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1.     What is a PEO?

A Professional Employer Organization (PEO) is a multi-service provider that allows companies to outsource the management of payroll administration, employee benefits, workers comp insurance, 401(k), and Human Resources under one roof. What ultimately defines and differentiates a PEO  from other HR Outsourcing vendors is the concept of coemployment.

2.     What Companies use a Professional Employer Organization?

In most cases small businesses with US operations that have 5-250 employees. Larger companies with several thousand employees are also known to work with PEOs although it is much less likely as many key facets of the PEO value proposition are diluted as companies get larger. PEO clients come from almost every business vertical. Some PEOs cater to white collar verticals like technology and professional services. Other PEOs cater specifically to blue-collar verticals such as trucking and manufacturing. There are also boutique-like PEOs that cater to start-ups and international companies. The common thread between all PEO clients is the desire to reduce HR liabilities and streamline HR administration. Some PEOs provide employee benefits, many do not; so although improving employee benefits is a very popular entry way to a PEO, it is not always the case.

3.      Can a company save money by using a PEO?

Yes, depending on the situation PEOs have a significant ability to reduce a company’s HR overhead.  PEO’s use their buying power for the cooperative purchasing of items such as  health insurance and workers comp insurance, the most common place PEOs save companies money. PEOs also save companies significant soft cost as PEOs are proven to improve employee retention, increase employee motivation, and reduce employment litigation and legal fees.

4.     How large is the PEO Industry?

There are over 700 PEOs nationwide. The PEO industry has seen steady growth since its inception in the early 1980s.  It is estimated that about 2-3 million American employees are in a coemployed relationship, yet overall PEO industry market penetration is still lower than 2%. Many PEOs  have reported record growth since 2010, which is largely attributed to the onset of Patient Protection and Affordable Care Act (Obamacare). The PEO value proposition gets more valuable as American employers are faced with increased employment regulations and healthcare costs.

5.     Do business owners loose control of their employees when they use a PEO?

No. PEO clients retain ownership of their company and have control over its operations. Through coemployment, PEOs and clients essentially split the responsibilities of employing a workforce. The PEO will become the “employer of record”, which means all back office functions associated with HR are performed by the PEO. For example the PEO files all clients’ payroll taxes under its own tax ID #s. The PEO will sponsor the health insurance plan that is offered to employees, which means they are responsible for its administration and compliance with all regulations, including Healthcare Reform. Under coemployment the PEO client will become the “work-site employer” which means the client still controls, among many other things,  employee job functions, hours of operation, hiring and firing.

After working with hundreds of Administaff/Insperity clients we decided to write a short case study on one of our recent clients in Minnesota. If you’d like to see this case study in .pdf format  click Insperity Case Study.

Stats:

Type of Firm: Technology |Application Development
Location: Not Disclosed
Size: 35 Employees
Years in Business: 4

Scenario:

A technology company that experienced rapid growth in its first year of business decided to work with Insperity, one of the largest national PEOs in the US. During the first 3 years of the relationship Insperity was able to provide the back-end support necessary for the group to expand their employee population by 300%. In the 4th year of the relationship HR realized it wasn’t using many of the services that Insperity provided. Furthermore, they were going through an audit, and the auditors had a hard time understanding exactly what Insperity cost the company.

Solution:

PEO Spectrum began the process with an in-depth discussion regarding the HR services that the company absolutely needed, as well as those that were not necessary. The company’s growth goals, geography, employee benefit requirements, and technology requirements were also discussed in this phase. The next step was a financial audit of the company’s bills and invoices from Insperity to identify exactly what the service cost, and how those dollars were allocated (administrative fees, tax rates, benefits, etc.) Based on the requirements set by the client, PEO Spectrum produced a Vendor Match Report with 3 recommended PEOs that met the client’s requirements. After reviewing with the client, it was decided that PEO Spectrum would obtain quotes from 2 of the leading PEOs. In 3 days the competitive PEO quotes were received, and PEO Spectrum’s PEO Comparison was complete for client review.

Results: (each PEO provided comparable employee benefit plans)

PEO 1 Savings Opportunity: $85,000 annually
PEO 2 Savings Opportunity: $69,000 annually
The company decided to go with PEO 2 based on the PEO’s historical background and high level of industry accreditations (all of which are review on the Vendor Match Report). PEO 2 offered nearly all of the services that Insperity once offered, however they allow the client to pick and choose which specific services they want to use,and pay for them on a “as needed” basis.

Check out more about Insperity Competitors.

Most companies that work with one Professional Employer Organization (PEO) will eventually switch to another PEO.

The most prevalent reasons companies Switch PEOs:

• Cost Savings

• Unsatisfactory Service Delivery

• Lack of Transparency in Pricing

• Outgrowing a Vendor

Regardless of reason, timing is extremely important for a company changing PEOs. A strategic approach will help companies avoid:

• Payroll Tax Restarts: the amount of Social Security, Medicare, and other taxes that employees and the employer have paid to date can be forfeited – this could be $100,000+ mistake!

• Health Insurance Deductible Restarts: the amount of deductible that employees have paid to date can be forfeited – this wastes employees’ hard earned money

• Out of Frying Pan into Fire: knee-jerk reaction to dissatisfaction with PEO opens the door to a competitor that makes the same mistakes, or worse

At PEO Spectrum I’ve worked with many small companies that have made such blunders, they’re costly, time-consuming, and completely avoidable!

If your company’s internal resources do not include somebody that has made a PEO transition in previous employment, it is a great idea to use a resource like PEO Spectrum.

Please feel free to give us call; our professionals will work with your company on a 1-on-1 basis, and make sure you avoid a PEO disaster.

PEO Spectrum was featured this week in a Crain’s New York article highlighting the major benefit of PEOs: getting big-firm perks through a small business. Click here to read it!

The article quotes PEO Spectrum founder and president Thomas Farrell, while discussing how a PEO can help companies focus on running their business by eliminating the HR headache, and reducing benefit costs.

Many of today’s companies provide their employees with a comprehensive benefit package including health insurance and 401(k) plans, meaning companies that want to keep a competitive edge need something more—an employee perks program. In addition to the general benefits offered to employee, employers should be taking the initiation to offer bonus benefits as well. These perks programs often are discounted offers on various entertainment, shopping and travel products or services available to all payroll workers within a company.

Employee perks programs can include a wide variety of discount offers so that each employee has a chance to save. They include discounts on tickets for museums, tourist attractions, Broadway, movies, sport games, and special events, as well as reduced rates on hotels, merchant gift certificates, and specified online stores.

Having an employee perks program can affection several aspects of your business. Here are 5 major benefits of having an employee perks program for your company.

1.      Attract and retain employees

Employee perks programs can help maintain a low turnover rate by giving companies an advantage in retaining talented workers. Holding on to talent and good employees is necessary in order for you company to grow and stay competitive.

2.      Increase employee loyalty and satisfaction

Offering perks and rewards to employees can show an employer’s appreciation. By keeping workers engaged and happy, they are more likely to be motivated to work at optimal productivity.

3.      Help employees maintain a balance between work and personal life

Discounts on entertainment, shopping and more give employees opportunities to experience and buy things outside of work for a reduced price. Employees are thus more likely to keep a healthy balance between inside and outside the workplace, and an overall happier lifestyle, which will be reflected in their work.

4.      Ease of program administration and usage

Joining an employee perks program is generally easily affordable or even free of charge for the company. Many programs are easy to sign up for and use, with assistance available for all members. A company doesn’t need to worry about administrative questions or expenses, and an employee has full access to a user-friendly service.

5.      Provide a Valuable Tool During Economic Recession

In times of economic slumps, people regularly try to save as much as they can. Providing employees with shopping and other discounts can help their expenses and lessen financial strains.

Employee perks programs are usually offered only to large corporate businesses and have a minimum employee size requirement due to their vendor contracts. This means that for many businesses, especially small businesses, employee perks programs are not accessible. Employing a Professional Employer Organization (PEO) to outsource benefits can open the doors to these rewards programs for companies with only several employees. Because PEOs have a co-employment relationship with their client companies, all of their client companies’ employees are hired under one umbrella company—the PEO, and thus can qualify for participation in corporate employee perk programs. Outsourcing your company’s HR management and administration can provide your employees with perks and reward opportunities not previously available, and in the long run, greatly improve your business.