Business Opportunities & Solutions Magazine - October 1997

Let Professionals Take Care Of Your People While You Take Care Of Your Business

"Do what we do best, and outsource the rest." That’s the motto at Xybernaut Corporation, a rapidly-expanding high-tech company that outsources as many functions as possible, even its human resources services.
What Xybernaut does best is produce a wearable computer system featuring speech-activation, head-mounted displays and audio-video communications. This system allows users hands-free access to information in the computer’s internal storage, in local area networks, and on the Internet.

In Xybernaut's fast-paced, high-tech industry, saving time is a priority. However, as a company grows, personnel needs often become increasingly complicated and time consuming. The operational tasks of running the business can shift the focus away from the original business goals. That’s why Xybernaut, with 43 employees, outsources non-core business functions to a Professional Employer Organization (PEO).

Xybernaut’s Director of Human Resources Cheryl Vierregger says hiring a PEO is basically like hiring an off-site human resources department. The PEO ensures that the responsibilities of payroll, employee benefits, workers’ compensation, compliance with regulatory issues, and other important personnel matters are handled efficiently and accurately. The PEO surrounds a business with resources, support mechanisms, and experts who are ready to help manage personnel-related obligations and opportunities.

"Using a PEO saves a lot of time. I spend a lot less time putting out fires such as individual insurance claim problems. The only thing I wish was different about my relationship with our PEO is that I was using more of their services. Although I’m sure that I’ll eventually take advantage of all of the offerings," Vierregger said.

Many PEO’s offer an extensive range of services helpful to small businesses. In addition to human resource management, PEO’s can provide experts for dispute resolution and other professionals who can write job descriptions, assist with pre-employment testing, help develop personnel policy and offer professional development training.

Xybernaut quickly realized that using the services of a PEO also offers a very real and direct corporate advantage, the ability to provide employees with benefits typically offered only by a Fortune 500 company. They found that hiring and retaining good employees is made easier when the company can offer excellent medical and dental coverage, a 401 (k) plan, life insurance, employee assistance programs, credit union services, and a host of other benefits.

"As a small company, it’s hard to get good rates with large insurance companies. Since most of our employees come from larger companies with hefty benefit packages, we have to offer comparable benefits if we want to attract the caliber of employees we want," Vierregger said.

Using a PEO is also a creative way for small business owners to side-step the issue of escalating health care benefit costs. PEO’s can provide small business employees with Fortune 500 benefits by consolidating many small company clients together and providing each with more buying power. This provides small businesses great benefits without the hassle of constantly reviewing and switching health plans. The company’s liabilities are also reduced since the PEO handles payroll processing, tax reports and deposits, personnel records and benefits packages. PEO’s also keep businesses informed and in compliance with changing personnel laws and policies.

Due to the importance of proper hiring, PEO’s can handle a businesses’ pre-hire screening of prospective employees. The PEO can check academic, driving or criminal backgrounds, and unemployment history. Since each business has its own risks for liabilities, such screenings can reduce the chances of future legal problems. Employee turnover is also reduced, saving both time and money.

Another PEO client, C.R. International, is a small business in Beltsville, Maryland, that designs and manufactures technologically advanced communications products. C.R. International Vice-President Ken Boudris said that when the company began to grow, they needed a PEO to tailor-make their human resources program.

‘In 1995 we knew that we were going to expand our payroll from six to approximately twenty people. We were doing all the payroll and benefits support in-house, i.e., me. We had heard that there were organizations out there that could do a range of human resource functions, much more than just run our payroll. We had the idea that maybe we could "outsource" our personnel management, but not really outsource our people," Boudris said.

There is no doubt that outsourcing the personnel management part of your business removes many of the administrative headaches of running a business. Employees are more productive and are freed to focus on core business issues. Unfortunately, some business owners see PEO’s as a threat rather than a help. Boudris said that one concern that deters some businesses from using PEO’s is a loss of authority. "Some business owners assume that hiring a PEO means a loss of control, but it really doesn’t work that way. The PEO helps you stay in control of people-related resources, but they don’t manage your core business," he explained.

An important point to understand about outsourcing to a PEO is that the small business owner still has absolute control of all aspects of your business, with added resources. To employees, a PEO relationship is, for the most part, transparent. The support and benefits a PEO supplies are attractive perks to the small business environment, and employees credit the business owner with finding the relationship.

Effective communication within a company is another advantage for both owner and employees. PEO’s help formulate job descriptions so that a clear understanding of responsibilities is assured. They also provide training on issues such as performance reviews, employee counseling, leadership skills, motivation techniques and grievance procedures.

"I remember a specific situation regarding an employee whose behavior truly warranted termination. However, we knew that we had not maintained the proper documentation or offered any assistance or counseling. Our PEO worked with us to do the most for the employee that we could, while documenting our course. This way we were assured that we had given the employee a fair chance and that we had met all labor law requirements," Boudris said.

Although a Professional Employer Organization relationship may not be for every small business, it is worth considering. The National Association of Professional Employer Organizations (NAPEO) advises small businesses to do their homework before signing on with a PEO. NAPEO has developed the following guidelines to help small businesses select the right PEO for their company:

1. Assess your own workplace to determine your human resource and risk management needs.
2. Make sure the PEO’s services can help meet your goals and is easy to work with.
3. Check the firm's financial background, ask for banking and credit references. Ask the PEO to demonstrate that payroll taxes and insurance premiums have been paid. Check to see if the company is a member of NAPEO.
4. Ask for client and professional references.
5. Investigate the company's administrative competence - what experience do they have?
6. Understand how the employees’ benefits are funded - are they fully insured or partially self-funded? Who is the third party administrator or carrier? If required in your state, is their TPA or carrier licensed?
7. Understand how the employee’s benefits are tailored - do they fit the needs of your employees?
8. Review the agreement carefully and try to get a provision that permits you to cancel at short notice - say 60 days.