Fed up with HR?

Let someone else handle it. Professional employer organizations let you hand off the headaches and focus instead on your business.

From: Inc. Magazine, May 2006 | By: Max Chafkin

Peter McCann’s HR troubles started in 2001, when a former employee filed a complaint alleging that Ideal Images, McCann’s Omaha-based screen printing and embroidery company, fired her because of her race. McCann and his entire staff were questioned by investigators from the state’s Equal Opportunity Commission, and the investigation dragged on for several stressful weeks. The complaint was eventually dismissed, partly because the worker’s replacement was also a minority, but the thought of another discrimination charge frightened McCann, who began to obsess over everything from background checks to performance evaluations…

In October 2004, McCann ran into an acquaintance, Mike Mapes, who said he could make McCann’s HR woes go away immediately. Mapes is CEO of Alliance Group, an Omaha-based professional employer organization, or PEO. Such firms place most or all of a client’s work force on their payrolls, assuming responsibility for benefits, paychecks, and other HR functions and essentially becoming the company’s HR department. McCann signed up three months later. Alliance now handles all of Ideal’s HR issues, from workplace safety to payroll administration. Thanks to the PEO, McCann has begun to offer a 401(k) plan and flexible spending accounts. Even better, because Alliance oversees the benefits of 2,000 employees at 92 companies, it is able to negotiate better deals with benefits providers than McCann could on his own. “It really comes down to knowing that my HR is buttoned up,” he says…

PEOs have been around for years but, until recently, most administered only basic payroll services and benefits programs. Over the past few years, however, the industry has undergone a makeover, partly in an effort to regain credibility following several well-publicized bankruptcies. Many PEOs now behave much like consultants, helping clients tap into the latest health benefits and comply with complex labor regulations related to discrimination and workplace safety. PEOs are becoming one-stop shops for business owners eager to outsource all of their HR functions and focus instead on their core business…

The new breed of PEOs caters primarily to companies with between five and 100 employees–both white collar and blue collar. Most charge a fee per employee or pocket a percentage of a client’s total payroll. Prices vary but typically amount to between 2 and 4 percent of a company’s payroll. PEOs make the most sense for business owners who can’t afford a dedicated human resources staff and don’t have time to handle day-to-day HR ..

One drawback to partnering with a PEO is that HR becomes far less personalized. But for McCann, it’s still better than before, when he was too distracted to offer much help anyway, he adds. After deciding to make the switch, he explained to his staff that the arrangement with the PEO would allow Ideal to offer better benefits with almost no effect on the company’s bottom line. “It was an easy sell,” he says.

Max Chafkin shares his thoughts on professional employer organizations at www.inc.com/podcasts.

Resources

For more information on PEOs, visit the website of the National Association of Professional Employer Organizations, which has guidelines for selecting a PEO and a list of accredited PEOs that are insured against bankruptcy.

A PEO is more viable an option for some compaies than others. We believe this is certainly one of many areas where outsourcing is a sensible alternative to in-house departments. Aside from the more obvious benefits of cost and space reduction, in your outsourcing a PEO you are not necessarily shipping more jobs out of the country. PEO’s, by and large, are domestically based and comprised of highly experienced professionals. The better ones assure their personnel are accessible to clients in need of insights and professional information.

We at Corra have seen where sometimes the PEO tends to administer by rote, rather than press itself or more innovative methods. We found in certain cases where liaison was less capable of picking up on the nuances of a given situation, so that her perspective was less imaginative and less flexible than we would have desired. As with most situations of this sort, your outsource will always prioritize the covering of their butts, before they grow too concerned with covering yours.

It pays to explore the advantages and disadvantages of a PEO and determine if it is a match with your own corporate culture. More “family” type cultures may find outsourced HR services awkward and even intrusive. Others may find the impersonal aspects highly desirable. Perhaps the defacto neutrality of the PEO will do more to instill trust among employees and to avoid antagonisms. Companies vary, and so should their choices.

No matter what, however, we at Corra suggest you always conduct background checks on your new personnel and, in certain instances, on your current employees. Employee screening is very important and the best way to curtail a good share of potential liability claims. If you hire a PEO, ask if they offer background checking services.

Always remember, Check Them Out Before You Hire.