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Professional employer organizations (PEOs) clients, like most companies across the U.S. economy, have faced their share of hurdles during the COVID-19 pandemic, but a new industry white paper argues their alliances have them positioned for long-term success.

“PEO Clients in the COVID-19 Pandemic: Follow-Up Analysis”, a white paper published last month by The National Association of Professional Employer Organizations (NAPEO), is a deep dive by Laurie Bassi and Dan McMurrer of McBassi & Company into the effects of the pandemic on PEO clients.

“The COVID-19 pandemic has provided a new set of challenges that all businesses have confronted over the last year and a half,” write the white paper authors.

PEOs provide comprehensive HR solutions for small and mid-damir-kopezhanov-luseu9GtYzM-unsplashsized businesses including:

  • Payroll
  • Employee benefits
  • HR
  • Workers’ compensation
  • Risk management

Past NAPEO white papers have concluded that PEO clients enjoy a wide range of improved financial and non-financial outcomes relative to their peers who do not use PEO services, including:

  • Higher growth rates
  • Lower employee turnover
  • Higher employee satisfaction

One of the main questions answered in the new white paper is: did this PEO advantage carry over during the pandemic?

White Paper: PEO Clients Have Advantage Over Others

The white paper examines how PEO clients fared from early 2020 at the onset of the pandemic through July 2021 across three categories:

  • Business operations
  • Changes in employment
  • Success in accessing major government support programs

“Overall, we found that, as of July 2021, PEO clients are doing better in each of the three categories,” wrote Bassi and McMurrer. “As a result, PEO clients are also in a stronger position for future long-term success than other comparable small businesses.”

Key findings from the white paper research show that PEO clients:

  • Are 58 percent less likely to have permanently closed
  • Are 32 percent less likely to have seen a negative overall effect on business from the pandemic
  • Are 82 percent more likely to have business operations back to normal (or better)
  • Have had employment grow by 1 percent since early 2020 (compared to a 6 percent decline for comparable small businesses)
  • Have a rate of employment growth over the last 6 months that is 81 percent higher 
  • Are 18 percent more likely to have had their 2020 PPP loans forgiven
  • Are 71 percent more likely to have received PPP loans in 2021

Business Operations: PEO Clients Keep the Lights On

The white paper authors found that “the extent to which PEO clients have been able to stay open for business and avoid closing permanently is a key summary measure of the benefits of being a PEO client.”

Comparable small businesses closed at an estimated twice the rate of PEO clients with 1.1 percent of PEO clients permanently closed during 2020 compared to 2.6 percent for non-PEO clients.

While 2 in 3 non-PEO clients (67.6 percent) said that the overall effect of the pandemic on business has been negative, just 45.7 percent of PEO clients reported the same.

PEO clients also report bouncing back to normal business operations much faster than non-PEO clients with 72.1 percent saying business was back to normal or even better while just 39.7 percent of non-PEO clients reported the same positive news.

PEO Clients Faring Better in Tight Labor Market

In today’s historically tight labor market, where job openings outpace those seeking employment, PEO Clients were able to increase their workforce during the pandemic.

While the 1 percent rise in employment for PEO clients with 10 to 249 employees between January 2020 and June 2021 may seem slight, it is a gangbuster number compared to the 6 percent decline in employment for non-PEO clients over the same time scope.

PEO Clients are experiencing some growing pains with 76 percent reporting that they have “significant concerns about finding qualified employees to hire” in the future.

“These challenges in finding qualified employees have been, and are likely to remain, a significant challenge for which PEO clients will continue to turn to their PEOs for support and assistance in addressing,” said the report.

PEOs Help Clients Obtain Government Support

Government support programs such as the Payroll Protection Program (PPP) and the Employee Retention Tax Credit (ERTC) were put into place to keep businesses afloat during the pandemic but applying for federal relief can drain valuable resources.

“Applying for either of the programs … proved to be difficult, complicated, and time-consuming for small businesses,” said Bassi and McMurrer. “Since the first round of PPP loans were announced in April 2020, PEOs have invested significant time and effort to assist their clients in applying for benefits such as these.”

The results have paid off with 81.2 percent of PEO clients having their 2020 PPP loans forgiven vs. 68.8 percent of non-PEO clients.

Almost 2 in 3 PEO clients (65.9 percent) received PPP loans in 2020 and 1 in 3 (30.5 percent) received PPP loans in 2021, compared to just 30.1 percent and 17.8 percent of non-PEO clients.

Contact Employer Flexible today to find out more about how your company can take advantage of a PEO alliance.


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