The concept of employee or staff leasing is not new, however, because of a host of forces on employers in today’s times, it is becoming much more widely used by very small and small companies.
PEOs are a good alternative because they have huge buying power. Instead of buying health insurance for your company of 5, a PEO might have 15,000 co-employees using its health insurance. The same is true of buying other types of insurance such as worker’s compensation and providing other benefits too. Since a PEO might have 500 companies and 15,000 employees it works with, for it to be profitable and successful, it must be extremely good at purchasing benefits for all its co-employees and administering them in an efficient but personal way.
There are many benefits to the primary employer. Among them are being able to offer a very good benefits package without having a huge number of employees, having a strong outsource human resources team on your side without having to employ your own staff, ensuring that all employment laws and workplace rules are being followed correctly, and finally helping protect yourself from employee lawsuits.
The key a PEO relationship is the co-employment contract. This is a contract between the PEO, the employee, and the company using the services of the PEO. It spells out the duties of the company which is to have day to day operational control over the employees work activities. When you have a PEO relationship, the company using the PEO doesn’t give up any of the traditional rolls of hiring, firing, and supervision. It makes the decisions about salary, bonuses, etc. From the day to day standpoint, the company as co-employer of the employee does everything it has always done. However, the employee’s paycheck comes from the PEO, and the PEO manages all payroll, benefits, and is responsible for complying with Federal, state, and local employment laws and rules. The PEO’s employer identification number is used rather than the company contracting with the PEO.
In practice I have seen very large financial savings in the purchase of worker’s compensation insurance, especially in higher risk industries like construction or industrial service. I have seen companies with high unemployment insurance (UI) costs go down the year after they began using a PEO because the PEO was better able to manage the UI process than the primary employer company.
If you do decide to consider a PEO, make sure you speak to some of their client companies to determine overall satisfaction because the PEO becomes a significant partner in the administration of payroll, benefits and employee retention. There are several very large national PEOs operating in the U.S. and my experiences with one or two of them has been good, however, don’t overlook the smaller regional firms because they can often be more flexible and provide greater personalized services to your employees.
I am currently working with a client who has about 80 licensed medical professional employees and will potentially have to hire an additional 400 or more between now and October 1 of this year. We have interviewed and are considering several PEOs because they can instantly provide the infrastructure necessary to handle that many employees effectively and efficiently. More importantly, all employees will have access to complete online access to their benefits, 401k, vacation records, and employee file. Finally, employee retention will be a very important consideration because it costs quite a bit to recruit, hire, credential, and employee a professional employee.
I believe my client is making a very solid financial decision to use a PEO.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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