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The ROI of Using a PEO

A new study released by NAPEO shows companies that outsource  functions to a PEO have an ROI of 27.2% in cost savings alone. 

Below is summary of this study published in the White Paper titled The ROI of Using a PEO.

The areas where PEOs can deliver significant value to their clients can be divided into three broad categories:

  • Improving clients’ ability to attract, motivate, and retain employees;
  • Enabling clients to focus on their core businesses while PEOs handle all HR matters; and
  • Lowering HR-related expenditures.

The first two categories have been addressed in NAPEO’s previous white papers. Those papers found a wide array of positive differences between PEO clients and their non-PEO counterparts in business success, employee-related measures, and other factors.

For example, in category 1, we found that PEOs offer a much broader array of benefits to their employees, such as greater access to retirement plans.

Consistent with this, we found PEO clients also have significantly higher employee satisfaction as well as lower rates of employee turnover.

In category 2, our analysis found PEO clients grow faster and are much more likely to stay in business than other companies. Further, their employees are more likely to describe the business as innovative and taking the right steps to be competitive.

Therefore, in the 2019 white paper, we focused our research on category 3 in an effort to fill in some details about that remaining piece of the PEO value equation. Specifically, if we look only at cost savings (leaving all other PEO-related benefits to the side), what sort of return could the average client expect on its PEO investment?

Although it is only one component of the overall value delivered by PEOs, it is still one of the most basic questions prospective clients have when deciding whether to use a PEO—will they experience sufficient cost savings to generate a positive return on their investment?

The research summarized here indicates that a conservative estimate of the expected ROI for PEO clients—based on cost savings alone—is 27.2 percent per year. This ROI estimate is almost certainly an underestimate and is based only on cost savings (it does not incorporate the important benefits noted above in categories 1 and 2).

The 27.2 percent estimate is based on calculating cost savings for PEO clients in the following five HR-related areas:

  • HR personnel costs;
  • Health benefits;
  • Workers’ compensation;
  • Unemployment insurance (UI); and
  • Other external expenditures in areas related directly to HR services (payroll services, benefits, etc.)
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