Special to the Houston Business Journal - June 19-25, 1998

Entrepreneurial atmosphere and big business benefits mix when HR functions outsourced

By A. Steve Arizpe, Executive Vice President of Client Services

Employee Retention
The other morning I was glancing over my sports page when a major headline caught my eye: "Mike Piazza Traded To Mets." I skimmed the article and learned that the All Star catcher now would be playing for this third team in less than two weeks. I immediately thought back to the days when loyal ballplayers stayed on teams for their entire careers. But today, with salaries spiraling upward, it’s hard to keep good players around.

In many ways, the sports arena is a microcosm of the business world. Employees used to work at the same company for all of their lives, and anniversaries were celebrated with engraved plaques and gold watches. An applicant’s resume depicting more than one or two jobs was actually a sign of instability to a prospective employer.

SELLER’S MARKET

Those days are long gone. Like the millionaire ballplayers, today’s employees are far more mobile, conscious of their skills and marketability, and eager to quickly climb the ladder of success.

And small- to medium-sized businesses, often unable to offer quality compensation packages, are finding it especially difficult to compete with the bigger companies for top talent.

In concept, the answer to the employee retention challenge is really quite simple: "keep your employees happy." Unfortunately, it is much easier said than done. In today’s tight labor market, such happiness often entails higher wages, superior benefits, incentives like stock options and profit sharing and an enjoyable working environment.

While company-sponsored lunches, casual days and social gatherings can help boost office morale, financial security often wins out in the end. Managers, therefore, are left searching for a better way to offer such benefits. An increasing number of companies are turning to Professional Employer Organizations for just that purpose.

Simply defined, PEOs serve as offsite human resource departments for small- to mid-sized businesses. PEOs can handle all the administrative responsibilities (and headaches) of payroll and benefits, medical and workers’ compensation insurance, records, management and regulatory filings. They also can perform comprehensive training for new and existing employees and generally handle any and all complex HR issues that may arise.

The employers truly benefit in their newfound freedom by outsourcing these administrative details. They are able to better concentrate on what they do best - their core competencies - and more effectively develop company growth strategies to achieve their business and financial goals.

One sure way to retain good employees is to hire those with a long-term commitment, a proven track record, and a strong sense of loyalty. Top PEOs can administer pre-employment testing, review job resumes, and actually interview applicants for new positions. With years of experience in this area, they assist management in finding the best fits, the proper employees for job openings. This approach also helps reduce the liabilities associated with the hiring process.

PEOs can also provide a cost-effective alternative to the status quo. Through volume purchasing power, smaller companies can now offer far more enticing benefits packages that include medical and dental coverage, 401(k) plans, and credit union services. In many cases, these packages are competitive with those available at Fortune 500 companies, allowing small- and mid-sized businesses to effectively compete for workers on a level playing field. Ultimately, the numerous services and opportunities created through the use of PEOs can translate into profitability and bottom-line results.

BEST OF BOTH WORLDS

Employees are the ones who actually profit most from a PEO affiliation. They essentially enjoy the best of both worlds - all the advantages of big company benefits combined with the more entrepreneurial atmosphere and growth potential of a small- to mid-size business. They will typically have more job responsibilities and greater opportunity to advance in such an environment, all with the peace of mind that comes from knowing that payroll will be met on time, every time.

Over the last decade, more and more companies and employees have begun reaping the rewards of PEO relationships. With an industry growth rate of around 25 to 30 percent per year, the number of PEO firms has increased from just a handful in the early 1980s to more than 2,000 in 1997, and industry revenues climbed to $18 billion. As word-of-mouth from satisfied customers spreads, more employers and employees alike will benefit from PEO services.

While a PEO relationship might not have helped the Los Angeles Dodgers or the Florida Marlins keep Piazza, PEOs definitely are helping many businesses deal effectively with today’s employee recruiting and retention challenges. PEOs provide employees with excellent benefits packages and more incentive to stay with their existing firms, and they allow employers to focus first and foremost on growing their company.

A. Steve Arizpe is executive vice president of client services for Houston-based Administaff, Inc., one of the nation’s leading PEOs.

Reprinted with permission of the Houston Business Journal.