Competitive Edge –- January/February 2001

Turning Competition Into a Competitive Advantage
How Professional Employer Organizations Are Helping Businesses Compete

By Richard Rawson

If there’s one word that sums up the many challenges facing today’s business owners, it’s competition. Competition for time. Competition for customers. Competition for employees. Competition for capital.
So, how do business owners compete in the lightning-quick e-commerce world of the 21st century? Thousands of entrepreneurs are finding the answer in full-service Professional Employer Organizations (PEOs).

In short, a PEO functions as an off-site human resources department, allowing business owners to outsource time-consuming employer responsibilities and "in-source" important business services like improved employee benefits, training and development programs, recruiting and selection assistance, and other key business resources. Following the commonly used co-employment arrangement, the PEO can also oversee payroll, workers’ compensation claims and other administrative matters. This approach frees the business owner to focus on core business issues such as improving and delivering proprietary products and services, winning customers and expanding operations.

How Can a PEO Free Up More Time?
According to the Small Business Administration, business owners spend up to 25 percent of their time handling employee-related paperwork. PEOs assume responsibility for many daily administrative and human resource functions including:

• Payroll administration and related tax filings,
• Processing unemployment and workers’ compensation claims,
• Sponsoring a 401(k) and health benefit plan, and
• Helping to ensure employer regulatory compliance.

With a PEO’s assistance, business owners can use their time to focus on the growth, productivity and profitability of their business instead of juggling administrative details.

Competing for Employees & Customers
In addition to relieving many administrative burdens, PEOs help level the playing field in today’s tight labor market by providing employees with a full package of company benefits, including health care, dental and vision plans, a 401(k) plan, life and disability insurance, credit union benefits, employee assistance and work-life programs, adoption assistance, educational assistance and more. These Fortune 500-level benefits are not normally available through small businesses, but can make the difference in attracting and retaining top-notch talent.

Some full-service PEOs also offer "value-added" assistance in the form of employee handbook and policy development, resume review, screening and testing of job applicants, interviewing, counseling, training and performance appraisal assistance. Such services are esential elements in successful personnel strategies, which many small companies do not have the time or resources to develop and maintain.

As far as competing for customers, it’s good to remember the advice of one business sage, "The way your employees feel is eventually how your customers will feel." Productive, happy employees are the key to producing satisfied customers. After all, employees are the ones who will help you develop, refine and deliver your products and services to your customers.

Of course, when using a PEO, business owners still control their companies’ daily core operations and make all the strategic business decisions. The PEO arrangement simply gives them more time and resources to properly manage those tasks.

A Capital Advantage?
A PEO can also help to position a company so that it is more attractive to lenders, investors and even large prospective clients. If companies considering doing business with you know that you have a solid plan for managing the human resources side of your business, they may be more willing to work with you. The co-employment arrangement offered by PEOs allows you to transfer, share and better manage many employer responsibilities and liabilities, leaving you in a better position to focus on core business issues.

A full-service PEO can also benefit small and medium-sized businesses by using its buying power to give clients and worksite employees access to special offers from a network of best-of-class service providers.

Membership in Key Organizations Ensures High Standards
In 1995, the Employer Services Assurance Corporation (ESAC), formerly the Institute for the Accreditation of Professional Employer Organizations (IAPEO), was formed to provide national standards and an assurance program for the PEO industry. Through its independent evaluation process, ESAC verifies a PEO’s compliance with important ethical, financial and operational standards. Once approved for membership, PEOs then provide quarterly reports to ESAC substantiating their continued adherence to those standards. In addition, ESAC offers a financial assurance program similar to the banking industry’s FDIC and the securities industry’s SIPC programs. Participating PEOs are backed by a total of $4 million in surety bonds held in a trust established by ESAC. This program assures the timely and appropriate performance of key employer services by providing reimbursement to clients, employees, insurers and taxing authorities in the unlikely event of a default in the payment of wages, taxes, employee benefit contributions, or workers’ compensation and group life and health insurance premiums. ESAC’s web site is located at www.esacorp.org or call (501) 219-2045.

The national trade association, the National Association of Professional Employer Organizations (NAPEO), is the recognized voice of the industry, providing education, training, and government relations to its member companies. In addition, NAPEO has developed financial reporting standards and industry ratios for member PEOs and their clients to use to evaluate their strengths and weaknesses.

As the industry continues to mature, NAPEO will continue to serve as an effective voice for the entire industry and as a source of information for the clients the industry serves.

Richard Rawson is the immediate past president of NAPEO and is executive vice president of administration, chief financial officer and treasurer of Administaff, Inc. (NYSE: ASF), which serves as co-employer with thousands of small business clients representing more than 68,000 worksite employees. (www.administaff.com)

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 and ask for banking and credit references. 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. (A directory of NAPEO member companies is available at the NAPEO web site at www.napeo.org.)
• Investigate the company’s administrative and risk management competence. What experience and depth does their internal staff have? Do any of the senior staff have professional training or designations?
• Understand how the employee benefits are funded. Are they fully insured or partially self-funded? Who is the third party administrator or carrier? If required in your state, is their TPA or carrier licensed?
• Understand how the employee benefits are tailored. Determine if they 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 all such requirements. The following states currently require licensing: Arkansas, Florida, Illinois, Kentucky, Maine, Montana, New Hampshire, New Mexico, Nevada, Oregon, South Carolina, Tennessee, Texas, Utah and Vermont. Rhode Island requires registration only.

For more information, call NAPEO at (703) 836-0466, or visit its web site at www.napeo.org.

Reprinted with permission from Competitive Edge, January/February 2001.