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The Washington Post - May 22, 2000
PEOs Help Start–Ups Compete with "Big
Company" Benefits
BY SHERYL SILVER
It’s no secret that companies large and
small are looking for innovative ways to compete for the best of
today’s technology talent. Stock options, signing bonuses,
enhanced vacation packages and flexible work schedules are among
the many items companies are using to make their job offers more
attractive.
It’s that same desire to enhance their competitiveness as employers
that’s recently prompted a growing number of small technology
companies in the region to contract with professional employer organizations,
known as PEOs.
"In the last year, we signed up more high
tech businesses than we did in the previous four years," said
Bala Ramamoorthy, president and CEO of ProLease Corp., a Rockville,
Md.-head-quartered PEO with 17 offices across the country. According
to Ramamoorthy, Cycomm International and ebuyexpress.com, both based
in Northern Virginia, are now among the technology companies in
his client base.
"Our D.C. office has been open about five
years and we’ve had significant growth in the last two years
that’s coincided with the explosive growth in the number of
dot-com companies in the local area. In fact, we’ve had such
sizable growth in the last two years, we opened a second office,"
said Phillip King, district manager for Administaff, Inc., a Houston-based
PEO with two offices in the Washington metropolitan area.
What is a PEO?
In case you’re not familiar with the term PEO, Richard Rawson,
current president of the Alexandria, Va.-based National Association
of Professional Employer Organizations (NAPEO) and chief financial
officer for Administaff, explains it this way. "A PEO is a
business that provides a wide range of human resources services
for small to medium size businesses. We become the off-site human
resources department for small to medium size businesses, most of
which don’t have their own resource department."
A unique aspect of the PEO concept is the co-employment
relationship PEOs have with the employees of their customers. "We
become the co-employer of our clients’ employees," said
King. "Our client still dictates what the job description,
job performance and salary of each employee is. They’re still
responsible for hiring and firing of their employees. However, they
also establish a co-employment relationship with us so we are recognized
as an employer of those employees as well. That enables the company
owners to shift some of the responsibility for these tasks and some
of the liability for their employees away from the company to us
on such things as employer tax issues, workers’ compensation
issues, and government regulatory issues," among others.
The co-employment relationship also enables
PEOs to add their clients’ employees to the aggregate of worksite
employees they employ for the purpose of obtaining benefits at a
cost of effective rate.
"Our benefits are not necessarily the lowest
cost benefits in the market," said King. "But, we have
a comprehensive benefits program that, as a whole, is a better package
than these companies could put together using numerous vendors at
the same cost."
According to Rawson, "What we find 99 percent
of the time, when a client selects a PEO to do business with, is
that the PEO brings a suite of benefits that the small business
owner cannot generally afford."
Benefits Galore
Despite the other advantages PEOs offer their corporate clients,
Ramamoorthy believes it is probably the benefits packages PEOs provide
that has attracted so many technology start-ups to consider a PEO
affiliation recently. "We are a great tool for start-up companies
who are trying to attract talent in a tight labor market because
they can offer major company benefits through us," he said.
"Our benefits package includes health, dental and vision care.
We also offer 401(k) and flexible spending accounts."
It’s definitely that kind of complete benefit
package that first attracted Columbia, Md.-based TSI TelSys to contract
with a PEO, said Ken Bissett, vice president of finance and administration
for TSI TelSys, which designs and manufactures high performance
multi-mission satellite data processing systems. A client of Administaff’s
since 1995, Bissett said, "We were a small start-up with limited
resources, both financial and in people. We wanted to be able to
give our employees competitive benefits at a reasonable cost without
having to hire a full-time HR person to manage that function. With
the PEO, we achieve all that. Under our health benefits, we’re
able to offer two programs – an HMO and a PPO. Dental and vision
care are included in the package too. Administaff also offers life
insurance and an employee assistance program. They offer a 401(k)
as well. We could have done these things on our own, but there’s
an expense to it and we would have had to manage it on our own."
Benefits were also the primary attraction of
a PEO relationship for Reston, Va-based Digital Sandbox, a software
company which specializes in artificial intelligence gaming. "It
started when we hired our first employees," said the company’s
CEO, Bryan Ware. "We had only five employees and I couldn’t
find a group plan for just five people. Using Administaff, from
the first employee we hire, we are able to offer full medical, as
well as dental and vision coverage, short and long-term disability,
life insurance, direct deposit and a 401(k). It allowed us to offer
big company benefits and still have that small company feel –
and that’s a major recruiting benefit."
What’s more, said Ware, "because we’ve
been able to outsource all of our human resource functions to our
PEO, we’ve been able to hire just technical people. It’s
also enabled me to stay more involved in product development, instead
of having to concentrate a lot of my time on administrative tasks."
"A lot of people focus on the better benefits
as the reason they work with a PEO, but our clients also tend to
be attracted because it helps them put a system in place to take
care of their employees," remarked King. "They have a
system for everything else, and this enables them to put a comprehensive
personnel management system in place that takes care of their people
and that takes care of more than just benefits. In the kind of fast-moving
industry they’re in, these companies don’t have a lot
of time to put together a sophisticated internal human resources
department."
That was certainly the case for TSI TelSys.
Bissett said working with a PEO has freed him from managing many
administrative tasks. "We’re still responsible for the
hiring, firing, and day-to-day management of our employees,"
he confirmed. "But our PEO issues the paychecks. They do the
W2s. They do all the tax filings. They also manage OSHA and EEO
issues and offer training in those areas. And the co-employment
relationship puts them at risk if there’s any kind of employee-related
problem. For a small company, a PEO frees the business owner and
the executives to focus on their business."
Ramamoorthy believes his high tech clients also
appreciate the convenience of the private Web-based portals his
company offers, which provide access to services 24 hours a day.
"Through Virtual Resource, the ProLease online office, clients
can send payroll information, check employee records, sign up for
benefits, and review HR offerings anytime, from anywhere, by just
turning on their laptop or PC," he said.
Will You Know?
If you join a company that has a relationship with a PEO, are you
likely to know it? "Absolutely," said Ramamoorthy, and
generally before you join the organization. "Like many PEOs,
we have a recruitment package that tells prospective employees what
benefits they get through us, what functions the employer they’re
talking to outsources to us. We explain the co-employment relationship
in that package, too," said Ramamoorthy.
For more information about Administaff, call
1-800-465-3800 or visit www.administaff.com
The Washington Post—May
22, 2000
Reprinted with permission.
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