Making benefits hassle free

Mike Kahoe wants you to fire all your employees.

It may sound drastic, but it’s not really. As president of Group Management Services Inc., Kahoe takes control of a company’s staff, then leases those employees back to the company owner. So if you give everyone the axe, they’ll most certainly be back without skipping a beat.

“We do a whole lot more than just a temp agency,” Kahoe says. “Temp agencies charge quite a bit more than we do. Their mark-ups are between 40 and 60 percent. Our mark-up is more like 4 or 5 percent. Our clients do the majority of the work. They do the hiring and the firing and the setting of the wages, and they deal with the majority of the hassles that are involved with having an employee.

“We deal with the back room part of it where we take care of more of the administrative hassles.”

GMS was founded as Outsource Inc. in 1992 and grew to a $7 million company by March 1999. After changing to an S corporation, the company finished last year with revenue of nearly $47 million. It didn’t start that successfully.

Kahoe began the company with $50, which he used to open a checking account.

“The reason I selected this business is I knew I could manage the receivables in a way that wouldn’t take a large investment,” he says. “My way of starting a business at the tender age of 25 was basically just to go out and talk to people about this great idea I had and how it was going to work — that we could probably save them money and we could help them in their business.”

But the road was not a direct one. In 1998, Kahoe was forced to sell the company after a former employer enforced a noncompete agreement. Six months later, he was able to buy back the operation and changed the name to Group Management Services. It was about that time Kahoe brought his brother, Jim, into the operation.

“He was actually able to bring some structure to it,” Kahoe says. “That’s really when we started closing deals and growing at a pretty fast pace.”

GMS can generally offer better health care plans, disability, more 401(k) options, prescription cards, life insurance and other benefits many smaller companies have trouble providing. Target companies have fewer than 200 employees.

“We have a great service,” he says. “We do a lot for our clients, but to really get our foot in the door, (we have) to do everything we can to provide more benefits to their employees. Even if those don’t turn out to be profit centers for us — an employer with five to 10 employees doesn’t have the option to go out and get them on his own — I think that’s our hook that’s going to keep that company with us for a long, long time.”

One of the problems he faces is the lack of experience employers have with his type of operation.

“Essentially, we’re asking people to fire their employees,” Kahoe says. “I’m going to hire them and then I’m going to lease them back. (When he first began) people looked at me really strange. Now people are familiar with the concept.”

There are some 50,000 to 60,000 workers employed by personal employment organizations in Ohio, with about 10,000 in the Northeastern portion of the state. GMS employs between 5,000 and 6,000 of those. In five years, Kahoe expects to have about 60,000 employees.

How to reach: Group Management Services Inc., (216) 573-7102

Daniel G. Jacobs ([email protected]) is senior editor of SBN Cleveland.