A great article from wikiCFO.com. 

How many times have your employees — or even potential employees — expressed concerns about the cost of the health insurance that your small business provides. It’s an employee concern that most small business owners dread discussing because providing comprehensive healthcare can be a substantial cost burden. There are small business owners who can afford to provide a competitive benefits package in the short-term, but many are not aware that their rates can increase in the long-term as the result of employee illnesses that require substantial medical care and cost.

Going It Alone

Often times, small businesses implement a health insurance plan one year, only to see their costs skyrocket in subsequent years due to the health experience of their small employee base. If there have been health conditions that resulted in significant costs, insurance rates for the small group plan rise, and a once competitive plan becomes a cost burden to the company. When a small or medium-sized business obtains its own health care coverage and is faced with a significant rate increase due to the performance or cost burden generated by the small pool of employees, difficult choices emerge:

• Eliminate or reduce coverage • Increase the employer contribution to the premium

• Increase employee premiums

Partnerships Can Help

To help protect themselves from these types of increases, many small businesses choose to partner with a Professional Employer Organization (PEO). PEOs operate under a co-employment model which is based on a commitment by the PEO to share employment-related risk with clients, thereby helping to reduce financial exposure.

In terms of health insurance, the co-employment model can provide extra protection for the client when facing the future impact of serious and costly employee medical conditions. Why? Because the co-employment model allows the fiscal impact of one person’s illness to be spread across the entire healthcare pool in the PEO co-employment relationship (e.g. thousands of employees), instead of just the small number of employees the small business has on its own. This buying power is something that typically would be only available to larger companies. Small employers cannot exercise these economies of scale on their own. (Milt Freudenheim, “At a Small Business, One Illness Can Send Insurance Costs Soaring,” Wall Street Journal, May 5, 2007, page A1.)

It’s important to consider partnering with a PEO before significant health care issues and rate increases occur. Once you are in the PEO relationship, as a co-employer, the PEO will no longer have visibility to health care performance of your individual company employees and rates will be determined based on the performance of the larger pool. When evaluating PEOs, be sure to ask for their average medical rate increase over the past few years to get an idea of what the experience of the pool has been. While not an indication of future performance, it will indicate how well the pool has been underwritten and managed in the past.

Fact: small businesses are the backbone of the American economy.  The SBA defines a small business as an independent business having fewer than 500  employees.  Firms with fewer than 500 employees accounted for 64 percent (or 14.5 million) of the 22.5 million net new jobs (gains minus losses) between 1993 and the third quarter of 2008.  Continuing firms accounted for 68 percent of net new jobs, and the other 32 percent reflect net new jobs from firm births minus those lost in firm closures (1993 to 2007).  Additionally, of 119.9 million nonfarm private sector workers in 2006, small firms with fewer than 500 workers employed 60.2 million and large firms employed 59.7 million. Firms with fewer than 20 employees employed 21.6 million.  So it leads me to the question of why does the government make it so difficult to own and operate a small business.  The very small firms with fewer than 20 employees annually spend 45 percent more per employee than larger firms to comply with federal regulations. These very small firms spend four and a half times as much per employee to comply with environmental regulations and 67 percent more per employee on tax compliance than their larger counterparts (See Chart).  Now add to that the recent Health Care reform bill that was signed into law this week, and the small business owner doesn’t know which way is up or down.  Below is a brief explanation of the timing and the scope of the impact.  So, I ask the question, does what happened this week make it easier or more difficult to start and grow a small business?

As I speak to small business owners every day, a very simple question is at the heart of those discussions.  How can Actum, or any other PEO help my business save money?  Well the answer lies in another wildly overused industry buzz word.  “Economies of Scale”.  When we tell small businesses that we can save them money on their group health care plan and worker’s compensation insurance, they immediately think that we are an insurance broker.  Not the case, we have a broker just like they do.  The way we can save companies money is through leveraging the co-employment relationship to get larger group pricing for those services.  What that means, is that the employment relationship is outsourced to the PEO.  While the business owner retains all of the day to day employer responsibilities, i.e. daily management, training, hiring & firing, performance improvement, etc… the PEO does all of the back office HR related activities i.e. paperwork processing and storage, payroll processing, WC claims management, healthcare plan administration, cobra administration, ERISA compliance, on-boarding training, off-boarding, compliance with the dozens of other employment related regulatory issues, etc… 

We don’t sell insurance, we sell access to our group pricing.  By offering that group pricing, the business owner is also removing a number of other non-revenue producing activities from their to-do list.  We free the small business owner to go out and produce revenue, and we take care of the business of employment.

Small business owners are always pressed for time.  You wear many hats and are pulled in dozens of directions every single day.  Being highly specific with your goals and prioritizing those goals are a key to managing your time effectively.  I recenly read a post by Dan Kennedy on Entreprenuer.com that summed this up pretty well.    http://ow.ly/1dDVh

Your philosophy can also be a question of how you relate time and goals. For me, these questions always hover: Will this use of my time move me measurably closer to my meaningful goals? Is there even a chance it will? If not, why do it?

If you are like most business owners you can very easily place a price on your time.  If you are spending this valuable time doing anything else besides building, selling, fixing, or providing service for your widgets, you aren’t spending your time wisely.  Outsourcing non reveune producing activities is a great way to maximize your valuable time.  A PEO can handle the day to day HR, Payroll, Benefit and WC administration, and other employment related (aka, non revenue related) activites, while you go out and get new customers or keep your existing customers happy.

Actum, Inc. has moved its Richmond office and is getting settled in nicely!  We are still in Innsbrook, but have moved to 4470 Cox Road.  We are excited about the latest chapter in our company’s story, and are poised for a breakout year in 2010.  Our new contact information has been updated on the site, so please feel free to swing by and check out the new digs if you are ever in the area.

With all of the uncertainty around both individual and small group health care plans, entrepreneurs are looking for ways to curb costs while maintaining coverage levels.  Rates are on the rise all over the country, see Anthem California.  With average rate increases, depending on who you ask, of between 5-25%in different parts of the country, many small business owners are dumping group plans, or not implementing them at all in an effort to save money.  However, their ability to attract and retain top talent is significantly impacted by such decisions.  On

top of that, the individual market for health care is on the rise, so you’re dambed if you do dambed if you don’t offer a group plan.  As we talk with Central VA entrepreneurs we are finding that this problem is a significant cause for their splitting headaches. 

As a Central VA based company specializing in PEO services, we have the ability to help small businesses curb these increases.  On average a company who outsources their Human Resources and Health care Administration to a PEO will experience rate increases of 50% less than companies that don’t.  The addtional benefits of PEO and HRO are huge as well, and include payroll and worker’s compensation administration, 401(k), performance management, recruiting support, paperwork and on-boarding compliance, etc…  Partnering with a PEO can be great way to get rid of those pesky headaches, and will allow a small business owner to focus on producing revenue, or servicing their clients.   

Businesses of all sizes are being targeted by the IRS in an effort to identify misclassification of employees as independent consultants.  As we all know, the government is searching out any and all ways to increase revenue, and enforcement of employment related tax laws is just one route.  I have recently read two similar articles http://ow.ly/19UUG and http://ow.ly/19UVm that detail these efforts.  If you are a business owner, whether large or small, misclassification can end up being more expensive than you thought. 

One way to avoid this expensive and potentially criminal situation is seek advice from a certified HR resource.  A professional can help determine whether your situation is compliant, as well as fix the problem.  There are firms that offer small businesses customized solutions that give them the piece of mind of knowing that their workforce is being employeed in compliance with the myriad of employment regulation and tax laws that exist today.  Check out our White Paper on the subject as well  http://ow.ly/19V9h.

A recent article from Women Entrepreneur.com on some reasons to use a PEO.

http://www.womenentrepreneur.com/2010/02/dont-get-bogged-down-by-employee-issues.php

As the owner of a business that provides a service to other business owners, I am aware of how important quality and customer service are in maintaining those relationships.  What surprises me is the apparent lack of that understanding in other services based organizations, at least some of the ones that we have tried to give our hard earned money to over the past few months.  As a small business owner we always have a budget in mind as we evaluate who to give our business to, so price is always a consideration.  In that effort, location of the vendor really didn’t matter to us, so we were shopping with companies in North Carolina, Minnesota, Illinois, California, etc…  Guess what, we got burned!  So we made a concience effort to partner with vendors right here in Virginia, and in some cases right here in our building.  Guess what, we’ve received great service, and the quality has been outstanding.  The pricing has been competitive, not the cheapest, but well worth the extra few bucks to be able to walk down the hall when a problem arises.  The term “throat to choke” has been used quite a bit lately, because we wanted to do just that with a vendor we chose, but flying to California to do it just wasn’t worth it.

Actum, Inc. is proud to launch our new website.  Our business partner and good buds at Blue-Saki did an outstanding job, and we couldn’t be more happy about the results.  We will continue to add educational HR content to the site over time, and there will be more links to the variety of log ins used by our clients and worksite employees.  Thanks again go to Rajiv and his team at www.blue-saki.com.

According to the BLS the Staffing industry has added nearly 1/4 of a Million jobs in the past 4 months!  Many in the industry have predicted that the nature of the employment market is shifting, and temporary and contract jobs are becoming more and more attractive for both employers and the employee. 

“ASA members are reporting increases in demand for temporary and contract employees across virtually all sectors throughout the country,” says Richard Wahlquist, president and chief executive officer of the American Staffing Association. “Because staffing is a leading employment indicator, the continued uptick in temporary employment bodes well for overall job growth.”  for more click here

Just ask those that were laid off from “permanent” jobs over the past year, how much security they enjoyed whild working for industry giants like Circuit City, Land America, or Qimonda.  Temporary employment and employee leasing could become the new norm, and the US Department of Labor Statistics predicts that by the year 2020, more than half of American employees will be employed by Professional Employer Organizations (PEO).

I have been a part of rolling out healthcare plans as a member, and now as a business owner, and I would never have said that the process was easy per se.  The caveat now is that there are services like ours that allow small business owners to see options for major medical healthcare coverage for their employees, without dealing with the inherent headaches and disappointment typically associated with that process.  Remember, healthcare brokers / agents, are paid a commission based on the amount of premiums paid, so they are in no way incented to lower the small business owners’ overall costs.  Our PEO is paid based on the number of worksite employees, so the cheaper the costs associated with major medical insurance, workers’ comp insurance, payroll, suta, and all other employment related expenses, the more employees our clients are able to carry and the more money we make!  So basically, we are incented to help small businesses be more efficient and grow! 

A California based temp staffing firm was ordered to pay $20MM in restitution when it was found to have fraudulently classified and reported its worksite employees in order to pay lower premiums. Businesses small and large are responsible for accurately tracking and reporting the correct WC classification codes, and tracking their payroll and paying the appropriate amount of premiums. Failure to do so, whether purposefully or not can result in massive penalties, just ask Staffing Services, Inc. This is also a lesson to companies who use temp staffing firms to make sure that they are partnering with solid companies, who comply with federal and state regulation and employment law.

California Insurance Commission Press release:

Insurance Commissioner Poizner Announces $20 Million in Restitution in Staffing Services Inc. Fraud Case

California Insurance Commissioner Steve Poizner today announced that Bellflower-based Staffing Services Inc. has been ordered by the Los Angeles County Superior Court to pay $20 million in restitution after a plea bargain was reached Jan. 15 in a workers’ compensation insurance fraud case.
“Business owners have to realize that they have a moral and legal obligation to report the correct number and types of employees and then make sure they have adequate workers’ compensation insurance for those employees,” Commissioner Poizner said. “This is not a victimless crime. We all pay when a company chooses not to play by the rules as the rest of us.”

Staffing Services Inc. is a temporary employment agency holding contracts for thousands of employees. The California Department of Insurance (CDI) launched an investigation into Staffing Services after the State Compensation Insurance Fund (State Fund) notified CDI of the suspected fraud. Following a two-and-a-half year CDI investigation, charges against Staffing Services were filed Nov. 26, 2008 alleging an attempt to defraud State Fund of more than $18 million in workers’ compensation insurance premiums owed from 2002 to 2005. With penalties, the amount negotiated during the plea bargaining amounted to $20 million.

It was alleged that Staffing Services purposely misrepresented the types and number of employees in order to pay a smaller amount in premiums.

The Los Angeles County District Attorney’s Office prosecuted the case.
Commissioner Poizner oversees 16 CDI Enforcement Branch regional offices throughout the state. Approximately 2,000 insurance fraud-related arrests have been made by the Department of Insurance’s enforcement division since Commissioner Poizner took office in 2007 – more arrests than have been made during any other two year period, under any previous insurance commissioner.

Cobra coverage, (Consolidated Omnibus Budget Reconciliation Act) has historically been a prohibitively expensive resource for displaced workers to maintain healthcare coverage after a layoff.  With the introduction of the American Recovery and Reinvestment Act in 2009, employers with 20 or more workers became responsible for subsidizing 65% of the employee premium for a period of 6 months.  Additionally, in December the government passed a law requiring the subsidy to be extended to 15 months http://ow.ly/XFNn.  For the displaced worker, this is a great benefit that helps them offset an already difficult situation.  However, for the small business owner, this can create substantial paperwork, and more importantly, substantial cash flow issues.  The subsidy that is paid by the employer is reimbursed by the government in the form of a tax credit, but “fronting” the subsidy will pinch the small businesses’ already tight cash reserves.

From the Alexander Hamilton Insitute

According to a November 2009 collaborative report from the United Health Foundation, the American Public Health Association, and the Partnership for Prevention, the prevalence of obesity in the United States is estimated to increase from the current level of 31.30% to 42.80% in 2018.

It stands to reason that as the obesity level continues to rise, so too will the number of individuals electing to have weight-loss surgery.  For some individuals, the decision whether to have the surgery isn’t an option; it may be necessary to successfully treat a physical injury.

An interesting question for employers to consider is if the individual has an injury that is covered by Workers’ Comp, would the required weight-loss surgery be covered by Workers’ Comp, too?  According to at least two state courts, the answer is yes.

Case #1: A cook at a pizzeria was hit in the back by a freezer door.  To relieve his pain, doctors needed to perform back surgery. The surgery, however, wouldn’t be effective unless the cook first had surgery to reduce his weight, which went from 340 pounds to 380 pounds after the accident.  The pizzeria refused to pay for the bariatric surgery, which was estimated to cost between $20,000 and $25,000, because the cook was obese prior to the accident.  Said the Indiana Court of Appeals: The cook’s weight and the accident “combined to create a single injury”; therefore, the pizzeria must pay for the weight-loss surgery.  (Boston’s Gourmet Pizza v. Childers, IN App. Ct., No. 93A02-0902-EX-176, 2009)

Case #2: The Oregon Supreme Court ruled that an employer was responsible for paying for an employee’s gastric bypass surgery.  The employee injured his knee on the job in 1976.  By 2000, he needed knee replacement surgery.  To be eligible for knee surgery, he needed to lose weight.  The company objected to paying for the weight-loss surgery because the surgery was “directed at” his obesity (which pre-dated the 1976 injury), and not the workplace injury itself.  Said the court: “The fact that the gastric bypass also treated the claimant’s morbid obesity as a necessary incident of effectively treating his knee condition does not affect the resolution of the compensability of his medical services claim.”  (SAIF Corp. v. Sprague, OR Sup. Ct., No. SC S056541, 2009)

New Workers’ Comp Worry For Employers?
“From an employer’s perspective, these are very troubling rulings.  They have scary implications for employers,” said Richard Meneghello, managing partner, Fisher & Phillips LLP (Portland, OR).  He noted that for years the courts and the Equal Employment Opportunity Commission (EEOC) have advocated keeping separate an employee’s personal life from their professional one.  “Now, employers are on the hook for personal lifestyle choices.”

“On a legal level, both decisions appear to be compliant with existing law.  That does not, however, make the decisions right, just legal,” said Don Herrmann, President/Owner of THCG, an HR consulting firm (Fond du Lac, WI).  “Workers’ Compensation law needs serious review in all states and jurisdictions.  It has gone well beyond the intent when these laws were created, and we now have a system easily manipulated by both employer and employee.”

Only time will tell whether other states will follow along.  Meneghello speculated that once doctors learn that weight-loss surgery may be covered by Workers’ Comp, they may advise their overweight patients to look into filing a WC claim if their work is affected by their weight.  However, he also feels that “the average employer shouldn’t worry that this will happen” to them, because such rulings, while “shocking,” are “very rare.”

Worries Beyond Workers’ Comp
Despite Meneghello’s reassurance, some small employers might shy away from hiring overweight applicants in the first place.  Overweight employees have very little protection from employment discrimination outside of the few states/localities that prohibit discrimination based on appearance or weight.  According to the EEOC, being overweight, in and of itself, generally is not an impairment under the Americans with Disabilities Act (ADA).  However, morbid obesity – a weight 100% above the individual’s optimal weight – is an ADA impairment.  Important:

An individual who is obese, but not morbidly obese, may qualify for ADA coverage if the obesity is caused by an underlying physical disorder.
To avoid landing in a potential ADA mess, concentrate on essential functions when making a hiring decision.  “Focus on the ability to do the job and not on perceptions about what the individual looks like,” said Meneghello.

“Look closely at job requirements and qualifications, giving special attention to the work environment; lifting, pulling, and pushing requirements; and general mobility requirements,” added Herrmann.

For additional information about weight discrimination, read Weight Discrimination In The Workplace: Realities And Legalities. –

Actum, Inc. a Richmond based PEO has released a white paper that illustrates some of the dangers of misclassifying employees as independent contractors. The paper details the criteria for determining whether the worker can legally be classified as an independent contractor or if the nature of their relationship with the business is more of an employee arrangement. Readers will also find information that details examples of the legal and monetary dangers associated with such misclassification.

Actum, Inc. is a Veteran Owned Business headquartered in Richmond, Virginia. We leverage our 50+ years of combined experience to provide Human Capital Management Solutions with a core focus on Professional Employer Organization (PEO), Administrative Services Organization (ASO) and Human Resources Outsourcing (HRO). Actum is Making HR Profitable by providing its clients world class solutions for the sourcing, screening, selection and support of their number one asset, their people. We understand how teams are built and supported, and we are here to help you grow and manage your organization smartly. Our clients range from small & medium sized companies to Fortune 500 firms. At Actum we understand the importance of providing high end customer service, and our focus is on assuring that every customer becomes a Raving Fan!