NADP proclaims use of PEOs a great benefit

NADP, or the National Association of Dental Plans, has recently claimed the use of PEOs, or professional employment organizations to be a great boon for them. Overall, PEOs have been a good fit for NADP and their full-time employees' needs, providing guidance when an employee had to be let go, helping them to develop employee manuals and policies, and offering an array of benefit options that rival larger employers--all through a single point of contact. And, just for some background: Their contract with their current PEO, TriNet, costs them about 15 percent of their total payroll, including a five percent match for employee deferrals into a 401(k). Their administrative service fee, which includes the cost of workers' compensation, is only 2.1 percent of this cost. Working with a PEO has definitely benefited NADP on a number of fronts.

Find out for yourself what a PEO can save you and your company in the course of a year, or the lifetime of your business! Many businesses using PEOs are benefiting from their use, and going without one can be cost-prohibitive on many levels.

A PEO is the "employer of record" in business model

In a co-employment contract, the PEO becomes the employer of record for tax and insurance purposes, filing paperwork under its own identification numbers. The client company continues to direct the employees’ day-to-day activities. PEOs charge a service fee for taking over the human resources and payroll functions of the client company: typically, this is from 3 to 15% of total payroll. This fee is in addition to the normal employee overhead costs, such as the employer's share of Medicare and unemployment insurance withholding. In addition, PEOs benefit from aggregation of employee headcount: by combining the employees from multiple clients, they qualify for lower premiums on health insurance plans.

A PEO generally generates some of its income through various methods of insurance, wage and tax arbitrage. In insurance products, a PEO will purchase workers' compensation, employment practices liability and employee benefits insurance at a given price. The PEO then adds a markup to the premium costs and bills that rate to the client company, which is still less than the company would pay on its own.

The value proposition to client companies is that the use of a PEO saves time and staff that would be used to prepare payroll and administer benefits plans, and may reduce legal liabilities or obligations to employees that it would otherwise have. The client company may also be able to offer a better overall package of benefits, and thus attract more skilled employees. The PEO model is therefore attractive to small and mid-sized businesses and associations, and PEO marketing is typically directed toward this segment.

PEOs benefiting Arizona businesses, companies nationwide

Jan Mueller is a small business owner in Tempe, AZ who decided on retaining the services of a PEO, or professional employer organization a year ago.

"I couldn't be happier with the results," Mueller says. "I've seen a drop in overall expenditures, actually. And I feel secure that my PEO is on top of everything. It's like a breath of fresh air every day."

Mueller says her catering business Event Partners, Inc. is more streamlined and economical than ever.

"We've had no employee issues at all, except for having to cut back a few employees' hours temporarily. I don't worry about the big stuff anymore at all, though."

Phoenix business owner Larry Milhouse says in his five years of having a PEO run the bureaucracy of his operation, he's seen very few problems.

"I run a construction company, and the last thing I want at this point is headaches over some payroll or insurance glitch. I can focus on communicating with my foremen and clientele, and sticking to the day-to-day work at hand," says Milhouse.

But it's not just Arizona companies benefiting from PEOs. Companies across the U.S. and North America continue to see positive results from professional employer organizations.

A PEO is the best way any business owner can virtually assure there will be no hangups regarding payroll, insurance benefits, employee financial investments, lawsuits, and a host of other "red tape" problems which can bog down employers. The difference a PEO can make, as opposed to a standard employee leasing or HR outsourcing company can mean the difference between daily stress and experiencing the joy of business ownership.

PEOs offer competitive benefits, career advancement for employees

In a time of spiking health costs and aging baby-boomers, and with health and security first and foremost on many Americans' lists, health insurance and retirement programs are becoming more and more important to employees and employers alike.

For a small employer, a good benefits package can be one of the best ways to attract and keep good employees. Job candidates usually weigh job offers based on three aspects: career advancement opportunities, pay, and benefits. In a small company, career advancement may be limited and the company may not be able to match the salary offered by a larger competitor. That makes the benefits package all the more important.

Your company can select and administer insurance and other benefits programs in-house, but many small businesses find it more cost-effective to use professional employer organization services for all or part of the process. Specialized services can help you find the most affordable insurance, compare and double-check vendors’ terms, and manage enrollment and ongoing administration of those programs.

Be forewarned the array of companies and consultants that want your benefits business can make your head spin. To simplify, we can divide them into two categories.

Brokers

One type of benefits outsourcing service goes by a variety of names: benefits broker, human resources consultant, insurance agent, insurance company, financial adviser. But behind the fancy labels, they are all basically insurance or investment brokers.
A good broker will explain various health insurance options and suggest the best ways to save money while still providing good insurance to your employees. Insurers will look at your employees’ risk profiles, as well as how they use health care, and will raise your rates accordingly. That’s where a broker can examine an underwriter’s evaluation and challenge it if it doesn’t look fair.

HROs

This partner is called the human resource organization. Also called an administrative service organization or business process outsourcer, this company provides HR administrative functions. Rather than sell the actual insurance or financial products, this is the partner that is connected to brokers who can obtain those products. For example, an HRO would administer open enrollment for health insurance and flexible spending account programs.

An HRO often provides a self-service web portal that allows employees to find information on their health and retirement programs, download forms, change account information, and handle other administrative details. An HRO can also do background checks and/or drug screening on potential hires. In addition, it usually offers compliance help, everything from providing posters required at a worksite to providing an e-mail service that alerts you to changes in state regulations.

Look to a competent PEO, or professional employer organization to aid you and your employees with a much more competitive benefits and pay package, so you can concentrate on your company's overall vision.

Employee Leasing Options - Competitive Insurance Coverage

Employee leasing with a Professional Employer Organization (PEO) can offer your company access to competitively priced employee benefit plans. By pooling many small groups together, PEOs can obtain superior pricing from insurance carriers and can pass that savings to your company and employees. By becoming the client of a PEO, your company has instant access to a broad range of benefits that are time consuming and expensive to establish individually. Finding a PEO with the best employee benefits for your company can be a challenge. However, the benefits of having a PEO working for you and your workers far outweighs trying to "go it alone" in the wilderness of today's marketplace.

The benefits of a PEO are too numerous to do without

While many payroll services options are available for any business, a professional employer organization (PEO) will go above and beyond that standard. In addition to handling all payroll calculations for wages, taxes and benefits deductions, a PEO will also directly remit amounts due to the state and federal taxing authorities and also provide all insurance premiums to the carrier. Your company will then avoid the risk of fines for late payments. A PEO will ensure that your company employees get advantageous tax treatment (section 125) so that any deductions for health insurance get deducted prior to tax calculations.

Also, PEOs offer great workers’ compensation insurance programs employees and companies. Obtaining competitively priced coverage is part of the program when you join a PEO. A PEO will provide your employees with work comp coverage (mandated in all states except Texas). In addition, a PEO will help establish or improve your company safety program. All claims are against the policy of the PEO and they will work to ensure claims are administered fairly and in a timely fashion. All PEO programs are “pay-as-you-go” and eliminate the need to make a large insurance deposit in order to get coverage in place.

Finding a PEO that provides the “best fit” employee benefits program for your company can be challenging. PEOs offer a wide variety of coverage plans and administrative options for managing your employee benefits plans. As the cost for health insurance has increased, PEOs have worked hard to keep costs in check.

Using a PEO can help administrate your company workforce. PEOs offer a full suite of HR-related services which will ensure your company is following the best practices available for your workers. The HR area can be a mine field of risks for the managers without formal HR training or on-call expertise.

A Brief History of PEOs, or Employee Leasing Companies

Employee leasing -- the early model for professional employer organizations -- in the United States began in the 1940's. In the early 1970's, the concept was popularized by a consultant named Martin Selter, who leased the employees of a doctor's office in Southern California. The Employee Retirement Income Security Act of 1974 (ERISA) contained an exemption for multiple employer welfare arrangements (MEWA), which provided a loophole for employers with leased employees to claim they were exempt from the ERISA requirements. Passage of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) further encouraged employee leasing by providing a tax shelter for employers who contributed a minimum amount to employee plans. More stringent guidelines in the Tax Reform Act of 1986 later eliminated most of the TEFRA incentive, however.

By 1985, there were approximately 275 staff leasing companies in the United States. As of 2007, there were more than 700 PEOs operating in the United States, covering 2-3 million workers. PEOs operate in all fifty U.S. states, Sweden, Germany, the UK, and Russia.

An Inside Look at Professional Employment Organizations

The PEO industry comprises agencies mainly engaged in providing human resources and human resource management services to staff client businesses. Establishments in this industry operate in a co-employment aspect with client businesses or organizations. They are specialized in performing a wide range of human resource and personnel management duties, such as payroll accounting, payroll tax return preparation, benefits administration, recruiting, and managing labor relations.

Employee leasing agencies -- sometimes known as HR outsourcers -- typically acquire and lease back some or all of the employees of their clients and serve as the ad hoc employer of the leased employees for use in payroll, benefits, and other related purposes. Professional employer organizations generally exercise varying degrees of decision-making relating to their human resource or personnel management role, but do not have management accountability for the work of their clients' operations with regard to strategic planning, or profitability. A PEO is extremely cost-effective, in the long run, and eliminates much of the day-to-day "bureaucracy" of being a business owner.

Further Tips on Finding the Right PEO

Finding the PEO that’s right for your company requires diligent searching and scrutiny. You should interview a few different firms, ask a lot of questions and be sure to get a list of references. There are many companies (sometimes called PEO networks) that can help you narrow down a list of potential PEOs or assist with the search. These networks also help you ensure that the PEO it selects is legitimate and reliable enough for your company.

You may need to create an RFP (request for proposal) that includes your list of requirements, benefits information and workers' compensation history. Many of the aforementioned networks will send your RFP out to their recommended list of PEOs and return the proposals to you so you can decide which company fits your needs.

Pricing depends on a number of factors but mostly depends on what sort of services your business requires. You can expect to pay an initial setup fee (typically a few thousand dollars), and the ongoing fee will generally be a percentage of your gross payroll. Most PEOs will perform standard services such as payroll, workers' compensation and benefits administration, but expect additional fees as you add services.

PEO Revenues Up, Industry Poised For Massive Growth

For more than a decade, the PEO market has been ripe with opportunity. The PEO industry is comprised of approximately 700 firms that generate gross revenues (including payroll, taxes, and insurance premiums) of $51 billion. In total, the PEO industry services between two and three million employees and has been growing in excess of 20 percent a year. While these are very impressive numbers, the industry hasn't really even scratched the surface.

Currently, the domestic PEO industry’s core market, consisting of firms with fewer than 500 workers, employs an aggregate of 80.8 million workers. The average annual salary is approximately $25,000, yielding a potential market of more than $2 trillion dollars. The PEO industry has only penetrated approximately 2.5 percent of its core market. In short, there is much room for growth. This opportunity is attracting outside capital, fueling mergers and acquisitions, and, in turn, feeding consolidation.

Arizona House Passes PEO Law Granting More Insurance Choices

Arizona has passed a bill granting professional employment organizations more leeway in making insurance offerings to its employees.

Already passed by the Arizona house, HB 2087 allows PEOs to offer either master policy coverage or individual policies to PEO clients. Insurers will be required to report loss experience at the client level.

If a professional employer agreement does not provide for the professional employer organization to purchase workers' compensation for covered employees, the client is responsible to purchase a client based policy for all employees, including the covered employees.If the professional employer agreement provides for the professional employer organization to purchase the workers’ compensation for covered employees pursuant to section 23-562, the professional employer organization shall fulfill the responsibility through an individual policy, a master policy or multiple coordinated policies obtained from a carrier or carriers licensed to do business in this state.

Can You Afford Not to Have a PEO?

The benefits of having a PEO, or professional employment organization are many, and allow a business owner or CEO the freedom to concentrate on more core issues with his/her company, such as overall vision, and more one-on-one time with clients and employees. Having a PEO, though initially seeming like a dispensable cost, is actually something that most business would be remiss to do without.

The biggest benefit to employers who choose to use a staff leasing company is the fact that they may not have to staff and maintain several departments in their company. They will not have to worry about having a human resources department who take care of scheduling, benefits, and employee complaints. They also will need a much smaller accounting department, if they even need one at all. This is because they do not have a payroll department to deal with in their accounting department. Other accounting tasks, such as taxes and bookkeeping, can often quite easily be outsourced at a much more affordable rate.

A PEO Will Perform Background Checks For You

Though it's true not every job requires a criminal background check, a PEO will track down a potential employee's past history when required. Where a company's employees routinely enter private homes (plumbers, electricians, painters, carpet installers), where there is contact with school children (bus drivers, school cafeteria workers, school volunteers), or where there is ongoing public contact (bus drivers, catering services), employers clearly have an obligation to ensure that they are hiring people who do not put their customers or the general public at risk. These employers generally request a criminal background check from a state authority. Of course, these checks usually only reveal convictions in that particular state. When criminals or predators move from state to state, they are much harder to track.

But a PEO worthy of its weight in gold will be able to perform a comprehensive background check on employees deemed "higher risk". A professional employment agency doing the hiring and firing for you will be able to track down a prospective employees former addresses and places of work, as well as their criminal histories. Paying a PEO to do the "dirty work" of doing the daily administrative stuff like background checks truly is a worthwhile investment (and only one of many PEO benefits). Your company's worth it, is it not?

Firing Doesn't Have to Be Painful Process

It can be quite a painful fact that many managers, when faced with having to fire someone, forget, or are unaware of the emotions that are experienced by the person being fired. Nor are they usually aware of the behavior that most often results from these emotions. It has been well documented that the death of a loved one, a marriage or long term relationship breakup and the loss of one's job, have an equal and similar impact on one's emotions -- and life. Think for a moment about the loss of one of your dear relatives or friends through death -- how did you feel? That's exactly the same feeling that people have when they suddenly and unexpectedly lose their jobs.

One factor that is often overlooked when firing someone, is that the way it is done can have as much impact (positive or negative) on the people who remain. They will be watching (and will invariably get a first hand report from their colleague) about how well or otherwise the process was managed. The people who remain in the organization, and whom I assume you want to keep, get a good look at both the manager's and the organization's real people management skills when under the stress of firing someone. They'll most certainly ask "Could this happen to me?"

Remember, a good PEO, or professional employment organization is one that's adept at methods which mitigate negative responses to employee firing. And as well, business owners don't have to "dirty their hands" with the sordid process of having to ruin someone's day, week, month, etc. Let a PEO handle the tricky and delicate business of hiring and firing, and regain peace of mind again. This is just one of many PEO benefits.

For Any CEO, the Benefits of a PEO are Nearly Endless

Whether you are a small business owner with, say, 25 employees or less, or you are a corporation doing big time business with hundreds or even thousands of employees, the rewards of a PEO are many to list. Isn't it worth the cost of a professional employment organization to not have to worry about payroll, federal compliance issues, legal concerns, or any of the day-to-day paperwork and minutiae which can befall and sidetrack an owner who wants to remain vibrant in his product and service vision?

The benefits of using a PEO are most evident (but not exclusive to) payroll administration, attendant costs and paying taxes accurately without incurring penalties, payroll processing, paycheck distribution, paying employment taxes, W-2 and 1099 distribution, and employee payroll inquiries. These fiduciary matters are the things that, when not done to standards, can really imperil a company's standing. So, in the long run NOT using a PEO can be much more cost-prohibitive than spending the nominal amount in order to secure one.

PEO's Are "Virtual Boss", Grant Peace of Mind to Business Owners

Professional staffing agencies, a.k.a. professional employment organizations, or PEO's, act as a "virtual boss", and can leave out many of the headaches experienced by those doing the whole of their own workplace administration.

It's especially true for larger businesses, but small business owners can benefit just as well. Although small businesses don't do the volume of employee turnover that larger corporations and companies do, the need for professional administration of workplace policies, compliance with federal laws and standards, payroll, etc. is of course greatly valuable. Saving costs with a PEO is also an almost assured inevitability.

A PEO might be exactly what your company is lacking in order to take that next leap forward in the business world in becoming more streamlined and profitable. Many business owners have attested that the peace of mind granted by a PEO is more than payment for having them doing the "dirty work".

The Benefits of Using a PEO for Payroll Administration

Some other benefits of using a PEO for payroll administration come with saving time, costs and paying taxes accurately. PEO's help save costs in payroll processing as well. A PEO offers payroll administration services to businesses, among the other HR management services that together form a comprehensive package. Administering payroll requires commitment as it involves more than merely handing paychecks to employees on time. It deals with maintaining accurate records, paying payroll taxes, and includes other factors. Businesses need to devote a substantial amount of their resources, manpower and time for payroll administration and the other responsibilities of HR management. For companies to focus on their business, they need to outsource their payroll administration and HR management to a PEO (Professional Employer Organization) or an employee leasing company.

The benefits of using a PEO for payroll administration are saving time, costs and paying taxes accurately without incurring penalties. Client companies can particularly save time in tasks such as payroll processing, paycheck distribution, paying employment taxes, W-2 and 1099 distribution, and employee payroll inquiries.