When going for an HR outsourcing or PEO solution, it helps to know the subtle differences between the available models.
One of the key components of PEO (professional employer organizations) that is overlooked is the employer liability. With a PEO, since a company has partnered with a PEO, the PEO is responsible as the “employer of record.” Thus off-loading any workers comp or unemployment claims to the PEO. With other models…since they are not the employer of record, any fines or state of federal issues are the problem of the client.
Moving to an HR outsourcing company, particularly a PEO (professional employer organization) can have tremendous benefits when dealing with workers compensation insurance as it pertains to State-sponsored funds. One major state-sponsored fund, the California State Fund, will be seeing a large increase in rates in the coming months. There is a great opportunity for all businesses to reevaluate that relationship to see if there is a better way of doing business.
How can PEO’s help these businesses? By getting you out of the fund entirely and partnering with the PEO and placing your risk (employees) on their books.
From our experience we have seen discounts on workers comp by as much as 50 percent. In addition, the comp coverage becomes a pay-as-you-go solution, freeing up your cash flow.
We have found a niche in solutions for hr outsourcing for our clients. Industry-specific solution providers. Granted most PEO’s or ASO’s would prefer a mix of clients in order to help them manage risk, both from a workers compensation and healthcare benefits standpoint, but there are solutions that make a lot of sense for specific industries.
The main advantage is the exceptional overall industry knowledge that the PEO brings to its client companies. For instance, we have a solution for trucking that not only saves our clients upwards of 20% on their workers compensation insurance, but has the industry knowledge to keep drivers safe and assist its client companies in background checks and safety management programs. Not to mention the expertise in running various payroll types for truckers. Straight pay, commissions, per diem, etc.
We also recommend construction companies (all workers comp codes) to look specifically for providers that have the industry knowledge that not only starts them out at low workers comp rates, but has the expertise to keep their job sites safe. Saving money in the long run.
One of the services that are often overlooked by companies looking at PEO is the fact that they are receiving a free HRIS (human resources information system) in a lot of instances from their provider. How can that be? Think about it. If you are a PEO and you have multiple worksite locations with multiple job codes, pay codes, pay frequency, etc…what is the most efficient way to manage all of that information? HRIS. So a PEO purchases an HRIS, then has additional modules added and layers of security so they can offer what amounts to a free web-based HRIS to their clients.
Whether you are looking for hard or soft-dollar savings…both can be found by outsourcing some or all of your HR functions.
But first, you have to want to be an employer that wants happy employees. Happy employees are productive employees. In addition, happy employees do not leave you. Thus, the huge cost of turnover, which is oftentimes, estimated as much as 50% of gross payroll due to lost management time, re-training and recruiting.
Therefore, if you have in place a benefits package that rivals those of big companies…why would your employees leave? The fact is, the will not. The hard dollar costs of benefits for employees are more than saved in hard and soft dollar savings.
Whether you go with a PEO (professional employer organization) or ASO (administrative service organization) to help you manage your human resources, for small to mid-sized companies, the economies of scale realized by these models will make your hr outsourcing a cost-effective tool that actually prop up your bottom line.
I speak to owners of small companies all day long…the question they most want to ask, but have a hard time getting the gumption to ask is…”How much is this going to cost…and how will this save me money?” When considering HR outsourcing, it is prudent to know what your current HR costs are so you can make a rational comparison versus “doing it yourself.” The quick and easy answer, from an HR professionals’ prospective, is an average of 20% on top of gross pay. If you want to add a medical plan and pay 100% of the premium of the employee…adds another 3 – 5%.
Who knows the market better than a professional? By working with an HR outsourcing consultant, you get fast-tracked to the front of the line. HR services providers are increasing relying upon outside consultants and sales personnel to assist them in bringing in new business. Because the outside consultant has moved the client from lead to certified prospect, the provider is more willing to price on smaller accounts. In addition, since hr outsourcing consultants are considered big producers by the vendor, their clients are often given preferred pricing.
We have been speaking with micro and small businesses for the past 5 years about their HR outsourcing options. Obviously, we thing the best model is a Total HR outsourcing model, such as PEO or ASO. But some small businesses insist on getting their own HRIS. This is usually a very costly mistake. The price-tag on these systems is often a roadblock in and of itself. But the real issue is who is going to service and maintain the system after purchase?
We recommend taking a hard look at PEO or ASO or employee leasing companies, as they have already bought the software and are running it for the benefit of their client companies. At a much more reasonable price.
Be careful when you are talking about employees versus sub-contractors (aka 1099’s). Although a lot of business owners like the flexibility of having contracted out some core business functions to sub-contractors, if your State’s department of labor finds out that these sub-contractors are really employees, then you will have lots of legal fees and fines to sort through.
So, can an HR outsourcing provider handle a W-2 (employee) as well as a 1099 (sub-contractor)? Depending on the provider, sure. All you have to do is ask your current provider, or if interviewing a payroll company or other hr outsourcing provider, such as an ASO (administrative service organization) or PEO (professional employer organization).
The payroll provider or ASO should be a no-brainer. The PEO is a little tricky. By definition, if you contract with a PEO, you do not have employees, thus the PEO would need to take over payroll and workers compensation insurance for all persons that are defined as employees. They do not want the risk of having sub-contractors that are not covered by workers compensation insurance, attempting to file a claim. Some PEO’s will reject potential clients that use 1099’s as they do not feel the risk is worth the reward.