HR Focus - September 1999

OUTSOURCING THE NEEDS: "Want to Get the Best Employees? Ask a PEO"

With the unemployment rate at an all-time low, it’s becoming increasingly difficult to find and retain qualified workers in virtually every field. The employment market belongs more and more to the employees - and employees are increasingly choosy about where they want to work.

How do you attract the "impact players" and then keep them? In an age of corporate downsizing and rapid change, good workers want a solid employee benefits package, a competitive salary - and a positive, opportunity-rich working environment.

Before you throw up your hands in frustration over being able to provide such a Camelot, you might want to consider using the services of a professional employer organization (PEO). Owners of many small and medium-sized businesses have discovered that they can improve their business focus, increase the benefits offered to employees and improve worker productivity by outsourcing their HR needs to a PEO.

By serving as an off-site HR department, the PEO ensures that the responsibilities of payroll, employee benefits, workers’ compensation, employer-related regulatory compliance and other important matters are handled efficiently and accurately.

PEOs have been around for nearly 15 years. The concept is actually quite simple: Through a service agreement, the business owner and the PEO allocate employer responsibilities between them. In return for a service fee, the PEO assumes many of the time-consuming, liability-laden responsibilities of managing employees, while the business owner retains managerial control as the on-site supervisor and returns to running the core business.

CRITICAL AREAS

Many business owners turn to PEOs initially for help with two critical areas: improving and managing employee benefits, and obtaining administrative relief. Employees in small companies are often at a distinct disadvantage to employees at larger businesses when it comes to employee benefits. PEOs level this playing field by using the purchasing power of thousands of employees to negotiate better rates on everything from health insurance to training courses. What this means is that employees of small companies can have access to Fortune 500-type benefits but in a small-business setting. These benefits can include comprehensive medical and dental plans, vision care, 401(k) pans, credit unions and even an employee assistance program to help with short-term counseling needs.

In fact, PEO services extend to many other regularly scheduled business interruptions related to having employees - chores like tax filings, workers’ compensation audits, employee paperwork and maintaining employer-related regulatory compliance. This is an important part of building an "opportunity-rich" working environment.

Before you decide to outsource, you should consider whether the PEO relationship will work effectively for your organization. The National Association of Professional Employer Organizations (NAPEO) offers the following guidelines for 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. 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.
Investigate the company’s administrative and risk management services 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 Specialists (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 its 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? Can you or the PEO cancel the contract? Is so, for what reasons?
If your state requires a PEO to be licensed or registered, make sure the company you are considering meets the requirements.

EMPLOYMENT RESOURCES

As valuable as administrative relief and improved benefits may be, a full-service PEO can also provide weary entrepreneurs with other vital employment resources - resources like productivity-based training courses in time management, communications skills, customer service, team building and total quality management.

In fact, a top-of-the-line PEO can develop a customized training program based on your long-range goals. A PEO can also help you locate top-quality job candidates by professionally crafting a solid job description, running ads, reviewing resumes and even conducting interviews. You wind up looking at the top two or three candidates and selecting one you feel will enhance your business efforts.

Constance Barnaba is vice president of Human Resource Services for Administaff. Publicly traded on the New York Stock Exchange, Administaff is a leading provider of professional employer services.

Reprinted with permission of HR Focus