St. Louis Small Business Monthly - November 1998

The Professional Employer Organization (PEO): Your Virtual Human Resources Department

It’s a challenge suitable for "Wheel of Fortune" enthusiasts, but not the typical small-business owner: deciphering the seemingly endless array of acronyms associated with complex workplace regulations. COBRA, ERISA, AEDA, IRCA, FLSA – although each of these refers to a specific government act, they all spell the same thing to entrepreneurs: S-T-R-E-S-S.
Unfortunately, complying with complex government regulations is just one of the many administrative challenges business owners face. They also must deal with such issues as payroll taxes, workers’ compensation, employee benefit packages, training, recruitment…the list goes on.

These distractions leave business owners with much less time to focus on the essentials of their business. Consequently, an increasing number of companies have gone beyond the popular outsourcing concept to a whole new level: actually entering into a co-employer relationship with a Professional Employer Organization (PEO) and the existing employees.

Co-Employer Relationship

PEOs were born out of the frustration many small-business owners experience when administrative work inhibits their ability to grow the organization. To overcome that challenge, a business and a PEO can enter into what is called a "co-employer" relationship with the existing employees, which enables the PEO to serve as the business’s virtual human resources department. However, unlike temporary agencies or employment firms, PEOs do not provide personnel. A PEO manages a business’s human resources functions, including responsibilities such as payroll administration and related tax filings, unemployment claims and workers’ compensation reports, 401(k) plan and health insurance administration, and employer regulatory compliance.

In addition, full-service PEOs perform such functions as employee handbooks and policy development, as well as provide counseling, training, and screening of employees, and performance appraisal assistance. Of course, owners still make all of the strategic business decisions.

PEOs: Enhancing Productivity

The PEO concept offers business owners a win-win opportunity: enhancing productivity and efficiency, while reducing stress. For example, by delegating personnel responsibilities to a PEO, business owners can spend more time satisfying customers or growing their business – comfortably assured they are in compliance with workplace regulations. Moreover, a PEO acts as an owner’s personal workplace-issues expert, providing up-to-date direction and instruction that may save costly noncompliance penalties resulting from new or pending labor regulations.

While a PEO can offer business owners freedom from administrative burdens, it also can help small businesses compete more aggressively – even with much larger companies – for talent. PEOs use economies of scale to bring 401(k) plans, health insurance plans and employee assistance programs to affordable levels, thus presenting sought-after employees with a more attractive offer.

PEOs: A Useful Tool For St. Louis Entrepreneurs

More and more St. Louis entrepreneurs are looking to PEOs for help. For example, Printing and Publishing, Inc. in Millstadt, Ill., has set its sights on growth and acquisition. However, owner Paul Adrignola realized that, on a regular basis, he was facing two major obstacles: handling a growing number of personnel issues and being in compliance with government regulations. Adrignola turned to a PEO to put a program in place that would not only handle payroll and benefits, but also would assist him in evaluating personnel issues, testing and hiring new employees, and making sure he is in compliance with required regulations.

"In the few months that we’ve worked with the PEO, I’ve already seen an impact on our business," said Adrignola. "With our personnel issues being handled by a PEO, it’s freed up my time to devote more energy to growing my business. And that means more success and profit for our company."

Lee and Linda Helms, owners of Lee Helms, Inc., a growing distribution company in Hazelwood, are also looking to PEOs for help. They’ve been trying to begin construction on a new office building and warehouse for the last several months, but the project’s been put on the back burner while they’ve had to focus on employee issues – finding and retaining good people.

"The plans have been drawn up and the contractor has been ready, but we’ve been continually sidetracked by personnel issues," said Lee Helms. "It became obvious that if we didn’t get some help with recruiting, this construction was going to drag on forever."

The Helms’ work with a PEO for recruiting and applicant interviewing and testing, and have found that they’ve been able to turn their attention back to business. "And the result is, we’re now ready to break ground on the new warehouse, and we can spend more time on growing our business," says Lee Helms.

For more information on PEOs, contact the National Association of Professional Employer Organizations (NAPEO) at (703) 836-0466.

Article courtesy of Administaff, Inc., a leading professional employer organization. For more information about Administaff, contact the nearest office at 800-465-3800 or visit the company’s website at www.administaff.com.

Reprinted with permission of the St. Louis Small Business Monthly