Thriving Business Strategies - May 1999

Is A PEO Right For Your Business?

By Tony Novia

As a business owner, you realize that keeping up with employment details can be complicated and time-consuming. Endless paperwork, reports, claims and compliance issues can easily eat up most of the business day and those extra hours. As the business grows, so does the paperwork; and the excitement of owning your own business can soon fade. So what is a business owner to do?
For a growing number of companies, the answer is a Professional Employer Organization (PEO). According to Nation’s Business, PEOs represent one of the fastest growing industries in the United States.

Here's how these organizations work. By becoming a co-employer of your existing employees, the PEO can serve as your off-site personnel department. The PEO is responsible for taking care of daily administrative needs such as payroll, benefits, employer liability management, employment taxes, workers’ compensation insurance, and personnel matters such as interviewing and selection and outplacement services. Without the burden of personnel administration and other human resource functions, business owners and the employees can focus on more profitable and productive tasks.

As the owner of a small or mid-sized business, you can also benefit from other PEO services. Unemployment claims are defended and workers’ compensation claims are administered. Human resource professionals are available for proper screening of job candidates, assisting in the hiring and firing of employees, and for creating personnel-related policies and procedures.

In addition to relieving administrative burdens, PEOs help to create a level playing field for small companies trying to compete with Fortune 500 corporations in the employee benefits arena. With a PEO, the more sought-after employees can receive a benefit package that is just as attractive as a major corporation, which helps make recruiting easier and more successful. From health insurance and employee assistance programs to 401k plans and credit union services, a PEO offers cost-effective benefits generally not available to small business owners.

A recent survey of current PEO clients found that owners and employees were quite satisfied with their existing business relationship. Business owners have reported an improvement in employee morale and have found that they have more control over their businesses since they spend less time dealing with administrative issues and more time concentrating on their business.

Although a PEO may not be the answer for every small business, it’s definitely worth considering. The National Association of Professional Employer Organizations (NAPEO) offers the following guidelines to companies considering a relationship with a PEO:

• Assess your workplace to determine your human resource and risk management needs.
• Make sure the PEO is capable of meeting your goals. Sales brochures and fancy proposals are easy to print.
• Meet the people who will be serving you.
• Check the firm’s financial background; ask for banking and credit references, and ask the PEO to demonstrate that payroll taxes and insurance premiums have been paid.
• Ask for client and professional references.
• Check to see if the company is a member of NAPEO, the national trade association of the PEO industry.
• Investigate the company’s administrative and risk management service competence.
  • What experience and depth does its internal staff have?
  • Have any of the senior staff of the PEO been certified as a Certified Professional Employer Specialist (CPES) or other relevant professional designations?
• Understand how the employee benefits are funded; are they fully insured or partially self-funded?
  • Who is the third party administrator (TPA) or carrier?
  • If required in your state, is their TPA or carrier licensed?
• Understand how the employee benefits are tailored. Determine if those benefits fit the needs of your employees.
• Review the service agreement carefully. Are the respective parties’ responsibilities and liabilities clearly laid out?
  • What guarantees are provided?
  • What provisions permit you or the PEO to cancel the terms of the contract?
• If your state requires a PEO to be licensed or registered, make sure the company you are considering meets the requirements.
• Since Arizona does not require licensing, another option is to make sure the PEO is accredited by the International Association of Professional Employer Organizations (IAPEO).
• Accreditation by IAPEO assures you the company has been audited by an outside firm to verify that taxes and insurance premiums were paid properly and reports filed on time. For more information about IAPEO, visit their web site at http://www.iapeo.org.

For more information on PEOs, visit the NAPEO web site at http://www.napeo.org or call 701-836-0466.

Tony Novia is District Manager for Administaff’s Phoenix. Administaff is one of the nation’s leading PEOs, providing a comprehensive Personnel Management System that encompasses a broad range of services, including benefits and payroll administration, medical and workers’ compensation insurance programs, personnel records management, employer liability management, employee recruiting and selection, performance management, and training and development services to small- and medium-sized businesses. Administaff has 25 offices in 15 major markets, and serves clients and worksite employees throughout the United States.

For more information, call 1-800-465-3800 or visit Administaff on the Internet at www.administaff.com.

Reprinted with permission of Thriving Business Strategies