HR Tech Creates a New Opportunity for PEOs

Professional Employee Organizations (PEOs) love HR technology because it runs their core business; but some suffer under the misconception that it might steal their clients. The trick for PEOs is to turn the progress in technology into an advantage and augment that advantage with a suite of services that technology will never supplant.

The concern some PEOs have about technology is a result of  the shift to cloud-based software-as-a-service (SaaS). In the days before SaaS, fully functional HR technology was too expensive and too difficult for most small businesses—and the average PEO client is small, according to research by McBassi & Co, the average PEO client has just 22.5 employees. In the days before SaaS software, small companies needed the expertise of a PEO. SaaS has changed the equation; small firms have access to good software, if a PEO can’t offer more than managing basic transactions then clients may look elsewhere for support.

Are PEOs in trouble?

Any industry that does not quickly adopt new technology and cleverly adapt their services is vulnerable to disruption; however, PEOs have three big factors working in their favor.

• PEOs can still be better at leveraging HR technology than a small business. A well-designed SaaS HRIS makes HR easier, but a PEO who is software expert will get much more value out of it than a small firm with little HR expertise or experience.
• The unaddressed market for PEOs remains huge.  According to McBassi & Co, only 14-16% of small businesses (i.e. those with 10-99 employees) are using PEOs and the number of small businesses is likely to grow as the start-a-small-business megatrend continues to build.
• Technology enables HR but does not replace HR. Technology does not take away the top concerns of small business like healthcare, regulations/taxes, and being able to hire the right people. Small businesses need someone who can reduce the burden of these concerns—that’s what a good PEO does.

It would be foolish for PEOs to ignore the threat of companies directly using a cloud-based HRIS to handle their HR needs; however, if they raise their game then the opportunity for growth is significant.

Raising the game of PEOs

Ensuring small companies continue choosing PEOs, rather than self-managing HR with a smart cloud-based HRIS, requires two things. The first is the human touch. One can’t underestimate how much anxiety small-business owners face on a day-to-day basis. It may be tempting to save money by cutting back on the “warm & cuddly” side of the relationship and just focus on delivering a service, but a lot of the unique value a PEO offers is the “I’ve got your back” warmth they can offer clients.

The second way of raising the game is to embrace advanced HR technology; PEOs should see it as a core competitive advantage that allows them to serve more customers in less time.  For example, a good cloud-based HR system will include an onboarding module. Onboarding technology helps both with compliance (payroll forms, security passes etc.) and culture (welcome messages, team introduction, information about the values of the business).  Providing onboarding as part of your PEO services makes you an irreplaceable asset to a growing organization..

The compliance issues in onboarding are particularly troublesome for organizations with multiple locations because rules vary from one jurisdiction to another.  A good onboarding solution handles these jurisdictional variations. Providing onboarding as one of the PEO services gets productivity and the relationship off to the right start.

PEOs offer a service that is desperately needed by small businesses; as long as they are diligent about offering additional value-added services they should have a permanent place in the workplace.