When Beaverton, Ore., business owners Christine and David Vernier’s full-time human resources employee went on maternity leave 14 years ago, they contracted with a professional employer organization, Xenium, to fill in. Although the employee returned, the Verniers kept the PEO on board and have used it ever since.
PEOs are business-to-business companies that provide services including human resources, payroll and related taxes, risk management, compliance and employee benefits.
“I recommend PEOs to a lot of businesses. I’m surprised that more don’t use them,” says Christine Vernier, chief financial officer of Vernier Software & Technology, an 82-employee company that produces hardware and software for data collection in science classes.
Services, Co-Employment
“We can be a completely outsourced employer service for our clients who want one vendor who manages all those different programs,” says Anne Donovan, president of Portland-based Xenium.In the contractual relationship between a company and a PEO, both are employers to the company’s workers, sharing rights, responsibilities and liabilities, says Milan P. Yager, president and chief executive officer of the National Association of Professional Employer Organizations, a 350-member trade association. PEOs use their names when, for their clients, they file employment taxes, issue paychecks and sponsor benefits.
PEOs offer and administer varied benefits that can include insurance, retirement plans and more. Clients may pick and choose from the PEO’s offerings.
PEOs secure and provide their own workers’ compensation policies and handle all related tasks. They ensure that their clients comply fully with all laws and regulations. Their human resources services are comprehensive, ranging from developing employee manuals to disciplining workers.
Some PEOs provide extras that may or may not be included in the overall cost, such as training, discounts, salary analysis and legal support.
“Whatever needs a client has, PEOs are willing to find the solutions,” Yager says.
PEOs are legal in all 50 states. They are subject to regulatory controls in 34 of them.
Cost, Ideal Size
PEOs charge a monthly fee per employee or a percentage of each month’s gross payroll. The cost typically encompasses amounts to be paid on behalf of the client’s employees for taxes, workers’ compensation and any other payroll-related expenses. The average client spends $1,000 to $1,500 a year per employee, depending on the risk and exposure for unemployment and workers’ compensation, says Bill Rosado. With his wife, Maureen, Rosado owns ManagedPAY, a Las Vegas-based PEO.Paying a changing percentage makes sense for seasonal businesses, whose employee counts fluctuate. This is the case for April and Mike Tracy, whose two resort properties, Cabana Club and Cabana Breezes, peak during tourist season. They pay their PEO between 14 and 15 percent of each month’s gross payroll.
The price is fair, says Kathy Wilson, co-owner of Las Vegas-based Nevada Sales Agency, a 16-employee representative for manufacturers of lighting and control products and a ManagedPAY client.
“I could not employ a human resources person to do what they do, for the cost,” she adds.
For that reason, PEOs make sense generally for companies with 10 to 100 employees. They’re large enough to need the services but not so large that they can justify the cost of hiring employees to do the work. Conversely, companies with fewer than 10 employees sometimes can handle everything more cost effectively in-house.
Advantages
Using a PEO can free entrepreneurs to focus on the core of their businesses.“If I hired somebody for human resources,” Wilson says, “I’d be managing that individual. I don’t manage the PEO. They manage me.”
With a PEO, companies have access to several professionals with expertise in various areas. This leads to peace of mind, Vernier says. With one employee situation alone, she spent hundreds of hours with attorneys, all of which were included in her monthly PEO fee.
Because PEOs can aggregate their clients’ employees, they typically can offer a benefits package that their clients alone can’t access or afford. With attractive benefits, companies are better able to recruit superior talent. The Tracys couldn’t obtain health insurance coverage on their own, primarily because of their companies’ Florida Keys location, but they did get it through their PEO.
“Being independent and a small business, we could never offer a program like that,” April says. “It’s enabled us to have better-quality managers.”
Downsides, Alternatives
Not all entrepreneurs like the PEO concept and relationship. Some are uncomfortable releasing confidential information to outsiders. Some object to the cost. Some don’t like others watching and bossing them.Some owners don’t like feeling lost or powerless. If the PEO errs with payroll, for example, the entrepreneur can’t resolve it. If a problem arises on a weekend and the PEO is only available on weekdays, the issue has to wait.
“It’s out of your hands,” Wilson says. “You don’t have control of it.”
A PEO might not be a good fit for a company if it doesn’t need some of the organization’s offerings, Donovan says.
Because of these concerns, some PEOs now offer PEO-type services piecemeal and without the co-employer relationship. These services may fall under other names, such as administrative services outsourcing/organization or human resources outsourcing.
“We started down this path of viewing everything from the client’s viewpoint and providing whatever that client wanted from the buffet table,” says Dianna Sheppard, president and CEO of Tampa, Fla.-based Advantec, which offers PEO, ASO and HRO services. In addition, some companies are strictly ASOs or HROs, without a PEO option.
To find a PEO, visit NAPEO’s website. It contains a listing by state of all of its members, along with contact information and selection guidelines.
“Know the PEO is knowledgeable in all the areas of service it’s going to take over for you,” Wilson recommends. “Sit back and let the PEO do its job. It’s worth its weight in gold.”
email us at info@actumhr.com
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.
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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.
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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.
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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:
read moreInsurance 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.
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. –
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Actum, Inc., a Richmond based Veteran Owned business has opened its doors to provide Central VA small business owners with PEO services. 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), Human Resources Outsourcing (HRO), and Staffing & Recruiting. Actum is Making HR Profitable by providing 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!
As a small business ourselves, we were pleased to read on the Amex Openforum an article about what really matters to business owners. Customers and employees rightfully top the list. What Matters Most to Business Owners?