One-Stop HR Shopping – Industry Trend or Event

Nan Bauroth

For Blue-Chip Benefits and Red Tape Relief, Hire a PEO

How many hats do you wear at the office? If you have to count, you should consider hiring a professional employer organization (PEO). In addition to providing a dream benefit package, a PEO can free you of those never-ending human resource hassles that keep you from doing your real job-contributing to the bottom line.

“People who hire PEOs are some of the most successful businesses in America,” asserts Milan P. Yager, executive vice president of the National Association of PEOs (NAPEO). “To get good employees you have to have great benefits. To keep employees, you have to have great benefits. To be successful you also have to be proactive in managing risk.”

Interestingly, when the National Federation of Independent Businesses (NFIB) conducted its quadrennial Small-Business Problems and Priorities survey last summer, the cost of health insurance was again ranked as the top concern. According to Ed Frank, NFIB press secretary, “Health insurance has been ranked number one every year since 1986. It’s not a new problem and obviously not going away.” Unreasonable government regulations ranked number four; workers comp costs, number seven; and federal paperwork, number eight.

PEOs can help you overcome all of the above. As distinguished from an employee leasing company, today’s fullservice PEOs provide an integrated and cost-effective approach to management and administration of human resources and employer risk through a contractual arrangement whereby the PEO assumes substantial employer rights, responsibilities, and risk.

Practically speaking, a good PEO can provide customized platforms that include a top-notch benefit package. It will assume responsibility for managing employee files, for total payroll administration and tax reporting, for benefit and COBRA administration, for safety program development and administration, for workers’ compensation claims reporting and year-end audits, and for new-hire reporting, employee garnishments, 40 1(k) administration–the list is endless.

Benefit benefactors

Not surprisingly, the number one factor driving companies to contract with PEOs today is employee benefits. By contracting with a PEO, small to midsize businesses gain access to a Fortune-500 benefit package that can include portable, low-cost health insurance, 40 1(k), and cafeteria plans with disability, dental and vision plans, educational assistance, and more.

Some PEOs go beyond the standard benefit fare. “We offer an adoption assistance program,” reports Lou Basso, president of the Alcott Group, a Long Island, N.Y., PEO. “We’ve added a scholarship program for anyone interested in an HR career and an after-hours program with discount tickets for entertainment and Disney World.”

Alcott is also the only PEO in the region to sponsor a transit check program. “The employee pays pretax, but most of the time, the employer gives them a credit,” says Basso. “It’s one of the most popular programs we do.” And let’s not forget Fido and Felix. Clients of Allegro, a Columbia, S.C., PEO, love their pet insurance program. “We only cover dogs and cats, not horses or snakes,” emphasizes Mary Etta McCarthy, Allegro’s chairman.

Discounts on office equipment and supplies are another perk PEOs offer clients. “We have an arrangement with a national office supply company where our clients get a discounted program with a guarantee of beating any price of any competitor and free next-day delivery,” notes Tim Almond, executive vice president of Charlotte, North Carolina-based Partners PEO.

Cost savings

Although most businesses initially seek the services of a PEO for the benefit goodies, they soon discover the value of outsourcing compliance issues. Tim Dixon, president of Key-Con Builders in Charlotte, N.C., turned to Partners PEO three years ago to rein in costs. “I felt we were losing control, particularly of workmen’s comp. Since then, there’s certainly been savings. Their total fees were less than what I was paying for all the things they do.”

Offloading the bureaucratic paper shuffle is another plus. Buddy Young, president of Capitol Buslines, a South Carolina tour operator, admits a health insurance rate crisis propelled him to hire Allegro. “But the value has been [in] freeing up staff time,” he reflects. “Our staff used to have to process payroll and keep up with all the changes in employment and labor laws, unemployment claims, that whole gamut of things.”

As many harried office administrators will attest, in the past decade, HR management has given new meaning to the term multitasking, and finding their way through the compliance maze now qualifies as an extreme sport. Add to that the sticky wicket of employee problems–sexual harassment or age discrimination suits, drug tests, hiring, and firing. Like the proverbial “woman’s work,” the HR job is never done.

But talk to any PEO and they’ll tell you rescuing clients from employee crises every day is SOP. “One company had three EEOC complaints filed against it before it came on board,” recalls McCarthy. “We were able to get them dismissed at both the federal and state level.”

Instead of calling your lawyer and running up steep hourly fees, PEOs conduct the investigation. “With a PEO, you introduce a nonpartisan, third party to act as arbiter,” points out Don Goulding, president of STAFCO, a San Francisco PEO that services a lot of tech companies. “We have a grievance procedure, so employees see us as a friend with a little less reason to decide in favor of the employer.”

Kiat Ang-Favro, CFO of Labyrinth Books, a California publisher of computer books, has been thrilled with the service she’s received from STAFCO. “They are awesome! They’ve been easy to work with, very supportive. It’s nice because we are a small company, so we don’t have an HR department. Any time I have a problem with an employee, I turn to Don, and he always gives me sound advice.”

Another bottom line reason to hire a PEO is the HR software merry-go-round. “Payroll and HR administration can easily become the largest demand for software and system resources of a company,” advises Almond. “Your need to stay current with changing regulations and changing system demands to support the software are all eliminated with a full-service PEO, enabling you to focus your software and systems on your core business.”

In the digital age, it’s only natural that cutting-edge PEOs are going online. Layne Davlin, president of NetPEO, an Atlanta PEO broker, says this new PEO model is known as an Application Server Provider (ASP). “ASPs offer outsourced human resource solutions on the Web,” explains Davlin. “Employees can go online to change their deductions, a beneficiary, or sign up for health benefits.”

According to Davlin, although all PEOs are going to a Web-enabled product, ASPs evolved to meet the needs of the tech industry. “There were some IPO issues with leased employees of dot-coins, so they decided to try different versions of outsourcing. At NetPEO we match our client with the group and model that best fits their needs.”

In the final analysis, the whole may be greater than the sum of its parts. As McCarthy notes, “A PEO relieves the office administrator of so many headaches, like drug and background testing. A PEO can also relieve them of a lot of legal liability. Add to that, reducing the number of vendors they have to deal with.”

As past president of NAPEO, Basso has seen PEOs prove themselves early on time and again. “We find office managers don’t see us as a threat–rather as a welcome solution to taking some things off their plate. It makes their lives easier, and they know their employees will be happier. Office administrators are some of our best referrals.”

As Goulding sums it up, “Office managers wear so many hats today, they’re looking for a way to outsource those things not significantly contributing to their bottom line. Who likes paperwork, right? They come to us and see we have expertise that covers a wide scope of services that can free them to focus on their first love, whatever their industry.”

Five Tips for Finding the Right PEO

In conducting a search for a PEO, experts in the industry recommend the following:

1. Determine your specific HR needs. “Make sure the type of service the PEO provides is what you’re looking for,” counsels Wayne Davlin of NetPEO. “This helps you determine whether you need a high-level PEO with Web-enabled products and all the bells and whistles, or a basic administrative PEO that handles payroll and workers comp. Anybody can show you a proposal that will be great, but does it offer the benefits and service you want?”

2. Visit the NAPEO Website ( “It is such a diverse industry and we cover so many disciplines that unless you’re involved in ongoing education, it is hard to really know what you’re doing,” says Don Goulding of STAFCO, who has been in the business 18 years. “So find a knowledgeable PEO that is part of NAPEO.” (Once you’ve learned more about the industry, you can search the NAPEO site for a member PEO in your area.)

3. Think twice before contracting with a PEO. “I always give potential clients a speech about how reliant they will become on a PEO should they enter into a contract,” advises Goulding. “The PEO will be dealing with their wage dollars, benefit dollars, pension dollars, and tax dollars, so they need to conduct due diligence to be confident the PEO will do what they promise.

“Look for a PEO that has been around awhile,” he adds. “You need to find a PEO that can give good references, and you should call them and ask hard questions about service, timeliness, and dependability.”

4. Check a PEO’s financial status. “There is an accreditation service called ESAC, which is an independent verification of PEOs for their financial net worth and operating standards,” explains Lou Basso of the Alcott Group. “More important, all the accredited firms are bonded. That’s not to say if you’re not accredited, you’re not a safe PEO, but it just takes you to the next level. I view it kind of like FDIC. It’s tough to qualify.”

5. Visit the PEO, and meet the people who will handle your account. “It’s very important that you feel comfortable with the principals of the PEO, because they’re going to be handling very touchy issues for you,” says Mary Etta McCarthy of Allegro. “You [not only] need to talk to the salesperson, you need to visit the office, meet your payroll supervisor, your benefit supervisor, meet the man or woman who runs the company–meet your HR personnel.”

COPYRIGHT 2001 Quality Publishing

COPYRIGHT 2002 Gale Group

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