Navigating a recession as a business owner is immensely stressful where every strategic imperative becomes essential, and every business element, including human resource management, must align with cost-effectiveness and productivity. Fortunately, business owners do have help available. PEOs are invaluable partners, with their potential to increase a company's ROI by over 27%. Amidst cost-saving and strategic HR moves, understanding which PEO pricing models suit recession-era needs is vital.

In this post, we’ll dive into how PEOs are crucial allies when navigating a recession and shed insight into their pricing models so you can be best equipped to choose the best PEO for your company.

Finding the Best PEO Pricing Model for a Recession

In times of economic volatility, one-size-fits-all service packages often fail to address the specific needs of a business. Customization options lets you choose what you need so you only pay for the things that benefit your company.

Here are some of the common rate models you’ll find when looking for a PEO partner:

Bundled vs. Unbundled Rates

Bundled rates encapsulate a comprehensive suite of services for a single, all-encompassing fee. This model offers simplicity and predictability in budgeting, as it covers a wide range of HR services under one price. However, it may include services that a company does not require, potentially leading to overpayment for unutilized offerings.

In contrast, unbundled rates break down the services into individual components, allowing businesses to select and pay for only the services they need. This a la carte approach provides flexibility and can result in cost savings, as businesses are not charged for extraneous services. Unbundled pricing necessitates a more hands-on approach in service selection, requiring businesses to accurately identify their needs and adjust services as those needs change.

Percentage vs. Flat-Fee Rates

Percentage rates are calculated as a percentage of a company's payroll. This model aligns the cost of PEO services directly with the payroll expenses, meaning as payroll costs fluctuate, so too will the PEO fees. This can be beneficial during periods of growth when payroll expenses rise relative to the amount of payroll, as the costs are scalable. However, when you implement employee bonuses or increase wages, your costs go up.

On the other hand, flat-fee rates are structured so that businesses pay a fixed cost for PEO services per each employee, regardless of payroll size or fluctuations. This model offers financial predictability, enabling easier budgeting and financial planning. Flat fees are particularly advantageous during economic downturns or when payroll expenses are volatile, as they provide a stable cost structure. However, it's essential for businesses to ensure that the services included in the flat fee align with their specific needs to avoid paying for unutilized services.

Growing Your Business with Customization

Adaptability during a recession can ensure sustained business growth. No two businesses are alike, and when downturns strike, customization ensures you spend efficiently and offers options to shed or add services as needed. Customizing your PEO's offerings to align only with what your business truly needs ensures that each dollar spent brings maximum return.

For instance, businesses in construction and manufacturing pivot towards safety and workers' comp services for penalty, which can help reduce risk of PAGA claims and keep costs within your company. Meanwhile, offices and service industries might emphasize payroll support and employee benefit management.

By streamlining your PEO services, your spending becomes markedly more efficient, with the assurance that every service is contributing to your bottom line.

Common PEO Costs to Prepare For

Understanding the anatomy of PEO costs gives you more insight into your business's financial commitments regardless of whether you’re experiencing an economic downturn.

• Direct Costs – These costs are directly associated with employee services, such as payroll taxes, workers' comp, and wellness programs
• Administrative Fees – These represent the PEO's operational costs, which include services ranging from HR support to technological tools and compliance management.

Choose the Right PEO for Economic Troubles

Your decision about which PEO to partner with can be a potent determinant of how financially hard or smooth your business rides out a recession. Look for PEOs with a history of enabling business resilience during challenging economic phases. When costs are a concern, ensuring you can streamline your operations and keep funds in your company with compliance is vital.

The right PEO will offer a suite of services at a cost that reflects a genuine partnership—it should feel like they're invested in your business's stability and growth, as much as you are. PEOs are strategic alliances that support your business not only during the good times but especially during the challenging periods.

By carefully selecting a PEO with a pricing model that aligns with your business's needs and the financial climate, you can ensure your business is fortressed with the right infrastructure for long-term success—come economic downturns or smooth sailing.