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.
read more
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.
read more
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.
read more
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!
read more
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.
Article from The American Staffing Association, by Anne Duffy
Federal and state agencies have been stepping up enforcement efforts against employers across a range of industries for improperly classifying employees as independent contractors. Beginning in February, the U.S. Internal Revenue Service will start auditing 6,000 employers through a national research program. Audits will take place over three years.
The IRS uses a 20-factor test to determine worker status. Employers that misclassify workers as independent contractors when they should have been classified as employees can be held liable for a number of federal and state taxes, including income, unemployment, and workers’ compensation. Complicating matters for employers, different governmental agencies employ different classification standards. Moreover, the existence of an independent contractor agreement is not, by itself, determinative of a worker’s status. Such contracts may be disregarded if the nature of the relationship appears contrary to the written agreement.
At the federal level, there are two pending bills that attempt to regulate employee misclassification. In the U.S. House of Representatives, Rep. Jim McDermott (D-WA) introduced the Taxpayer Responsibility, Accountability, and Consistency Act of 2009, which would allow individuals classified as independent contractors to petition the IRS for a determination of the propriety of their classification, significantly increases fines, and strikes the safe harbor provision in the Revenue Act of 1978, which protects employers that classify individuals as independent contractors if certain requirements are met.
Sen. John Kerry (D-MA) recently introduced a similar bill in the Senate that would also effectively repeal the safe harbor provision. Further, it includes a provision that would require employers to demonstrate a “reasonable basis” for applying the independent contractor status or confront employment tax responsibilities.
As the majority of states continue to struggle with decreasing revenues, it is likely that enforcement efforts at the state level will also continue to ramp up. Last month, the Illinois Department of Labor announced that, pursuant to the Illinois Employee Classification Act, it had levied a $328,500 fine against a Chicago contractor after discovering that the contractor had misclassified 18 of its employees as independent contractors.
A handful of states, including Colorado, Maryland, Massachusetts, and New Mexico, have recently enacted laws aimed at employee misclassification in the construction industry. It is anticipated that many states will follow suit and seek to enact employee misclassification laws in 2010.
To access copies of McDermott’s bill (HR 3408) and Kerry’s bill (S 2882), visit americanstaffing.net. For additional information on worker classification, see the Law & You column “What’s in a Name” in the September-October 2007 issue of the ASA magazine Staffing Success.
read more
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?