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|  Outsourcing HR Is a Professional employment organization for you? Professional employment organizations can ease paperwork burdens, assume risk management, and save money for small-staff organizations. By Sarah A. Wortman When a few staff members manage a multitude of tasks, often some duties aren’t as well managed as others. And in small associations, the myriad tasks involved in human resources can eclipse duties more closely aligned with the organization’s mission. If that’s the case in your association, it may be time to hire a professional employment organization, or PEO, an enterprise that handles human resources responsibilities for small companies that employ as few as five and as many as 200 people. PEOs, a new and fast-growing industry, perform the kinds of tasks that generally fall under accounting and human resource umbrellas, freeing you to focus your time more squarely on providing member benefits. Often called employee leasing companies, these organizations are billed as a way small companies can offer Fortune 500-caliber benefits such as retirement savings plans, life insurance, health insurance, vision and dental care, job counseling, and education reimbursement while reducing administrative costs and paperwork hassles. You pay a leasing firm to put all of your employees, even yourself, on its corporate payroll, and you “lease” them back for a monthly or annual fee. In return for the fee, plus expenses, the PEO takes over payroll and human resources functions, withholding taxes, paying insurance premiums for unemployment insurance, administering health care, and handling other tasks depending on your needs. Because PEOs usually handle the payroll of many companies, they can bid for more favorable group rates on various types of insurance and retirement savings plans. Some PEOs offer other services too, such as employee recruitment and training and establishing policies for interviewing, hiring, reviewing, and terminating employees in compliance with state and federal laws, including the Americans with Disabilities Act. In some cases, they even offer employee telephone hotlines to help with personal or work-related problems. According to Jim Hamilton, president of StaffMarket Services (staffmarket.com), which helps employers find the right PEO, the organizations typically offer four general categories of service: 1) Payroll. Issuing checks on schedule. 2) Taxes. Filing W2s, W4s, and other paperwork correctly and on time. The PEO is recognized by the Internal Revenue Service as the “employer of record” for liability for federal income and unemployment taxes and is responsible for these payments. 3) Insurance. Finding and administering cost-effective, comprehensive workers’ compensation insurance and health insurance 4) Traditional human resources. Conducting background checks, performance appraisals, drug testing, and the like. “PEOs work to ensure that employers are instituting good employment practices by providing training on effective workplace safety practices and the like,” says Hamilton. PEOs were established to “take some of the pain out of being an employer,” says Donald Shewmake, Jr., managing director of the Peram Corporation, a PEO that specializes in HR for companies with fewer than 20 employees. Shewmake says that while a small company or organization should be able to realize hard cost benefits from engaging a PEO, the real benefit is the expertise. PEOs offer a level of skill in human resource administration—including the legal components—that most small organizations can’t afford to hire in-house. So although the actual cost savings between internal HR and a PEO could be small, the expertise, along with the lower costs of group benefits, can be invaluable. In fact, “According to the Small Business Administration, the cost of administrating payroll for a small business is 4 to 12 percent of employee wages, whereas PEOs charge about 4 to 6 percent of wages,” says Shewmake. When an organization engages a PEO, it sets up what Shewmake calls a “co-employment” relationship with the client organization. The client company is typically defined as the “worksite employer” while the PEO functions as the “administrative employer.” It is this co-employment relationship that separates a PEO from other types of HR service such as temporary worker companies. A PEO is not a resource for temporary employees. The PEO industry is growing. According to Hamilton, the concept is very popular in the south and southwest, although less so in the midwest. Hamilton’s company, staffmarket.com, tracks and lists over 500 PEOs nationally, such as Administaff, Team HR, and Workforce Solutions, and helps companies find providers in their area. “We simplify life for our clients,” says Harrison. Evaluating a PEO The PEO industry has had its ups and downs over its less than 20-year existence. Jim Harrison, president of staffmarket.com, says this stems from early abuses by disreputable companies attempting to circumvent state insurance and tax laws. Donald Shewmake, Jr., managing director of the Peram Corporation, says the PEO is “a good concept that has, unfortunately, suffered its share of bad players in the past.” Nowadays the National Association of Professional Employment Organizations (NAPEO) has adopted ethical standards that are observed by its members. Additionally, according to Edie Clark, director of public relations for NAPEO, some PEOs also have certification from the Employer Services Assurance Corporation, which provides an additional level of oversight. The ESAC certifies and accredits PEOs, and then monitors and evaluates their compliance with ethical, financial, and operational requirements. “You find a good PEO by doing the same kind of due diligence you would do to find another type of service provider,” says Shewmake. “Do they have a good banker? Do they have good references? Do they subscribe to NAPEO ethical standards?” To find a PEO, visit the NAPEO Web site at http://www.napeo.org. More Associations Have HR Directors Increasing numbers of associations are hiring human resource directors, according to a 2001 American Society of Association Executives (ASAE) survey of associations with human resources departments. Only 12 percent of these associations had a human resource director in 1995 compared with 62 percent in 2001. Why are human resource directors becoming more prevalent within associations? A likely reason, according to the ASAE, is that associations realize the value of human resource directors who understand complex labor laws and workplace issues such as compensation inequities, sexual harassment policies, affirmative action requirements, and the federal Family and Medical Leave Act. Winter 2004 Click here to Send feedback on this article. |
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