CEOs looking for more HR options may want to consider investigating PEOs

Source: www.smartceo.com By REBECCA E. PAULSEN, for Baltimore SmartCEO, January 2002

Human Resources - Special Report: Professional Employer Organizations

In order to run and maintain a successful business, every knowledge-able industry leader is familiar with the general guidelines that they must follow— cut costs where necessary, improve efficiency, keep your employees happy and live, eat and breathe your product. 

While these guidelines may seem simple enough to follow, many business owners are finding that time is not on their side. The average small business owner spends between 7% and 25% of his or her time handling employee-related paperwork, according to the U.S. Small Business Administration, and as a result, many businesses are looking to professional employer organizations (PEOs), organizations that provide a cost-effective and incorporated structure to human resources management, for answers.

Benefits

There was a time in Smedley Lynn’s career when everything from payroll to benefits was handled in-house, but today, this owner of Hagerstown-based Atlantic Coast Charters, cannot imagine doing business the same way. 

"We have become a world of laws, where every single activity that takes place has a rule or regulation," Lynn said. "It is almost impossible for a small business to keep on top of all of the forms, legal issues, tax issues, things like that. In today’s world, you have to comply." He added that while his PEO handles his paperwork, benefits, processes, legal and other human resource-related activities, he still remains in control of his company.

"I make sure that I stay in control of the business itself," Lynn said. "I still set the precedence and do the interviewing, but I tell you, I come from the old world, a time when there wasn’t so much to worry about, with things like legal issues and sexual harassment. Having someone else tell me what needs to be done keeps me in compliance with all of those things, so it was easy for me to embrace the situation. It is a big relief."

Ed Ducote, owner, Service Master Professional Building Maintenance, agrees that the new way to spell professional reprieve is, "PEO." "We had hired someone part-time to handle the administrative tasks like payroll, but there was definitely a training curve and a lack of knowledge," he said. "After about nine months of that, we were offered the services of our PEO and we compared the numbers and the money that was being spent.

The benefits became obvious and since then, it has been nothing but a winning experience." Why are companies suddenly turning to PEOs for their HR needs? According to Jim Stephens, regional sales manager, Abel Business Services, Inc., the turn is not as sharp as it appears. "Companies like this have been around for well over twenty years," Stephens said. "They were just more commonly known as ‘employee leasing companies’."

While he admits that the two are similar in some ways, like providing a service to an already established company, he adds that there are obvious distinctions between the analogous industries. "The difference is that employee leasing is more of a temporary relation-ship, something that you lease and give back. For example, if a business calls and needs an accountant for three months, then they would go to a leasing company.

The PEO is considered to be a co-employer to a business, where the arrangement is long-term investment between two companies." And some experts agree that the return is worth the investment. According to Bill Dubsky, vice-president, Crofton-based Human Resources, Inc., PEOs provide professional human resource services that can help in reducing turnover, attracting better employees, providing benefits that otherwise would not be available to employees at smaller companies and saving time and paperwork hassles.

Additionally, businesses are provided with professional assistance for job-related issues, accurate payroll and efficient claims processing. Dubsky added that PEOs become more than a co-employer to a company—they become a trusted associate. "We provide exceptional benefits at a reasonable price and we get rid of the headaches that so many business owners complain about," Dubsky said. "They (business owners) tell us that there is just not enough time to do everything and that they really want to be focusing on the revenue of the company and things like that. Using a PEO provides them with that luxury."

PEOs - friend or foe? According to the National Association of Professional Employer Organizations (NAPEO), it is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement and are operating in every state. Additionally, the industry has grown between 20- 30% per year and today, there are approximately 2,000 PEO companies who are responsible for over $18 billion in employee wages and related human resource and employee benefits. According to Rod Ricklefs, Bel Air-based senior account representative, Professional Employer Group, one of the biggest reasons that the PEO industry has grown and continues to flourish is because PEOs have the ability, due to their buying power, to offer lower rates and savings on insurance while also eliminating and reducing liability.

"Once a business owner hires just one employee, they suddenly become an employer," Ricklefs said. "That title takes them into a whole new area, one that they don’t necessarily want to deal with." Dubsky agrees that employers don’t necessarily want to be spending their time on paperwork, yet is quick to point out, the PEO is not intended to take jobs away from human resource workers, but rather to assist business owners and leaders in becoming more profitable by giving them time to do what they do best-run their business. 

"You have to remember that most smaller companies don’t usually have an HR department, nor can they afford to have one," Dubsky said. "They generally see a bright future for their company and want to keep their valued employees happy and content in order to grow. PEOs can give employers the opportunity that they may not otherwise have."

Stephens added that Abel has found that they are the most successful in providing services to the smaller businesses.  "Some of the bigger PEOs won’t touch the really small guys, but that is where we seem to have found our niche," Stephens said. "Generally in small businesses, the boss is also the guy who has to do all of the paperwork and the mundane stuff. When working with a PEO, you get all of the detailed, unexciting things handled for you." Still, Stephens added, not all companies are sold on the idea of utilizing the expertise of a PEO.

"We believe that PEOs help a company save money, but money does need to be spent," Stephens said. "You figure, if the time of the owner of a company is worth $300 an hour, why should he be spending his time doing paperwork when he could be spending his time working on the revenue producing side of his company? Someone should be hired to do it for him. That is where we come in."

Ricklefs said that it has been indicated to him that a full-service PEO should be charging a company at least 3% of the gross payroll. "Three percent is what we shoot for, but some charge less and some charge more." He added, "Like anything else, you get what you pay for." A lack of understanding the concept of a PEO is what keeps most companies hesitant of using one, according to Dubsky. "Business people need to be educated on the benefits of PEOs and how to utilize them into their company," Dubsky said.

"They need to understand how it can help employees and them-selves better utilize their time and increase company productivity." Stephens agrees that education is key to a successful "co-employer" relationship. "All of the employees need to be thoroughly educated so that they are comfortable working with us," Stephens said. "They have to see the value." What to look for in a PEO Finding a PEO that will mesh with your company may be one of the most important decisions that a business leader will make concerning his or her company, according to Ricklefs. "While it is obvious that you want to check on the professional references of a PEO, you also want to talk with any of the company’s former clients," he said.

"The results can be really eye-opening." Additionally, Ricklefs suggests looking into the PEO legislation in the state that your business is located in. "Right now, for example, the state of Pennsylvania has no legislation on PEOs, but there are some pending that will help to control the industry and get rid of some of the gray areas," Ricklefs says. Stephens agrees that when choosing a PEO to work with, companies should make sure that the PEO is capable of meeting their personal and professional expectations.

"A company’s needs will vary, depending on a number of things, so be sure that you find a PEO that you are comfortable with and that understands what you want," he said. "You will be turning a lot of information over to your PEO, so you want to feel that you can trust them." Stephens also suggests that companies should also check professional references, the financial background and the Dun & Bradstreet rating on the PEO.

"Also check the insurance and workers compensation certificates," Stephens said. According to Brian McComas, owner, Getintegrated, a Baltimore-based human resource outsource solution company, PEOs are similar in their core values, but vary in what they offer.

"PEOs allow companies to focus on their core competencies, but some PEOs go way above the norm," McComas said."We handle the things that prove cumbersome to our clients like payroll, risk management, things like that, but we also deliver technology through a human resource information system, something that gives our clients the ability to work on a higher realm process."