Professional employer organizations go to work for you
Until recently, when an employee of Racine Danish Kringle Co. had a question about a health insurance claim or needed to know how many vacation days they were entitled to, the answer was not always readily available.
That’s because, like many small businesses, the 40-employee bakery did not have a human resources department.
But, exactly one year ago, Mike Heyer turned Racine Kringle into a more professional organization overnight when he linked up with a professional employer organization (PEO).
Now, if one of his employees has a personal problem they can call an 800-number and receive the proper assistance. New hires receive an employee handbook – something that Racine Kringle previously could not offer. If Heyer has a human resources/employment-related question, he can pick up the phone and get an answer right away from his PEO, Synergy, which has corporate offices in Chicago.
“As the company is growing, I really can’t afford a separate human resources department right now,” Heyer says. “They take over that entire process.”
PEO’s are emerging as a means for small to medium-sized companies to obtain affordable employee benefits and acquire professional human resources administration through a single source provider.
While the concept is still new to Wisconsin, more than 3 million people nationally work for an employer who is enrolled in a PEO. According to the National Association for Professional Employers, that figure is expected to grow at an annual rate of between 20 to 30 percent over the next 10 years – an estimate backed up by Wall Street analysts.
“A small business can offer better benefits this way, which becomes a competitive edge,” says Dan Cacchione, vice president with CNA UniSource in Chicago. “Small businesses can now literally offer employee benefits where before larger employers only had access.”
A principal advantage of going with a PEO is the ability to obtain lower worker’s compensation rates. That’s because CNA UniSource can offer group rates by pooling a small business together in large groups, Cacchione says.
Several business owners say the PEO more than pays for itself. Having just completed its first year in a PEO, Heyer says that Racine Danish Kringle saved money, largely as a result of the favorable worker’s comp rates.
Going with a PEO should result in a cost savings of 10 to 15 percent on worker’s compensation insurance for Lurie Glass Co. compared to what the 125-employee company could have done on its own, adds president Marc Lurie.
“Prior to this, we would do everything in-house,” Lurie says. “We are now considered employees of CNA. They do all the HR, worker’s comp and payroll, and they do it on a more cost-effecitve basis than I can do it myself. It also means that the people who were being pulled away from their main responsibilities can concentrate and be more effective.”
What the PEO does is work side-by-side with the business owner to relieve some of the daily frustration, Cacchione says.
“For small businesses of 500 or fewer employees, what we typically hear is that time is at a premium,” Cacchione says. Whether it’s finding time to spend on your business, or away from your business, it’s getting tougher to do everything. By outsourcing your personnel matters, the idea is to make the job of running the business easier.”
Responsibilities for employers continue to increase as far as complying with federal regulations. What a PEO does is step in and take over that responsibility, Cacchione says.
“We become the compliance arm for a small business to make sure that they are doing what they need to from a regulatory standpoint.”
Adds Heyer: “They keep up all of my OSHA requirements, which is something I never really looked at before.”
Other areas overseen by the PEO include the Americans with Disabilities Act, the Family Medical Leave Act, the Civil Rights Act, ERISA, COBRA, HIPAA and EEOC.
Synergy also provides supervisory training and safety awareness. In March, employees of Racine Danish Kringle attended an onsite sexual discrimination seminar.
“It was designed to make sure that we are within the proper guidelines,” Heyer says. “Some people laughed about it, but, my God, we are all sitting on a bubble with this. I thought it was a real proactive approach.”
What first prompted Heyer to make the switch to a PEO was the ability to bring health and worker’s compensation insurance under one roof. But, in the process, he got much more, including payroll service.
Under the arrangement, the PEO establishes a contractual relationship with the employer which establishes it as an administrative co-employer with clearly defined responsibilities. The employer still maintains ownership of the business, and also remains in complete control over personnel decisions.
“People think that if they go this route, they lose control of their business, which is ridiculous,” says Jim Ford, president of Mobile Diagnostics of Wisconsin.
In one complete package, Synergy provides: payroll processing and administration; employment taxes and reporting; group health insurance, worker’s compensation; 401(k) and Section 125 plans; policy manuals and job descriptions; hiring and dispute guidelines, and human resources management.
Optional benefits fits such as denatal and life insurance are available, as are purchasing discounts at major retailers. All PEO plans are individually tailored to the needs of the employer.
As the former chief financial officer for Carson Pirie Scott in Chicago, Ford can appreciate the economies of scale he gains from going with a PEO as the head of a five-employee business.
“For one, you’re crazy to do payroll processing on your own,” Ford says. “Overall, it’s a hell of a total package, and we look professional to our employees. The only thing I deal with is hiring and performance reviews. The rest is theirs. It’s very, very cost-effective. In my mind, even if I were still with a large company, there is no question that this would be the only way to go.”
April 1998 Small Business Times, Milwaukee
Professional employer organizations go to work for you