A Quick Case Study
They didn’t teach us about human resources in chiropractic college,” reflects Tony Lebro, DC, who runs a three-person practice in Kittery, Maine. “Medical benefits for my employees were a necessary step in growing my practice. However, when I started calling insurers for rates, I got the same message over and over, ‘Your practice is too small to get coverage.'”
Dr. Lebro faced the classic small-business dilemma. A practice is poised to grow. To do so, it needs to attract and retain the best employeesthe same ones the competition is courting. These employees know they are in demand and are requestingand receivingcomprehensive medical benefits, 401(k) plans and other expensive perks that take time to coordinate and cost money to secure.
The most basic of benefits is medical insurance and Dr. Lebro needed a more effective way to manage his insurance challenges. He found the solution with one of the nation’s largest Professional Employer Organizations (PEOs). This company provides small and medium-sized businesses with an outsourcing solution to the complexities and costs related to employment. The programs cover the range of human resource challenges that a company may face, from regulatory compliance management to health care and other employee benefits.
It is no secret that large corporations enjoy greater purchasing power than their more modest-sized counterparts. Smaller businesses are especially hard hit in the area of employee health benefits. By teaming with a PEO, small companies can benefit from the PEO’s negotiating power. In the case of Dr. Lebro, the advantage is co-employing nearly 45,000 work site employees through his PEO of choice. Because of this relationship, clients such as Dr. Lebro have access to comprehensive benefits at competitive prices.
“I’m now able to provide complete benefits to my employees, including a 401(k) plan, direct deposit and ongoing training. As a result, it’s easier for me to recruit and retain employees,” Dr. Lebro explained.
Although he first contacted a PEO to stabilize his medical benefit rates, Dr. Lebro soon discovered the benefits the company offered were far greater. “All the additional services were a bonusespecially the payroll and tax filing.”
As a co-employer, Dr. Lebro’s PEO serves as a fully accessible, off-site human resources department for its clients. This partnership allows small business owners immediate access to the human resource expertise usually associated with larger organizations. It also provides valuable services for its clients, including screening new hires and implementing policies and procedures designed to protect the employer against employee lawsuits and regulatory compliance fines.
Dr. Lebro now has the resources he needs to concentrate on increasing his patient base. Together with his PEO, Dr. Lebro’s goal to expand his practice can become a reality. “To be the best, you need to hire the best. With Vincam, I have tools to attract employees and the benefits in place that make my staff feel appreciated.”
Professional Employer Organizations: An Industry Overview
Professional Employer Organizations (PEOs) comprise one of the fastest growing service industries in America. With an industry-wide annual growth rate of approximately 30% and a current market penetration estimated at less than 3%, the market potential is in excess of $1 trillion. Analysts predict that PEOs will become the country’s largest employers.
The PEO industry began to develop in the early 1980s in response to the burdens placed on small businesses. For example, rising employment costs, escalating benefits and workers’ compensations costs and increasingly complex government regulations are just a few of the small business owner’s concerns. While human resource outsourcing companies existed at that time, they did not provide the complete range of services required by small businesses. Payroll processing firms, benefits/safety consultants and temporary service firms concentrated only on their specific areas of expertise. PEOs emerged to meet the market demand for comprehensive resources services.
What is a PEO?
A PEO provides employer and human resource outsourcing services to its small and mid-sized business clients. Services include payroll processing, human resources administration, workers’ compensation administration, health benefits administration and the monitoring of complex government regulatory affairs.
PEOs deliver services in a cost efficient manner partly due to creating economies of scale. A PEO consolidates all of its clients into a larger organization and gains negotiating leverage through which it obtains preferred rates on health insurance and other benefits packages that would otherwise be unavailable to small and mid-sized businesses.
A PEO establishes and maintains an employer relationship with workers assigned to its clients by contractually assuming certain employer responsibilities and risks. The clients retain management control over the end product of the work performed by the employees. A PEO assumes responsibility for federal and state payroll taxes, as well as the active management of workers’ compensation and health care benefit expenses. It also establishes employment policies, implements programs to control exposure to employment-related liabilities and oversees employment practices.
What should you expect to pay for a PEO?
PEOs traditionally charge a percentage of annual payroll for their services. In addition to the weekly services the PEO provides, these fees give business owners access to a team of human resources managers with a variety of specialties. Whether the business owner needs legal opinions about a workplace situation, guidance in creating annual review documents or any of the myriad of HR questions that may need answers, the PEO’s team of experts are just a phone call away. Comparing that value to the costs of hiring a bookkeeper, an accountant, a lawyer and outsourcing a drug-free workplace advisor, training specialists and auditors, the PEO relationship quickly becomes cost effective.
DID YOU KNOW?
- Financial tasks such as record keeping, regulatory compliance and budgeting consume an average of 22 hours per week of a small business owner’s time, according to a survey of 300 entrepreneurs conducted by MasterCard International.
- Small companies spend up to 80% more per employee to comply with federal regulations than larger companies do, according to a Small Business Administration study.
- The average business owner is interrupted once every nine minutes in his/her daily work.
- According to the United States Department of Labor, 50% of all new hires will quit their jobs before their sixth month of employment.
- One in three small businesses must pay tax-filing penalties each year.
- Seventy percent of all workers’ compensation claims can be directly related to alcohol or drug use.
- Workplace injuries reported within ten days of their occurrence cost an average of $10,172, while those reported after 30 days average $15,745.