Many people look at human resources as one of those things you have to do in business. It’s just the way it is. Our clients understand that human resources isn’t just an obligation — which it is to a degree — but when it’s used strategically, it can be a means to unlock opportunities and grow your business. The bottom line is, when you use a PEO, you are being strategic.
Here are six ways a PEO helps you grow your business:
1. PEOs create the freedom for you to focus on your business. PEOs like Servant HR take projects off their clients’ plates. Administrative tasks are the obvious ones. For example, the State of Indiana requires you to report all new hires. This is one of the things that can easily slip through the cracks at businesses in growth mode. When you are focused on building your infrastructure, hiring the best people and moving into new markets, tasks like reporting a new hire can get lost — and get you in trouble. When you have someone else focusing on those things, you can keep growing your business. There’s no wasted time scrambling to figure what’s required and how to fulfill the requirement. A PEO simply does it, often without our clients even knowing it’s been done. Setting up workers’ compensation is another admin task that often goes overlooked — we just do it.
2. We can help minimize potential attorney fees and wasted time. You probably have an accountant, so when you have an accounting-related question, you call your accountant. In the same way, once business leaders understand their PEO’s areas of involvement, they begin to contact them first when they are dealing with a sensitive HR-related issue.
Going directly to your PEO when you have an issue may help prevent you from wasting money on attorney fees or wasting time researching issues on your own. If we can handle the issue, we will. If we need to work with a client’s attorney to help, we will, and we will have the background information needed to inform our client’s attorney of the issue. In this way, a PEO can help look out for your bottom line.
3. PEOs work strategically with your business goals in mind. Your PEO knows your employee handbook from cover to cover – it probably helped you develop it. And it knows your company philosophy and priorities. When you are dealing with risk issues, such as a discipline challenge, business leaders can turn to their PEO to help them figure out the next steps, and those handbook details and understanding of your business play key roles in how you should strategically respond to risk-laden circumstances. PEOs advise their clients with a full understanding not only of your employee numbers but also an understanding of where you stand financially and other seemingly non-HR matters.
4. PEOs minimize risk. Entrepreneurs recognize the depth and breath of HR today. Healthcare reform helps greatly accentuate that point. All employers are intimately aware of opportunities and threats related to legislation and regulations. If you don’t follow the rules, you could conceivably lose your business in a matter of months. That doesn’t happen often, but it can happen. When you work with a PEO and have a process in place related to payroll, benefits, risk management, workers’ compensation, employee coaching and counseling services, you can keep your eye on the ball in your particular area without worrying about potential penalties or threats related to HR legislation. It’s like using an FDIC-insured bank, as a PEO assumes some of the risk related to HR issues.
Take payroll for example, if you withheld moneys for taxes and didn’t submit them to the government, it’s a federal offense. I’ve seen this happen often. Most of the time, I believe it happens by accident, but there isn’t a risk of this happening when you work with an effective PEO. As another example, you might not know about some FMLA rules that you inadvertently ignored. An employee who bears the brunt of your ignorance might bring a suit against you for failing to comply. A PEO helps take on some of the risk related to these types of issues.
5. A PEO’s process adds value in the eyes of investors. When investors are shopping for opportunities, their due diligence process is thorough. When they see that you work with a PEO, you are demonstrating that you are focused on growing your business (not HR admin tasks) and you don’t have any HR skeletons in your closet. Having a PEO’s input as a third party also can appear as more reliable than information submitted to a potential investor directly from the business seeking funds.
6. Having a PEO in place is impressive for prospective employees. For businesses that want to grow, seeking out and hiring top employees is key. When a potential hire sees that you have health care plans, direct deposit, an employee handbook and other HR-related items in place, they regard you as credible. They can see that you have your house in order as it relates to one of the most important aspects of your business – your people. A PEO helps put that internal structure in place.
If you have questions about how a PEO relationship works, please contact me, Scott Ingram, at 317-585-1688.
I am often asked what size company needs a PEO. Is it the right fit for startups as well as big corporations? When does it not make sense? Due to broad issues including health care reform and the nature of the modern workforce, my answer to that question is changing. Here is a by-the-numbers approach to sizing up a PEO for your business. But first, a little about healthcare reform.
What Healthcare Reform Means to the Numbers
In three words, the Affordable Care Act makes answering the question of what size company needs a PEO much more difficult. With healthcare legislation, the importance of a PEO grows as there is an additional layer of compliance related to health benefits. Compared to staff size, the more important question business owners need to ask themselves is: “Who is going to be my expert on healthcare reform?” With many changes on the horizon, businesses need to consider if it makes sense to use a PEO to handle all of those things an internal person doesn’t need to be learning and focusing on.
A PEO model makes a lot of sense for many startup companies with as few as 3-5 people on staff. These businesses are focused on providing a service or product that will help them get off the ground and grow. They aren’t resting on laurels or riding any easygoing waves of revenue growth. A PEO is a good fit because it allows entrepreneurs and small business owners to keep their eyes on the ball doing what they love instead of worrying about benefits, federal regulations and payroll.
Owners of emerging companies and startups typically can see the value of outsourcing their HR. PEOs are good at working with rapidly growing businesses that need to focus on raising money and reinvesting so they can grow. PEOs understand that. As the business grows, a PEO’s service to that business tends to grow as well.
This is a PEO’s sweet spot. When a business has 20-75 employees, a full-service PEO can do everything it is made to do for a client. The PEO can be fully engaged in every aspect of the client’s HR.
This is the kind of business that needs every part of a PEO: HR management, benefits, payroll, risk management and retirement services. They are big enough to feel the growing pains of having employees, yet they aren’t so big that a full-service PEO that carries many of the risks associated with having a staff isn’t the best fit. This category covers most of Servant HR’s current clients.
When a company has 75-200 employees, discussions usually start within its finance department to determine if it makes sense to go out and hire a full-time HR expert. This analysis is legitimate — but requires a complete analysis of the costs and benefits of such a decision.
A company must avoid the misconception that anyone with HR experience can do the job well. If you are going to keep your HR services in house, be sure your hire is a highly qualified expert. When you have an HR generalist or a less experienced person, you are losing out on a PEO’s experience solving HR challenges on a daily basis in many different industries. In many cases, this kind of hire isn’t economically feasible, which brings companies back to the PEO model.
As a company continues to grow, it may be able to pay a professional HR person to handle at least 20 hours of task-oriented HR work as well as more strategic recruitment and training. That makes sense. The question to answer is what happens as the company continues on the upswing and those necessary tasks become too much for one person — at least this highly qualified person you hired to handle all of your HR needs. Does the business owner want this person to focus on payroll and worker’s comp, which have to be done, or more strategic areas such as development and coaching? What is the priority? When this tipping point begins to happen, these are the sorts of things business owners need to consider and a PEO still remains of great value.
Once a company gets past 200 employees, it almost always has internal HR people. Different tax advantages for companies of this size also come in to play when considering whether a PEO is the right choice. Often, it makes sense to move from a PEO model into an ASO (Administrative Services Organization) model. What that means is the HR service provider meets the administrative and HR needs of the client while the client retains all employment-related risks and liabilities.
If you are asking yourself whether a PEO is a good fit for you, contact me, Scott Ingram, at 317-585-1688 to find out more.
When you have an annual checkup, your doctor gathers a lot of information. Height and weight are measured. Your blood pressure and pulse are taken. Blood may be drawn. You answer questions about family history, current diet and medications. The doctor checks your ears, mouth, neck, heart, lungs, stomach, joints, spine, muscles and skin.
You and your doctor know that these clues work together to determine your overall health. Your doctor also uses these clues to recommend changes in your lifestyle to keep you on the healthy track. You can’t separate your diet from your blood pressure from your weight. You have to have an understanding of how these parts work together to take the best care of yourself.
Human resources works the same way. You know that benefits, payroll and risk management are part of an employer’s HR responsibilities, but if they aren’t considered together to see how the parts affect one another, your business won’t be as healthy as it could be. If your HR service providers aren’t working together to diagnose HR problems and detect HR opportunities, your business suffers. A full-service PEO or Professional Employer Organization is like a doctor asking all those questions. Consider the many services and service providers who may be working on your HR from afar, never collaborating or sharing information to make your business healthier.
In small or medium-sized businesses, in-house staff people who wear multiple administrative hats are often the ones managing human resources. In these cases, the question becomes, “What level of training or expertise does your staff person have in dealing with tough HR matters?” It’s an important question to consider because human resources management isn’t as obvious or popular as other HR areas. All business owners know they have certain obligations associated with payroll and tax liability. But they might not realize there are actually more compliance issues related to HR management than payroll and tax. The reality is that a trained HR professional can help employers avoid costly missteps related to EEOC, DOL, FMLA, USERRA, PPACA, ERISA, GINA and the rest of the alphabet soup of HR compliance and risk.
HR management becomes more complicated as your business grows. With more employees comes more obligations. If your business has reached a certain level, you may choose to hire a professional with a PHR or SPHR certification. While this may be a smart choice for larger businesses, many small and medium-sized companies can’t afford to hire a full-time HR professional.
Most businesses work with a broker to handle the benefits part of their human resources. A broker offers the employer a choice of different insurance benefits. Typically, the broker passes along some numbers to an administrative person on a yearly basis, and that person is tasked with understanding the benefits and passing along that information to any new employees or current employees who have become eligible for benefits over the course of the year.
Ideally, a broker should have an understanding of the different benefits plans available and the level of quality of different carriers. A broker should also understand the culture of your business so he or she can match that with the available benefits. Your benefits should be attractive to employees and a good fit for your organization so that your business can use the options as recruitment and retention tools.
Unfortunately, things like benefits have become so commoditized that the opportunity to maximize what benefits can do for you and your business is being overlooked. Many brokers have tried to add services on the front end with increased communication and hand-holding at the employee level in order to compete in a marketplace that offers a more holistic approach, but they often fall short.
Most businesses use some sort of payroll service to make sure employees receive the correct amount of pay on time, and to make sure related tax issues are handled appropriately. When a company chooses to handle payroll in house, it’s often a control issue by the ownership in which someone doesn’t want any confidential information leaving the company. Another reason for handling payroll in house is in a situation where the accounting is atypically complex. For example, if a manufacturer does a lot of piecework, or an engineering or construction firm needs to track how an employee is spending his or her time on projects to determine their contribution to the bottom line, an in-house software program customized to a particular pay setup might be the smartest choice.
At Servant HR, we often hear the misunderstanding that risk management pertains to only worker’s compensation and liability insurance. Employers are often getting this impression from commercial insurance brokers who — you guessed it — provide worker’s compensation and liability insurance. Employers can mitigate risk on a much broader level, and a PEO can often help businesses recognize these opportunities.
Some risk management-related niches cater to certain industries such as construction and healthcare, which require property and casualty insurance coverage. There is often a discount available to employers when they bundle this coverage, so cost savings are a big motivator for employers who may view insurance coverage as a necessary evil.
But things can be done to manage risk without buying up more insurance or bundling policies. This is where a PEO can offer guidance. Safety training can help minimize accidents. General job training can help employers ensure their employees are doing their jobs correctly. Making sure individual employees are classified appropriately helps employers apply the correct insurance to that employee. (Employees such as landscapers go under a certain code. But clerical employees in the office of a landscaping company don’t require the same coverage. A PEO can help you see these cost-saving opportunities.) Employers can follow up with claims to be sure employees who claim they are hurt are indeed hurt. Having policies in place that protect you as an employer is the best way to manage risk, which requires the expertise of an HR professional.
When most employers think about retirement services, the first things that to mind are 401(k) plans and the less popular pension plan. Companies typically use financial advisors to manage 401(k)s. These relationships often start on an individual level, with the business owner using a financial advisor for personal reasons. As the business grows and the need for retirement services arises, the business owner may turn to this same person to recommend a plan for employees.
The challenge in this way of approaching a 401(k) plan for your employees is the owner’s priorities might not line up with the business goals. The owner is looking for a way to get as much of his or her income sheltered from tax, but that shouldn’t be the only motivation. You must also consider that employees across many earning levels should enjoy the rewards of the plan. It is imperative to have someone in place who understands not only how a 401(k) plan works but also how your company is organized. Who is the best person to assume responsibility for the performance of the plan, for example? Is a 401(k) the best choice or is a business better suited to use an SRP (simple retirement plan)?
HR Management + Benefits + Payroll + Risk Management + Retirement Services
Part of the beauty of a full-service PEO such as Servant HR is that a PEO looks at all of these parts of your human resources together so that your business can be as healthy as possible. We aren’t individuals working on services in silos. PEOs connect the dots of businesses’ HR issues. PEOs are set up to take care of employees from “birth to death,” or from the job application to the retirement party. Through the coemployment model, full-service PEOs also assume some of the risk associated with having employees.
The HR services PEOs provide are getting done in any size business in some way, shape or form with or without a PEO. Payroll has to get done, worker’s compensation matters have to be dealt with, and retirement benefits have to at least be considered. In many cases, businesses rely on some combination of different vendors and often in-house staff to carry out these tasks. While this may be an effective process in some situations, it’s not always the best direction for managing a company’s HR needs.
To find out if a PEO is right for your business, download our guide “Are You a Good Fit?”