Dealing with the daily responsibilities of running a business can distract an owner from the big picture. To take some of the burden off of CEOs running small and mid-sized companies, Professional Employment Organizations offer services that handle outsourced aspects of daily business, including recruiting, payroll, workers’ compensation, risk and safety management, and training and development.

However, selecting the right PEO for your company requires thoughtful consideration. And J. Richard Hicks, CEO of HR1 Services Inc., says that working with a PEO requires cooperation and commitment.

“This is really a partnership to help streamline and make your company more cost and time efficient. You need to work closely with your vendor and treat the relationship like a partnership to make it work for you,” Hicks says.

Smart Business spoke with Hicks about what to look for when choosing a PEO.

How does a PEO work?

A business and a PEO establish a three-way relationship — a co-employment arrangement — among the PEO, the client company and the company’s employees. This means the PEO co-employs your work force and becomes a legal employer responsible for such functions as payroll, recordkeeping, benefits and services, and participation in hiring, evaluation and firing. This frees up business owners to focus on the core operations of their business.

What do companies need to understand about the co-employment relationship they establish when working with a PEO?

The co-employment relationship allows your employees to participate in the PEO’s benefit programs, as well as its risk management programs. The employer retains control of the workplace, but when it comes to government compliance, the PEO takes those burdens off its hands.

What differentiates one PEO from another?

PEOs can be grouped by the range of services that they provide. Some could be considered turnkey and take care of the company’s employees from top to bottom. Others simply provide payroll and workers’ compensation services.

Every company has its own specific needs. Generally, the more people you employ, the more important HR functions become. Conversely, fewer employees mean fewer stresses exist on that aspect of your business, and all you would likely need to outsource are a few administrative services.

There are also PEOs that specialize in certain industries and you want to work with one that has experience relevant to yours. When you evaluate a PEO, ask whether it’s done work with companies in your field because that experience helps with the back end legal responsibility and mitigates your exposure. A PEO will never completely remove your legal exposure, but it will greatly reduce your risk.

Does hiring a PEO mitigate any legal risks associated with the services it provides?

It does mitigate them, but they never go away completely. An example of some items that will go away when you enter into a co-employment relationship with a PEO are 401(k) fiduciary requirements, health care fiduciary responsibilities in terms of COBRA administration and workers’ compensation liabilities.

Working with your PEO can also help protect you from many types of employee lawsuits. While the arrangement doesn’t prevent a lawsuit from being filed against your company, having a relationship with a PEO can greatly increase your protection.

Companies should make sure that their PEO has employers’ liability insurance, as well as errors and omissions coverage in suitable amounts that cover its entire block of business. You should also look into what resources it has available in terms of legal counsel.

How can a company rate a PEO’s affordability?

Look at your business and the issues you’re having with running it, specifically with issues such as all forms of insurance administration, insurance procurement, employee administration and federal, state and local compliance. Brainstorm those items out, pencil in who is doing that work and how often it’s being done. Typically when you’re looking at a company with about 35 employees, the person doing most of that work is the owner or CEO. Even if he or she doesn’t do it all, that person is involved in a lot of it. As a result, your cost for handling those issues increases dramatically, both with the owner’s time and with opportunity costs in terms of the time lost pursuing company growth.

The best way to evaluate the savings impact of a PEO is to look at the cost of employing someone to do that job, including salary, continuing education, vacation, coverage for when that person is on vacation and turnover cost, as well as any software or hardware expenses associated with a new position and new full-time employee.

When you hire a PEO, you’re hiring a team of experts, not just one person. The organization will have experience across a broad range of areas, and it never calls in sick, goes on vacation or asks for a raise every year.

How can a company determine which PEO is right for it?

The most important thing when choosing a PEO is to find a company that believes in doing business the way you do business — that treats employees the way you do. You should feel confident that you can reach the right person within the PEO to get a problem resolved. It comes down to finding people you want to do business with and who treat employees the way you want them to.

It’s not for every company, but if you have fewer than 200 employees, a PEO is something you should consider.

J. Richard Hicks is CEO of HR1 Services Inc. Reach him at (800) 677-5085  or RHicks@HR1.com.

Insights Outsourcing is brought to you by HR1

Published in Atlanta

Dealing with payroll, employee benefits and workers’ compensation is time-consuming and can be a distraction from the job of running your business.

Engaging with a professional employer organization can remove those obstacles, allowing you to focus on growing your business, says J. Richard Hicks, CEO of HR1 Services Inc.

“A PEO is a single source provider of integrated services that allows business owners to cost-effectively outsource the management of strategic services such as recruiting, risk/safety management and training and development,” says Hicks. “The PEO becomes the employer of record for employees for both tax and insurance purposes in a practice called co-employment.”

As of 2010, there were more than 700 PEOs operating in the United States, covering 2 million to 3 million workers, and that number is continuing to grow.

Smart Business spoke with Hicks about how engaging a PEO can allow you to concentrate on your business.

How does a PEO work?

A small or mid-sized business enters into an agreement with a PEO to establish a three-way relationship among the PEO, the client company and the company’s employees. This now becomes a co-employment arrangement, as the PEO co-employs your existing work force and becomes a legal employer that is responsible for such functions as payroll, record-keeping, benefits and services, and participation in hiring, evaluation and firing.

Dealing with the day-to-day functions of running a business can distract an owner from the big picture and focusing on a strategic vision to move the company forward. Services typically provided by an employer are outsourced to the PEO; the PEO takes over the management of human resources and employment-related issues, freeing up the business owner to focus on the core operations of the business.

The role of a PEO goes far beyond that of a temporary firm, staffing agency or payroll administration firm. Instead of simply taking on one role for a company, the PEO offers comprehensive HR services to clients, either as a bundle or a la carte.

What are the benefits of a PEO?

In addition to allowing leadership to more sharply focus on the business, a PEO can manage your unemployment claims and keep current on tax laws to ensure your business remains in compliance. When employers need to submit employee paperwork to the government, the reporting experts at the PEO will ensure the documents submitted are in compliance with all regulations.

In addition, a business’s employees are eligible for the group benefits offered by the PEO, including medical insurance and 401(k) plans, and it can often get better rates than a single company could on its own. Because it is working with multiple companies, the employees of each of them can be pooled together, creating a larger group and potentially lowering costs. This also removes from the employer the hassle of having to deal with multiple vendors in areas such as health insurance, payroll, 401(k) management and other areas. And because the work in all of these areas is being done by one provider, instead of several, the company’s records are more uniform, allowing for less work in case of an audit.

How can a PEO assist in the area of workers’ compensation?

A PEO can be involved in the management of both workers’ compensation and unemployment claims. In the case of workers’ compensation, the PEO can work with a company to get injured workers back on the job through a light duty program more quickly than they otherwise might return. And as with health insurance premiums, the larger pool of employees created by joining the work forces of multiple employers under the PEO umbrella can often mean lower workers’ comp premiums than an individual employer would pay on its own.

Employers can also receive assistance from the PEO when implementing risk management programs. Having the proper safety initiatives in place can significantly lower workers’ comp premiums and help maintain a more productive work environment.

The PEO also eliminates the need for year-end premium audits, as the company’s expense is billed in the same amount each month.

What are the potential disadvantages of a PEO?

Although the PEO is responsible for all of the above-mentioned services, the employer is still responsible for the productivity and conduct of its employees. Also, some state laws or labor contracts may limit which employers can enter into such an arrangement.

What questions should an employer ask before choosing a PEO?

First, make sure you know what you are paying for. Services are often bundled, and unbundling them can give you a better idea of what you are paying for. Also ask who you will be regularly working with and ask about that person or that team’s background. Determine how often someone from the PEO will visit your office and whether someone will be available on short notice if you run into a problem.

Find out if the PEO will do an analysis of your company before agreeing to take you on. The PEO should be interested in working with you to make things more efficient and help you lower costs and shouldn’t agree to work with you without first thoroughly understanding your business.

Also ask about development and training. A good PEO will be interested in the growth of your employees to help grow your business, so ask if those services are included in your fees, or whether there is an additional costs.

Check with your local PEO expert to ensure that your business is eligible to participate and to get more information about how to proceed.

J. Richard Hicks is CEO of HR1 Services Inc. Reach him at (800) 677-5085 or RHicks@HR1.com.

Insights Outsourcing is brought to you by HR1

Published in Atlanta