The Business Press - September 9, 2002

HR Specialists Face Growing Demand for Hire Power

By Robert Chacon

Founded in 1983 by Doctors Betty Daniels and Irene Donley-Kimble, the practice added two more offices in 1999 and 2000, and grew from a 10-employee operation to a staff of 25 employees, including another doctor, four nurse midwives, medical assistants and other clerical staff.

The clerical staff spent too much time managing its human resources needs to the detriment of other medical office concerns, said Mair, who has been with the office for 10 years, six years as office manager.

"Purchase orders for supplies had to get done," she said. "Cleaning had to get done, and we had to spend more time getting known in the community and growing the practice."

Woman to Woman was far from alone in facing the challenges of the "business of employment." Few small businesses can afford a full-time staff dedicated to management of human resources, risk management, benefits packages and information services, said Milan Yager, executive vice president of the National Association of Professional Employer Organizations in Alexandria, Va.

In 1998, Woman to Woman hired Administaff, a Houston-based professional employer organization, or PEO, specializing in managing human resources, usually for small companies. PEOs provide their clients the services and expertise of a personnel department.

The professional employer organization industry, which began in the early 1990s, has experienced phenomenal growth as small businesses find handling employment-related federal and state regulations, payrolls and changing employee benefit packages increasingly difficult to manage, Yager said.

The National Association of Professional Employers Organizations' 550 members constitute 70% of the $43-billion-a-year industry, Yager said. "Our members have grown in gross revenues 25% to 35%, compounded annually, over the last six years."

Administaff opened an office in Ontario in 1998, and in May, opened its West Coast Support Facility in Diamond Bar that eventually will house 250 employees, said Pat Flaherty, district manager for Administaff.

Administaff has more than 200 clients in the Inland Empire, Flaherty said.

The professional employer organization industry is demand-driven, Yager said, citing U.S. Small Business Administration statistics that underline the difficulty for employers:

• Average small-business owners spend 7% to 25% of their time handling employee-related paperwork.
• From 1980 to 2000, employers faced a 60% growth in the number of rules, regulations and laws under which they must operate.

"A doctor may go to medical school for 12 years to learn his profession, but will never take a class to learn how to be an employer," Yager said.

One major convenience of hiring a professional employer organization is the elimination of numerous checks an employer has to fill out and sign in order to pay employee salaries, insurance, health benefits, retirement plans and taxes.

A professional employer organization includes those items on a single invoice. The employer pays a single service fee that covers the entire cost.

Mair receives a biweekly invoice based on the payday schedule for employees and sends Administaff one check. Administaff then takes care of the different payments out of its account with the medical office.

The biweekly bill comes out to "a couple thousand dollars," but having fewer payroll-related items to deal with "makes life a lot easier for me," Mair said.

Eliminating administrative headaches and putting more effort into generating profits are two factors driving the demand for professional employer organization services, Yager said.

Workers need adequate health care benefits and savings plans that professional employer organizations can provide by aligning with certain providers and depending on "economies of scale" to bargain for the best coverage rates.

"It's very challenging for a small business to develop a health care plan and a savings plan," Yager said. "Only 38% of small-business employees have access to health care and 17% have access to a savings plan."

Hiring a professional employer organization can lead to increased productivity and profits, Flaherty said. After hiring a PEO, "A business owner can focus on the reasons he started the business."

Reprinted with permission from The Business Press, September 9, 2002.