The Smarter Startup

Maximizing Benefits with PEOs: A Solution for Small Employers' Labor Challenges

Even in a down economy, early-stage employees expect compelling compensation packages. PEOs can help a small company gain a competitive edge.

Despite a growing number of large company job cuts, the layoff rate as a whole in the US is at about 1%. There is also about 1.8 jobs for every unemployed American, a quit rate still close to 3% and although wage growth may be slowing a bit, two years of increased salary adjustments, and medical cost inflation have labor costs high and on mind for most employers.

The market for top talent remains tight despite layoffs, which is why many startups and small employers in talent-competitive industries want to offer a compelling compensation package that includes top tier medical insurance and other corporate benefits. Beyond just dental and vision, these other corporate benefits can include retirement plans, employee assistance programs, pet insurance and paid time off, among others.

The market for top talent remains tight despite layoffs

An important part of addressing ongoing labor challenges in a strained economic climate is assessing a company’s benefits infrastructure and their associated costs. Many small companies and startups choose to partner with a professional employer organization provider or PEO, as a solution.


One of the main reasons small companies may choose a PEO over the benefits broker route is cost-effectiveness. PEOs pool resources from multiple small companies, allowing them to negotiate their rates and benefits packages with insurance providers and other vendors. As a result, those small companies may access a more comprehensive benefits platform at a more affordable price.

Ease of Administration

PEOs also improve benefits administration for small companies. PEOs handle many of the administrative tasks associated with offering benefits, such as enrolling employees, facilitating the processing of claims, and tracking usage. They also manage the distribution of benefit information to employees and handle employee inquiries about benefits. This allows small companies to focus on their core business functions, rather than spending time and resources on administering employee benefits.

Compliance Assistance

Another advantage of working with a PEO is compliance assistance. PEOs stay up-to-date on the latest laws and regulations surrounding employee benefits and provide guidance to their clients to ensure compliance. PEOs are knowledgeable about the Employee Retirement Income Security Act (ERISA) and help clients comply with all relevant regulations, including filing annual reports and providing employee disclosures.

PEOs also manage COBRA administration for clients, including informing employees about their rights under COBRA, handling enrollments, and ensuring that all COBRA notifications are sent in a timely manner.

In addition, PEOs help clients comply with the Affordable Care Act (ACA), including determining employee eligibility for benefits, tracking employee hours, and reporting information like the 1094 and 1095 to the IRS as required.

Insurance brokers have knowledge of insurance laws and regulations, but some may not have the same level of expertise in HR and benefits compliance nor a contracted level of service commitment similar to the co-employment responsibility in a PEO relationship. These services can be especially beneficial for smaller companies and startups, who may not have the resources to keep up with the constant changes in employment laws and regulations.

Improved Employee Retention

After salary, comprehensive corporate benefits are the most important factor in attracting and retaining top talent in any labor market, but especially in tighter ones. By partnering with a PEO, small companies can offer a comprehensive benefits package that is comparable to what larger companies offer. This can help small companies compete with larger companies for top talent, which can lead to improved employee retention.

In many cases, a PEO can help small companies save money, streamline administration, stay compliant, and improve employee retention.

The labor market is still tight and fragmented and with continued trends in multi-state hiring through remote work, small companies should not anticipate their labor challenges to immediately disappear. In many cases, a PEO can help small companies save money, streamline administration, stay compliant, and improve employee retention.