Free At Last! – professional employer organizations

Free At Last! – professional employer organizations – Statistical Data Included

Elaine Pofeldt

Want to get workers’ comp, health insurance, and payroll off your desk — and out of your life — forever? Farm it all to an outside agent

AS A BUSINESS owner, you face a paradox. Your life’s work is the most invigorating, satisfying, thrilling in the universe. And it’s also the dullest, dreariest, most mind-numbing. For most entrepreneurs, getting past the blue-sky planning stage involves being chained to their desks, drowning in paper-pushing projects. The cornucopia of tedium overflows with jobs like doing payroll (ugh!), filing out human-resources paperwork (gnash!), keeping up with workers’-compensation laws (argh!) — not to mention managing health-insurance plans, writing an employee manual, and keeping the employee rest room stocked with toilet tissue.

Paperwork, paperwork, paperwork! This isn’t why you got into business, now, is if? Shut your eyes, and imagine what it’d be like never to have to slog through this stuff again.

Well, not to put too fine a point on it, you don’t.

A new, fast-growing industry consisting of so-called professional employer organizations (PEOs) has sprung up in the past two decades to help overworked entrepreneurs control time bandits like human-resources and payroll tasks. Sometimes known as employee-leasing firms, these outfits divide with you some of the duties of being an employer, sharing financial responsibility for liabilities, such as sexual-harassment lawsuits, that develop on their watch. Since the industry started, in the early ’80s, about 1,800 PEOs have emerged, managing an estimated 2.5 million workers, says Milan P. Yager, executive vice-president of the National Association of Professional Employer Organizations in Alexandria, Va. While their average client has 18 employees, PEOs have found favor with bigger firms that don’t want to hire full-time staff. Helmac Products Corp., a clothing-care-products manufacturer in Flint, Mich., hired a PEO now known as the Vincam Group to handle human resources nearly two decades ago, so that Helmac’s 50 employees at that time could focus on dominating new markets, says CEO Nick McKay Jr. With 200 workers in the United States today, Helmac has become the largest firm of its kind in the world, says McKay, who credits the Coral Gables, Fla.-based PEO: “The resources we were able to free up were a key reason behind that growth.”

PEOs typically charge administrative fees of between 4 and 8 percent of your gross payroll. For many business owners, that’s a small price to pay. Just ask Marc Shpilner. Not long after graduating from high school, Shpilner, now 31, founded Limousine Eighteen, an executive-transportation service in Bedford, Mass., which generates $1.5 million in annual revenue. As Shpilner hired his 30 employees, he discovered that he loved to manage people. But paperwork left him holed up in his office.

About two years ago, he was set free when he found a PEO that would take on his human-resources management and payroll. A year later, Shpilner switched to another PEO, HR2 in Waltham, Mass., which offered better service and prices. HR2 moved his company into a more favorable health-insurance plan and set up a 401(k) at lower, group rates by pooling his workers with those of its other clients.

Fortunately, if you do the right homework, it’s a cinch to find a PEO.

1. Learn the ground rules. Every state has its own laws about when you can hire a PEO — and whether a PEO must meet specific licensing requirements, says attorney Robin Adams Anderson, a partner in Nicholls & Crampton PA in Raleigh, N.C. Talk with a local employment lawyer before you spend time on a search.

2. Check under the hood. To track down a PEO, log on to the National Association of Professional Employer Organizations Web site ( Or contact the Institute for Accreditation of PEOs at 501-219-2045 (or, by e-mail). This nonprofit regulatory organization investigates member companies to make sure they are solvent, up-to-date on their taxes and employee benefits every quarter, and otherwise maintaining the proper legal status.

3. Kick the tires. Even if a PEO is accredited, ask for a list of clients, advises Anderson: “Talk to the clients’ CEOs and employees. Ask them if they’ve ever had any problems [with the PEO’s services] and how well those were handled. If you speak with a PEO that refuses to give you client references, that would be a problem.”

4. Go for a test drive. Spend some quality time with the account executive who will be your link to the PEO. That person will have a heavy influence on the caliber of service you receive. “Look for rapport, tenure in the company and the industry as a whole, and commitment to building trust with your employees,” advises McKay.

5. Get some insurance. Once you’re ready to sign a contract with a PEO, you’ll naturally want to have your lawyer review it. Look for an indemnification clause, which obligates the PEO to pay for your legal defense if someone sues you in connection with the work the PEO has done for you. Also be sure that your attorney looks at the PEO’s liability-insurance policy, which will protect you if the PEO should be hit with expenses that force it into bankruptcy. If you don’t cover those bases, you might in some states be responsible for those bills, Anderson says. To be safe, ask the PEO for a copy of its financial statements for your accountant to peruse. Finally, be sure there’s a cancellation clause that lets you out of the deal within 30 days.

PEOs aren’t a cure-all. Shpilner’s limousine service still gets so busy at times that he’s called in to dispatch limos himself (that specialty service hasn’t yet caught on with PEOs). But with clear planning, these firms can help you create a business that is as enjoyable to run as it is efficient.

COPYRIGHT 1998 Success Holdings Company, LLC

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