Payroll & Benefits Outsourcing: What’s the ROI?

Introduction: The Growing Burden of In-House HR

Managing payroll and tax administration in-house may seem manageable at first—but it often leads to excessive administrative time, rising costs, and compliance headaches.

Many businesses are hesitant to outsource, assuming the costs will outweigh the value . This guide uses real data to show how a Professional Employer Organization (PEO) can reduce costs, improve compliance, and increase employee satisfaction—leading to measurable ROI.

The Real-World Challenges of Managing Payroll and Tax Admin and Certain HR Functions Internally

In-house HR and payroll teams often face:

• Time loss: The average small business spends over 5 hours per pay period running payroll (National Federation of Independent Business – NFIB).
• Error risk: Payroll errors and tax mistakes cost U.S. businesses more than $7.4 billion in penalties annually (Internal Revenue Service – IRS).
• Compliance complexity: Changing labor laws at the federal, state, and local levels make compliance management increasingly difficult for small HR teams.
• Limited benefits leverage: Small businesses typically pay 18% more on average for the same health insurance coverage as large companies (U.S. Small Business Administration).

In-House vs. Outsourced: A Cost Breakdown

Comparing typical in-house HR costs to outsourced PEO services:

Result: According to NAPEO, businesses that use a PEO see an average cost savings of 27.2% on HR administration alone.¹

Hidden ROI: More Than Just Cost Savings

In addition to financial savings, outsourcing offers strategic value:

1. Risk and Compliance Reduction: PEOs help clients remain compliant with over 180 federal and state employment regulations, significantly reducing exposure to lawsuits and penalties.²

2. Improved Employee Satisfaction and Retention: Companies using a PEO experience 10% to 14% lower employee turnover compared to the national average.³

3. Operational Efficiency: Centralized payroll and benefits platforms reduce manual work, improve accuracy, and give employers more visibility into workforce data.

4. Scalability: PEOs support businesses as they expand into new markets, especially multi-state operations, where compliance becomes more complex.

Conclusion: Reclaim Time, Control Costs, and Drive Growth

If payroll and benefits are pulling your attention away from core business priorities—or if you’re unsure whether your HR practices are compliant—outsourcing could be the strategic move you need. A PEO offers more than just savings; it brings structure, expertise, and scalability to your business.

Explore the ROI of Outsourcing: Ready to see what outsourcing payroll and benefits could mean for your business?

Book a free consultation with E3 HR today.

Sources:

1. National Association of Professional Employer Organizations (NAPEO), PEO Industry Footprint Report, 2022
2. NAPEO, White Paper on the Value of PEOs for Small and Mid-Sized Businesses, 2021
3. McBassi & Company, PEOs: Good for Businesses and Their Employees, 2019
4. IRS.gov, Payroll Tax Penalties and Compliance Statistics, 2020
5. NFIB.com, Payroll Processing Time and Administrative Burden on Small Businesses, 2018
6. U.S. Small Business Administration, Small Business Health Plan Cost Comparison, 2020