on federal regulations.
  • 18% say that they spend120 or more hours on federal regulations.
  • 16% of small firms report spending 11 to 20 hours dealing with federal regulations.

The time includes work spent reading regulations, determining whether they comply, and adjusting work practices to avoid non-compliance.

The burden grows when you include local and state regulations.

  • 30% of small businesses report spending 1 to 10 hours on local and state regulations.
  • 22% say that they spend 11 to 20 hours.
  • 18% report spending 21 to 40 hours on local and state regulations.

Companies Struggle to Keep up With Proposed Regulations

Ideally, companies would get involved with proposed regulations that could affect their industries. In reality, few businesses have time to keep up with proposals. Only 25% of companies say that they always read proposed regulations. A slightly larger percentage, 26%, read proposed rules about half the time.

38% of companies admit that they read regulatory proposals less than half the time, rarely, or never.

The burden becomes even more apparent when you consider that 68% of small-business owners say that they have never submitted comments on proposed regulations. 25% of them say that commenting takes too much time. 13% say that regulation proposals are too confusing.

Save Time and Money With a PEO

PEOs work with local, state, and federal regulations daily. When you outsource to a PEO, you don’t have to wait for your HR manager to read about regulatory proposals or learn about new regulations. Your PEO already has professionals with that knowledge.

As a result, you can lower the cost of complying with regulations. You also save time, which means you have more opportunities to comment on proposed rules that may damage your business. In most cases, an experienced PEO can even help you understand regulation proposals and how they might affect you.

Hiring a PEO Can Make Your HR Services More Efficient and Successful

You need professionals to help you recruit and train the right people for positions in your company. That doesn’t mean you should rely on an in-house HR department.

Recruit the Right People for Open Positions

Recruiting the right people for open positions can dramatically lower a company’s overall HR burden. Some estimates show that hiring a new employee costs about $4,000.

Onboarding employees costs so much because it requires more than training new hires. Companies also have to pay for administrative tasks like:

  • Completing tax forms.
  • Printing employee handbooks.
  • Creating and signing NDAs.
  • Arbitration agreements.

If you hire the wrong person for a job, there’s a good chance that you will lose your investment in that employee. Turnover makes it difficult for businesses to serve customers and reach their goals. High churn rates also cost a lot of money. A review from the Sasha Corporation shows that companies spend, on average, $9,444.47 per person.

The true cost of replacing an employee depends on the position. Expect to spend about $40,000 replacing a nurse. Replacing someone in the technology industry can cost more than $125,000.

Improve Training for New and Current Employees

Training makes new hires more effective members of your workforce. It can also help current employees learn new skills that make it possible for them to move their careers forward.

When you improve training by using a PEO, you protect your business from high costs of onboarding and employee churn. The specific amount of money that your company saves depends on your industry and the employee who leaves. Regardless, even lowering your churn rate of low-skilled workers will save you thousands of dollars per person.

The COVID-19 pandemic has also revealed that HR departments lack the skills they need to keep businesses running when they face sudden changes. PEOs already know how to perform challenging tasks like onboarding new remote employees. While an in-house HR department wonders how to pivot, PEOs already have plans in place.

Find a PEO That Matches Your Company’s HR Needs

Schedule a consultation with America’s Back Office to learn more about how an experienced PEO can meet your company’s HR needs while helping you save money and improving outcomes. If you think there’s a chance that you spend too much on your HR department or don’t get a good return on those expenses, find out how America’s Back Office can help.