Control HR Costs by Using PEOs

By: Marty Gray
Date: 3/1/2007

One of the main challenges that small and mid-sized recruiting and staffing firms face is managing and caring for their employees. Factoring in payroll, taxes, and insurance costs, employee-related costs are a staffing company's largest expense.

During recent years, Professional Employer Organizations (PEOs) have become a viable new way for smaller and mid-sized staffing companies to save money on their human resources costs. A PEO manages all your employee-related functions - payroll, taxes, insurance - very cost effectively, freeing you to focus on your business.

Once you hire employees, you are required to pay them a salary, pay unemployment fees and workers compensation insurance. Depending on the number of employees that a small or mid-sized staffing firm has on the books at any given time, they may not be able to financially support a dedicated in-house Human Resources (HR) department. What should a company do when it has too few employees to justify creating a formal HR department? The number of employees isn't the only measure of your company's need for more HR support. A geographically scattered workforce brings multiple state employment laws into play. Different states may have different rules and regulations regarding taxes and workers compensation laws. PEOs offer expert guidance through the maze of state and federal regulations. Today, there are more than 100 federal and state agencies that regulate businesses. PEOs manage things that may have nothing to do with running your business, but everything to do with being an employer.

This problem has given rise to HR-outsourcing firms with whom companies contract to take over certain employeerelated tasks. Outsourcing takes the HR burden off of smaller businesses and transfers them to an outside firm that specializes in the various areas of human resources: payroll administration, benefits, and employee orientation and training. The benefits of HR outsourcing include:

• Skilled professionals to do the job

• Improved employee relations

• Money saved by cutting overall expenses.

A PEO takes the concept of HR outsourcing one step further. Rather than specializing in certain areas, a PEO becomes the employer of record, and takes on all legal responsibilities for your employees. The PEO will legally hire all of your current employees, taking on responsibility for these four major areas, and lease them back to you at a very reasonable cost.

The services of a PEO come under four basic headings:

1. Payroll: Mainly this involves keeping track of employee work time, deducting federal and state taxes, and issuing checks.

2. Human Resources Compliance: Ensuring that all of your employee procedures comply with federal and state laws, including race or gender discrimination laws.

3. Benefits Administration: This can include things such as health benefits, vacation, sick leave, and retirement.

4. Risk Management: A vital area that has to do with insurance - primarily workers compensation insurance.

Temporary employment and staffing firms provide a much different type of service. Unlike PEOs, temp agencies are focused on recruiting and placement of employees that best fit their clients' employment needs. Outsourcing your HR department by using a PEO or Employee Leasing Company, you are not just leasing any employee, you're leasing your own employee - freeing up time to focus on recruiting and placing employees which impacts your bottom line. Everything is the same, except that your employee receives his or her checks and benefits from an outside firm. The employee still works under your control, but all their taxes, benefits, and insurance are handled by an outside source.

PEOs can also cut down on some of your company's costs. A PEO can offer you the advantage of group insurance rates. They can do this because they handle a variety of small businesses that they pool together, getting better rates for all the businesses involved. When looking for a PEO, do some comparison shopping. For more indepth information, contract with a PEO broker with experience in serving the staffing industry. First, you must realize that a lot of PEOs will not be able to underwrite the temporary staffing industry because workers compensation carriers do not favor this type of business. The good news is there are some very good PEOs that have strong and reputable carriers that will provide workers compensation for the staffing industry. It is the job of the PEO Broker to give needed guidance in order to achieve the most cost-effective solution that will satisfy all of a staffing company's needs. The PEO Broker who knows and has relationships with multiple PEOs, and can provide PEO services for staffing companies in all 50 states, can be a valuable asset in finding the right PEO fit for your company. Just as a good insurance agent need not represent only a single company, PEO Brokers should represent many PEOs, and work to identify the one that is right for your particular needs.

Marty Gray is the President of Staff Brokers Inc. You are invited to view his interview with World Business Review at www.staffbroker.net/wbr. He can be contacted at 877.416.0668, or by email at marty@staffbroker.net.