Businesses that use professional employer organizations (PEOs) for HR, benefits, and compliance have a significantly higher rate of business survival and a lower rate of employee turnover than businesses that don't use PEOs, according to a new study released today by the National Association of Professional Employer Organizations (NAPEO) at its annual conference inMiami. The study, by noted economists Laurie Bassi and Dan McMurrer, is a follow-up to the study released in 2013, which showed that small businesses in PEO arrangements grow faster than those businesses not using PEOs.

"It's very simple: Small businesses that use PEOs grow 7-9 percent faster, have employee turnover that is 23-32 percent lower, and are 50 percent less likely to go out of business than companies that don't use PEOs,"  said Pat Cleary, NAPEO's president and CEO. "This proves through hard data the value proposition of PEOs."

PEOs provide payroll, benefits, tax compliance, and other HR services to small and mid-sized companies. Approximately 250,000 businesses use PEOs, and PEOs provide access to healthcare coverage for as many as 6 million people. Through PEOs, the employees of small businesses gain access to employee benefits such as 401(k) plans; health, dental, life, and other insurance; dependent care; and other benefits typically provided by large companies.

The study showed that the overall employee turnover rate in the United States was approximately 42 percent per year, while for companies using PEOs, it is just 28-32 percent. While the exact cost of turnover is difficult to estimate, it is clear that the costs of employee turnover are significant and that a business that enjoys a higher employee retention rate is in a stronger position to survive and thrive over the long term. Additionally, the study illustrated that businesses that use PEOs are approximately 50 percent less likely to fail from one year to the next when compared to similar companies in the population as a whole.

"Across all industries, this study shows that there are clear advantages for PEO clients on two of the most fundamental issues faced by any business: retention of employees and continued survival," said Cleary. "PEOs make it possible for companies to retain their best and brightest employees and focus on their core business, which helps them survive and grow."

A copy of the full study is available here.