Professional Employer Organizations (PEOs) exist to provide your small business with integrated services that effectively manage your critical human resource responsibilities and employer risks. This promise allows you to focus on growth and profitability.
Regulation often follows success.
As PEOs grow in number and size, it may be difficult for some to identify the best in quality performance, reliability, and integrity. With the growth in PEOs expected to escalate through 2020, there has been a consequent increase in state regulatory interest and regulation. Reputable PEOs are comfortable with issues of credibility, recognizing that regulation often follows success. In addition, the best PEO is the one that is open, transparent and willing to answer the hard questions about their business, their service and their pricing.
With so many workers in all 50 states now co-employed by PEOs, the need for credible self-regulation attracts and assures new customers. For someone reviewing and looking at what the PEO can offer their business, rest assured there are plenty of terrific, trusted options. A few years ago The CPA Journal reported that, “Professional employer organizations have developed over the years toward higher standards, more complete services, and electronic solutions, For companies, using or considering a PEO, today’s PEOs represent less risk and more resourcefulness than before.” That was several years ago and the industry, the regulations, and the risk, have allowed the PEO to thrive today because they are providing tremendous benefits to their small business 'partners'.
The National Association of Professional Employer Organization (NAPEO), Employer Services Assurance Corporation (ESAC), and dare we say, PEOcompare.com, have grown into the most influential voices in the industry.
NAPEO is the largest trade association for PEOs. It supports PEOs, provides networking and referrals, education programs, public relations and marketing support.
ESAC is a non-profit, backed by $10 million in surety bonds, and works under a Board of Directors, including CPAs and PEO industry attorneys.
PEOcompare.com is a free online service that allows small businesses to find, compare and research the PEOs that match their business needs.
Any small business wants the assurance that it is working with a reliable, credible, and secure organization. They would expect that of any vendor. But, voices such as those listed above take various parts in auditing, certifying, and evaluating their PEO members. They sponsor education, certify advancement, and/or publish everything you need to know about the PEO industry.
Honestly if you have less than 50 employees, and often times many more - you must consider a PEO. They don't just do payroll, they reduce your risk and help you provide the best offering for your employees thus allowing you to compete with the 'big' boys.
Many managers and business owners give short shrift to the daily performance counseling aspects of their job and simply rely on the annual performance evaluation to let their employees know how they are doing. While this strategy may save some time in the short run, it does a serious disservice to the company and to the employees alike. Here are just some of the misconceptions prevalent in the business community about annual reviews:They Avoid Favoritism
– When yearly evaluations are the only way to gain recognition and, more importantly, a pay raise, employees will react accordingly and gear their behavior to meeting these somewhat arbitrary goals. No matter how good your HCM department thinks it has developed the annual goals, employees will game the system and the less than worthy will be rewarded. In short, it creates an environment where favoritism, nepotism and sheer incompetence will reign supreme. Think twice about using this system. They Are Dilemma Free
– Most annual evaluations are structured with a budget. Thus, no matter the actual efforts of the employees, only a certain number of people can be given raises. It is simply foolish to believe that your employees don't recognize this fact. While the ones who win the :lottery” as it were and get raises are happy, the rest of the staff will be demoralized.
Also, don't kid yourself, the lucky ones who get raises this year will realize that they will probably not fare any better next year than this year's losers. Lastly – bear in mind that in no way, shape or form, is this process considered fair or objective by the employees.They Promote a Leadership Environment
– True leadership is not developed by ensuring that one's subordinates meet some predetermined goal of on-time arrivals, customers served in an hour, or any other definitive metric. Instead, leadership is inspired by on-the-spot decisions made by a manager when a complicated or unusual situation presents itself. In addition, a true leader will put himself in “harm's way” as it were if a customer, another employee or even a superior should intrude. There is simply no way to codify and reward that type of behavior in an annual review. It can only be dealt with in an ongoing manner. They Reduce Expenses
– One of the most objectionable excuses used to defend annual performance appraisals is that they cost less to administer. Their expense does fit into convenient increments that can be expensed proportionally across your various locations or departments. Still... at what cost? Trusting your location or office managers to promote and incent their immediate subordinates – within limits, of course – is, by far, the best way to go. Naturally, you will have to keep an eye on the process but, that's why they call it a job, after all. Plus, it will help you identify the best talent in your organization. So, how much will that save you?They Insure You from Liability
– It's a long held and treasured belief that an HR administered annual review can save a company from any charges of discrimination when it comes to raises and promotions. Nothing can be further from the truth. In fact, company prescribed assessments are far more susceptible to legal assaults on their fairness than those administered by individual managers who truly know their subordinates. Liability is born of inconsistency and intractability. It is necessary to develop a framework but do not mistake “hard and fast” rules for leadership. It is a mistake that you will regret in the workplace and in the courtroom. The Right Appraisal Matrix
The bottom line is to recognize talent, dedication and loyalty in your employees. It is not something that lends itself well to a top-down approach. Consider this fact when designing your next performance appraisal strategy. Perhaps, it can be accomplished in a much more humane, intimate and less threatening environment.
You may also enjoy, A Beginners Guide to Sabotaging Superior Employee Performance
A professional employer organization (PEO) offers your business a brighter future. The co-employment relationship promises small and medium sized businesses a new employee infrastructure, one that benefits from economies of scale in purchasing group insurance benefits and workers compensation insurance. There are at least five dynamic business benefits from partnering with a PEO.
1. Core Business: A PEO will take over and manage burdensome tasks allowing you to drive the business your way:
2. Human Resources:
- Wage and hour administration
- Payroll processing and paycheck distribution
- Quarterly tax filings
- Payrolls deductions and garnishments
- W-2 filings
A PEO has the expertise and experience to administer Human Resources functions and monitor compliance with applicable laws and regulations.
3. Increase Profits:
- Process, track, and archive forms and files
- Meet and communicate legal and regulatory requirements
- Oversee compensation structure
- Hire, fire, and provide counseling
A business increases its profit when it lowers its costs. According to a report developed for the SBA
, “Small businesses . . . bear the largest burden of federal regulations. [They] face an annual regulatory cost of $10,585 per employee, which is 36 percent higher than the regulatory cost facing large firms.”
- Economies of scale access competitively priced insurance products and services
- Co-employment reduces Human Resources staffing
- PEOs effectively leverage an array of business partnerships
- Some PEOs are equipped to assume some or all training responsibilities
4. Employer of Record: As the PEO becomes the employer-of-record for tax purposes, it also makes your business an employer of choice. Having used its economies of scale and business partnerships to secure cost-effective insurance benefits, the co-employment relationship secures employee retention. Employees can vote with their feet, and they will not walk away from employers offering a buffet of insurance benefits, retirement plans, flexible spending accounts, and more.
5. Proprietary Security: A PEO provides the business owner with a level of comfort in personnel management, legal compliance, risk management, safety training, claims processing, and more. Indirect costs of uncertain HR management, poor risk management, inadequate training and claims processing present themselves as litigation. Fraudulent claims, frequent claims, and uncontested unemployment claims all present financial risk. And, some PEOs provide additional protection with an employment practices liability insurance policy to cover workplace torts.
Security takes many shapes. You find it in language, policy, and practice. But, there are cost savings when you can secure your business on several levels at one time in a co-employment relationship with a professional employer organization. A PEO is a true partner, sharing and supporting your security concerns. Peace of mind is a valuable benefit of any relationship. But, these five dynamic ways your business benefits from a PEO reinforce that primary value so that you can run and grow your enterprise the way you intended.
On the most fundamental level, employees want a decent wage for a decent day's work. Unfortunately, this simplification does not always translate to the workplace as managers and employees have radically different ideas of what the statement means. Still, the responsibility rests on management to make the workplace productive. With that fact in mind, here are examples of what employees are really looking for beyond the mere payment of money:
Respect – It is an indisputable fact that many employees feel intimidated and somewhat powerless when in the presence of their managers. While most managers recognize this, it is sometimes less obvious that the reverse is also true. Managers and executives must understand that there is a reciprocal relationship and that “what you give is what you get.”
Inclusion – Everyone likes to belong so it is imperative that management not does not create nor encourage cliques. In particular, no group of subordinates should receive knowledge of company policy or news ahead of another comparable group. This sort of discrimination is readily apparent and breeds discontent from almost every member of the group left out.
Opportunity – At some level, all employees want to succeed. Their hopes and aspirations may not match the observations of management but all employees must be given the opportunity to develop their skills and advance their careers. This is a relatively simple commitment and should be observed for both ethical and legal reasons.
Leadership – Work is simply more satisfying when it seems like you are getting the job done and not just running around in circles. Competent leadership is the crux of this process. There is little in the business world more demoralizing than a ship without a rudder. With a poor leader, everyone is at fault for a job not done and yet no one is really responsible. To the contrary, a superior leader instills trust and shows competence. Things get done and in a timely manner.
Impact – At some point, if you are doing your job right, your employees will come up with some fine ideas on how to improve things. Don't be afraid of this for you have created the beast and it is truly a good thing. One of the most motivational aspects of a job is empowerment. Pay attention to engaged employees and do not disregard their input. While it may not always be the right advice, it demonstrates superior involvement and you should treat is as the gold it is.
One Last Thought
Successful managers observe these protocols almost without thinking while inferior ones just think they do. The point is that you should examine your own behaviors and ensure that you are allowing your subordinates to support you as much as possible. There's no need to be a tyrant when leading by example will gain better results.
Many professional employer organizations offer management and employee development programs. You can quickly compare their services here.
The United States preeminent space agency, NASA, using the best and brightest in our country, sent men to the moon and back over four decades ago. In the ensuing years, NASA has continued to provide incalculable benefits to both the businesses and people of the United States of America.
Not surprisingly, most people consider NASA to be composed of only scientists, engineers and other “deep” thinkers. This misconception overlooks the very real contributions of the administrative and support staffs of NASA. While the “rocket scientists” are busy doing their things, the bureaucrats are busy finding astronauts, technicians and other support personnel who, like the astronauts, must also have the Right Stuff.
The HR staff at NASA is tasked with a simultaneously difficult and easy task; find the best of the best. While this task may seem easy as NASA is inundated with resumes from some of the most accomplished people on the planet, it is also particularly difficult to discriminate between these exemplary candidates.
In many cases, the decision becomes a singularly human one and is based on some simple questions. The questions may seem trite but they are important. Can the candidate work well with others? Are they good under stress? Will their egos get in the way? Another question for the top NASA administrators is how best to make these decisions. Heady questions for the people at NASA but also ones that are prudent for any business person to consider.
Read More about how NASA finds and develops their workforce here...
What to Do about E-Cigarettes in the Workplace
While the FDA has not made a formal decision as to the status of e-cigarettes, it seems that anti-smoking advocates have already laid claim to the moral high ground claiming – without any conclusive proof - that e-cigarettes are potentially just as harmful as traditional cigarettes. This leaves an employer with a quandary...
What position should they take on allowing the smoking of e-cigarettes in the workplace?What are E-Cigarettes?
Developed as a “smokeless” alternative to regular cigarettes, the electronic varieties pride the same physical sensations without the hazardous, carcinogenic smoke. While the e-cigarettes are available in a wide variety of nicotine-free flavors, there are also many laden with the addictive chemical. Since no smoke is emitted into the atmosphere, advocates contend that this eliminates the many “second-hand smoke” problems. Opponents disagree but one thing is for sure, both are actively lobbying their point of view to the FDA and the American Medical Association. The Legal Issues
Without clear direction from a governing regulatory agency – for example, the state of New Jersey has already banned e-cigs in the workplace – an employer should examine their own handbooks and determine if there is a conflict. If they do choose to allow “vaping,” it should be clearly delineated as a separate activity from smoking. Then, a clearly defined policy should be explained to all employees with the caveat that it is subject to change with further regulatory guidance. What to Do Now?
It seems that caution would dictate banning e-cigarettes but this strategy opens up a company to charges of discrimination. In addition, many use the e-cig as a smoking cessation tool and what employer wants to dissuade their employees from quitting an admittedly dangerous habit. Another benefit of e-cigs is the boon to productivity. Instead of heading downstairs or outside to have a smoke in a designated area, smokers can meet their craving while still seated at their desks. A Final Thought
This is one of those situations where a Professional Employer Organization can prove to be invaluable. The law is quite malleable at the moment but could become “set in stone” and legally binding at any time. Most business owners and managers do not have the time to stay abreast of these changes and make timely decisions about them.
PEOs, on the other hand, are dedicated to just this sort of activity. Not only can they aid you on this particular issue, but also provide a wide range of human capital management
services from simple payroll through recruiting and hiring to strategic redeployment of personnel. Consider one before your business goes up in smoke.
The Patient Protection and Affordable Care Act (PPACA) tasks employers with 50 full-time workers or more to offer at least minimum value health insurance at an affordable price. That plan must cover employee children up to the age of 26. Of course, employers can always offer more generous plans.
While, according to Forbes, “Only 0.2 percent of the businesses in the U.S. with more than 50 employees do not already provide healthcare insurance to full-time employees,” employers who do not comply will face financial penalties. The deadline for mandatory compliance has been extended to January 1, 2015. But, this delay should not encourage employers to bide their time. Rather, it offers the opportunity to act now to communicate the shared responsibility at the center of the ACA. There is nothing gained by waiting to comply, no common sense in thinking that the ACA will be repealed before the mandate.
Reprieve Not Reversal
It is smarter to treat the delay as a reprieve not as a reversal. There is much to do and much to put in place before compliance. For example, employers need systems to track and report hours and calculate benefit expenses as a percentage of wages. The affordability benchmark is 9.5% of an employee’s household income. If an employee’s insurance premium exceeds that 9.5%, the employer faces an annual penalty of $3,000 per full-time employee who secures coverage through an insurance exchange.
Time to Communicate Engagement
This reprieve in mandated compliance creates a window for aggressive and assertive communication on the employer’s plan and position. It allows the employer – with the help of a PEO or broker and insurer – to educate employees as customers. It presents the chance to sell and re-sell the value of the employer’s contribution to this hidden payroll item.
Introducing employees to new programs, benefits, and costs at a strategic incremental pace while inviting employee interaction will engage and aid in employee buy-in. A significant aspect of the Affordable Care Act is the decision-making burden it shifts to employees, and employers benefit by engaging employees in the process. Making employees work with new information and tools to select and modify their health insurance programs increases their individual accountability.
Employee as Consumer
When employers take charge of their spending, they own the decisions they make for themselves and their families. It follows that, having empowered employees to determine their costs, employer costs decline.
In addition, new tools, such as the Flexible Spending Account (FSA), Health Savings Account (HSA), and the consumer-directed health plan (CDHP), empower employees to juggle and assemble options for their respective needs. For example, the CDHP has a high deductible that may not be attractive to some but very attractive to others depending on their obligations to dependents, need to reduce monthly premiums, or serve their youth and single status. The CDHP in combination with an HSA lets employees budget money for health costs, use it or roll it over to accumulate it into retirement if not used.
Employee as Medical Adviser
Employers have long recommended and/or underwritten the cost of health and wellness programs. The hope is that improved health experience will reduce the cost of benefits. Participation has not been high, but when employees see the direct connection between health and wellness and reduced premium, participation will increase.
In addition, the ACA increases this incentive for employer and employee. It raises the permitted wellness incentive to 30% of the cost of insurance and 50% for tobacco cessation programs. Employee good health also means improved employee productivity.
Employee Training to Engagement
In the face of the confusion presented by ACA options, employee education empowers them to make coherent and individual decisions that respect their individual needs. By placing the tools for decision-making into employee hands, employers enable and encourage decisions that are ultimately in the employer’s interest. The postponement in mandated compliance allows employers the time to educate and build value. It allows employees the time to learn, to shop and shape decisions for which they remain accountable. This makes the strategy work in everyone’s interest.
Check out the article on Forbes in it's entirity, Is The Affordable Care Act Really Bad For Business?
You may also be interested in downloading our newest white paper, The 3 "Rs" of Managing Healthcare Reform
The Patient Protection and Affordable Care Act (PPACA) often referred to as Healthcare Reform or ACA, was designed to increase access to health insurance for Americans. This legislation greatly impacts the business sector and provides unique challenges for employers as they must comply with new regulations or face penalties. Healthcare Reform compliance rules can be very confusing and complex for businesses. By partnering with a Professional Employer Organization (PEO), your business can take advantage of expert guidance and administrative relief as it navigates the complexities of Healthcare Reform.
Administrative Support for Increased Requirements
There is a much larger administrative burden now on employers to handle issues such as meeting reporting requirements, preparing and delivering employee communications, and calculating and paying taxes. For example, the “Shared Responsibility” provision of the ACA requires employers to keep thorough records of employee hours so they can determine part-time or full time status every month. A PEO can make ACA compliance easier and more efficient for businesses by assisting with the tracking of data and helping to automate time-consuming administrative processes.
New laws also require employers to provide employees with various notifications, including summary of benefits and coverage notifications, public exchange notifications, and W-2 reporting. Employers must also evaluate Medical Loss Ratio Rebates, determine what to do with the rebate dollars attributable to employee contributions and administer these rebates. PEOs are in a unique position to support businesses in complying with these requirements, as they are already managing payroll data, benefits plan information and employer tax withholding as part of the PEO relationship.
Deciding on the Best Coverage Option
Employers will need to evaluate the total cost of providing health insurance to their employees and determine how these new regulations will impact their businesses. Insurance issued in the small group market will be subject to Adjusted Community Rating. In the past, insurers were allowed to charge higher rates to people based on gender, health status, medical claim history or other factors. However, as of January 1, 2014, insurers can only set rates based on a limited set of factors such as age, geographic area and tobacco use, and only limited variations will be permitted within these factors.
Groups with younger, healthier people may see significant increases, while groups who had previously higher rates could see a decrease. Working with a PEO can give your company the ability to offer your employees a large group plan that is not subjected to the Adjusted Community Rating. A PEO can also help your company decide on the healthcare plan that works best based on your business strategy. There are many different options with different levels of costs and other burdens that need to be evaluated.
Employers need to know that PEOs can relieve businesses of the administrative and compliance requirements for medical benefits, employee communications and government requirements associated with the Affordable Care Act. Your business can take advantage of the expertise and support needed to evaluate your options and comply with the latest requirements.
Department of Labor - Affordable Care Act Website
Internal Revenue Service - Form W-2 Reporting of Employer Sponsored Health Coverage
This post provided courtesy of Oasis Outsourcing.
The National Association of Professional Employer Organizations (NAPEO) reports a “decidedly negative” turn in the PEO Index for the Frist Quarter. The PEO Index
studies the bi-weekly status of payroll feeds on 160,000 employees at 8,000 worksites. The Index concludes that the dip in participation is due to the extreme winter endured throughout large parts of the country and the further delay in the Affordable Care Act mandate. Theory is that these conditions reduced the urgency for businesses to contract with PEOs.
However, other issues are squeezing small businesses from several directions and, at the very least, distracting them from rational analysis of PEO opportunities.1. Healthcare
The Affordable Care Act is the law of the land, and it will likely continue through the next generation. Every serious and unbiased analysis indicates that premiums paid by employers will increase and the uninsured will be driven by the marketplace into employer plans where available. Small business employers have anticipated the change, budgeted for the increases, or planned to drop employee healthcare benefits.
The huge snafu during PPACA enrollment rollout and the subsequent postponement in the mandated enrollment date left businesses confused, sent them back to their budgets, and reduced their immediate concern around increased insurance costs. Small businesses pressed by their real time costs are in no burry to incur new expenses.2. Uncertainty
Political and economic inertia remain the government’s only certainty. The stock market has reached new record highs in fits and starts. The private sector has added a significant number of jobs. Housing starts and the GDP have steadily increased. However, no event has had enough spark to increase significantly consumer or business confidence. So, small business budgets, growth, and investment remain as sluggish as Washington’s inclination to raise taxes, manage spending cuts, and control the debt ceiling. Sequestors, freezes, or whatever they are called radically affect small businesses.3. Minimum wage
The increase in the federal minimum wage, implemented as progressively, should not affect small businesses acutely. Implementation occurs over enough time for owners to adapt and adjust. However, it does mean an increase in labor burden that owners have to weigh when making decisions on benefits.
Seattle’s recent increase in minimum wage to $15/hour can prove more difficult. Even with a layered implementation, the increase is intimidating. It will drive businesses to reconfigure their organizational structure, re-think future hires, or lay off employees.4. Capital
Lenders control more capital than ever, but the financial crisis of the last decade was solved partially by requiring lenders to tighten restrictions. Thus, small businesses find it harder than ever to secure the capital needed to sustain or grow their business.
Restricted financing keeps employers from making new hires, let alone entering co-employment agreements. It reduces the business ability to make capital investment in the technology to remain current, competitive, and secure from cyber-attacks. 5. Taxes
According to Forbes
, “tax compliance places a large burden on small businesses, both in the aggregate and relative to large businesses. The Internal Revenue Service estimates that businesses with less than $1 million in revenue bear almost two-thirds of business compliance costs.” It is not surprising then, states Donald Marron
, that “small business are more likely to underpay their taxes.” Most of this is unintentional because of the complexity of the IRS code, but the press of unresolved tax issues worries business owners into reserving funds.
PEOs offer solutions to all these concerns. However, contracting with a professional employer organization comes at a cost. Any PEO vendor and small business owner, given the chance to sit with all their cards on the table, can structure an agreement that is realistic and cost-effective. However, all these concerns present significant distractions that get in the way of such sane and sober agreements.
It's the nightmare of any small business owner or manager. He watches as a new employee – one he doesn't even recognize – completely fail at representing his company properly. Even if the new hire is well-intentioned, he is either not knowledgeable or lacks the necessary customer service skills and a customer is lost or even angered.
The owner will then react in a somewhat predictable way and either fire or severely reprimand the employee and bring in somebody new. While this “turn and burn” attitude towards their employees – especially the lowest paid ones – is common among managers, other, savvier ones realize that the fault lies with the company's business practices. In fact, the better managers understand that the rate of employee turnover has a significant effect on their business in more ways than one. Just consider these three:Company Budget
– You may think that it is cost-effective to run through new hires as fast as possible to find that one “gem” of an employee. Not so fast. Good employees are made not discovered. It takes time, energy and a good training regimen to mold even the best-intentioned people into model employees. On the other hand, expending that time and energy – not to mention the aggravation involved – in training people who will leave in a month or two is costly. Simply put, you cannot afford to hire and train three people for every available position. Employee Morale
– Hiring a “warm body” solves an immediate problem but it is only a stopgap measure if the new hire proves to be less than satisfactory. In addition to making obvious mistakes, they are also a drag on your other employee's morale as the new hires do not pull their weight and make the other, better employees compensate for their shortcomings. It is a simple fact that most people will take responsibility for their own actions but do not want to clean up other people's messes. This problem is especially problematic if the new hire is in a position of some responsibility and subordinates are doing the real work. Customer Service
– Even more important than your employees' satisfaction is that of your customers. In general, your employees will give you another chance but you are extremely lucky if a dissatisfied customer returns. For this reason, new hires should not be allowed to interact with customers until fully and properly trained. This goal can be accomplished through classes, on the job training or even “shadowing,” but it must be completed before any real customer interaction takes place. It should be obvious that a high turnover rate makes this process problematic to say the least. An Affordable Solution – Professional Employer Organizations
Poorly trained employees are the number one reason that customers are dissatisfied with a company whether it is for lack of knowledge, lack of people skills or simply being new to the job. Customers are willing to forgive many things but incompetency and rudeness are not among them. The problem is that most companies would rather concentrate on their core business and often give training the short stick.
Professional Employer Organizations are geared towards human capital management. Their competencies encompass recruiting, hiring and training as well as some of the more mundane aspects of the human resource world. Consider one the next time you see one of your new hires “drop the ball” and understand how much an inadequately trained workforce is really costing your company.
For tips on attracting and retaining top talent check out our white paper, Hiring the Best...