Many small companies can’t afford an HR department or even an HR manager. HR is often one of many responsibilities handled by one person like a CFO or office manager.
At Worldwide Technologies, a 50-employee manufacturing facility in Franklin, Kentucky, Lindsey Tyler is that person. She works 80- and 90-hour weeks to manage the firm’s accounting, human resources and more. To accomplish all this — including payroll, benefits, insurance, training, labor costs, workers compensation, hiring and termination — she must access 10 different websites. She’s also who employees call with their HR questions.
Does this sound familiar? Think of your clients whose HR needs are becoming more complex. Maybe it’s a specialty contractor, a professional services firm, a small manufacturer or even your own accounting firm. Of the top five categories of lawsuits filed against small employers, three are related to HR: employment discrimination/wrongful termination, non-employee discrimination lawsuits (from vendors, suppliers, patients, etc.) and wage law violations.
How can a small or even midsized business stay compliant in this environment? A professional employer organization could be the solution.
The basics: What is a PEO?
A PEO is a type of full-service human resource outsourcing. The PEO typically performs various employee administration tasks on behalf of a business. It is called a “co-employment” relationship because both the business and the PEO share certain employer responsibilities. PEOs process payroll, withhold and pay payroll taxes, maintain workers’ compensation coverage, administer employee benefits and provide human resources guidance.
The business owner has full control of their operations, including how they manage their people. The PEO is not a replacement for the employer, but a support system that gives the business owner more time to focus on their core business. And it’s not like a staffing company, either, because the employer still makes all decisions about hiring, pay and termination, and the worker is an employee of the business.
What can PEOs provide?
The greatest advantage to using a PEO is that the services can be customized to the needs of the business. It is not “one-size-fits-all.”
Maybe your client has an HR department but wants it to be more strategically focused, rather than mired in compliance and day-to-day firefighting. Perhaps the business is quickly growing and needs a solution that is scalable, quick to implement, and professional.
Here is typical menu of services that PEOs frequently provide:
1. Payroll and tax filing. PEOs process payroll and, in some cases, can pay local, state and federal employment taxes. To guarantee accurate and legal payment of your payroll taxes, look for a certified PEO. These PEOs have met rigorous background, financial and reporting requirements set by the IRS. Many PEOs also integrate payroll with time and attendance, which helps reduce duplicate data entry and errors.
2. HR guidance and support. Probably the biggest advantage for SMBs is the HR support that a good PEO can offer. Even if the business already has an in-house HR person or team, the PEO partners with them both strategically and administratively, often providing a dedicated HR business partner as well as online and on-call support services. This kind of professional and timely support can protect an organization from lawsuits down the road.
Some PEOs offer even deeper HR support like end-to-end talent services (e.g., recruiting and strategic hiring), performance management tools and supervisory training. PEO HR business partners work with the employer to uncover the best strategy and the tools to support their HR goals, whether it’s attracting quality workers in a tough labor market, retaining good employees or providing competitive benefits.
3. Employee experience. With a PEO, employees can call trained service professionals who can answer HR-related questions in a timely manner. The PEO operates as an extension of the employer, helping employees navigate benefit, pay or tax questions, taking the burden off your clients.
4. Benefits buying power and administration. A co-employment arrangement often comes with access to high-quality, cost-effective health insurance, as well as dental care, retirement benefits and other employee perks. Buying these benefits via the PEO can give employers more choice of plans and carriers, a wider variety of benefits, and lower expenses. The PEO will usually handle the employee enrollment for these benefits and process claims as well.
5. Compliance expertise. Most business owners can’t stay on top of the ever-increasing complexity of employment law. A PEO can help ensure compliance and mitigate business risk to protect your clients’ bottom line. Remote work and projects crossing multiple jurisdictions add even more complications. PEOs typically have compliance experts who can help protect your business from fines and penalties in the areas of payroll tax law and reporting requirements, unemployment insurance, workers’ compensation, hiring and ACA compliance. These experts can also help when audits and investigations occur.
6. Best-in-class technology. Using a PEO can instantly improve how you show up as an employer. For example, providing employees with a mobile app that enables benefits enrollment, answers questions, provides access and visibility to PTO, pay options (e.g., direct deposit, pay cards, checks) and more. Unlike the hodgepodge of software that many SMBs use, PEOs can provide built-in protection and security of the client’s employee data.
7. Data analytics. Some PEOs offer data analytics and benchmarking services that provide insights into the client’s workforce using their company data and information drawn from the wider employment landscape. Using the expertise of the PEO’s HR business partner, SMBs can learn if their pay rate and benefits are competitive in their market, the cost of turnover and how they compare to peers, and other HR metrics. Easy access to information like this can help you advise your clients, for instance, to realign their business practices to improve employee retention and reduce turnover.
Is a PEO the right solution right now?
Many SMBs don’t realize their HR function could be managed more efficiently, at a better price and with much better results. Unfortunately, the trigger to improve HR systems for many companies is when they experience a negative event, like a big insurance renewal, a fine or a lawsuit.
When it becomes clear that your clients need to take the next step, there are three options to upgrading HR systems: build it, buy it or partner.
They can put capital investment into either people or technology to build a new human capital management infrastructure. It’s expensive, especially for most SMBs, and there is the risk of obsolescence. Both the software and the staff may not be able to keep up with the rapid changes that affect the business.
Another option is to buy the capabilities meaning to engage the services of a SaaS technology partner. This is akin to buying a tool when you don’t know how to best use it. It looks great, but how will you get the most out of your investment?
The third option is to partner with a sophisticated SaaS provider who also provides expertise and strong HR support. It’s the best of both worlds. Clients don’t have to worry about upgrading software or being employment law experts. They can just focus on what they do best — running their business.
Ultimately, PEOs and HROs are about focusing on people and process to drive better business outcomes. As an advisor, you can help your clients choose the strategy that best fits where they are in their business life stage and where they are going. With the expert guidance of a PEO, your clients can grow their business and have peace of mind that they’re more protected while doing so.
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