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Your business is growing and you’re finding that the paperwork associated with managing employees is piling up. You’re also concerned about holding on to those employees in today’s tight labor market. But staying on top of employment laws and shopping for and administering benefits plans takes time away from your business. What can you do?
Many small businesses are partnering with professional employer organizations (PEOs) to handle payroll, worker’s compensation, and employment laws and regulations. And by signing on with a PEO, small business owners find they can get a reprieve from everyday HR duties.
The PEO and the company split the employer’s responsibilities. PEOs handle benefits, 401(k) plans, and labor law compliance issues. The small business is responsible for managing daily work assignments and on-site supervision, ensuring production or service delivery, and providing supplies and equipment to employees. Though state rules vary, the IRS generally considers the PEO to be the employer of record responsible for paying trust fund, income, and employment taxes.
The desire to offer his employees better benefits and a safe workplace prompted Ronald Webster, CFO of Fennville, Michigan-based West Michigan Flocking & Assembly, a 105-employee firm that manufactures a special “flock” fiber finish that it applies to car parts like glove compartments and CD trays for decoration and noise reduction purposes, to turn to ADP TotalSource, a Miami-based PEO. By hiring a PEO, the company has enabled employees to become “part of a larger group of employees,” says Webster. Being able to offer good benefits gives West Michigan Flocking a better chance of competing for top workers, he says. Because a PEO’s workforce is comprised of employees from many client companies, PEOs are large enough to offer a small business’ employees competitive benefits.
In addition to administering the benefits package, ADP TotalSource processes the weekly payroll and consults on legal and HR issues. West Michigan Flocking’s next step was to tap ADP TotalSource’s expertise in developing a safety policy for the company. ADP TotalSource has a full-time safety manager and has helped the company by staging mock OSHA inspection checks and providing advice on structuring a safety committee for the company.
In 1997, PEOs accounted for an estimated 2 million to 3 million employees, up from only 10,000 in 1984. This year, the number is expected to exceed 10 million nationwide, according to the National Association of Professional Employer Organizations (NAPEO) in Alexandria, Virginia.
The average PEO client employs fewer than 20 workers. PEOs are most cost-effective for businesses with fewer than 100 employees. When a company has more than 100 employees, the price of a PEO’s services may equal the cost of having a full-time HR staff handle these issues.
But most small businesses just don’t have the luxury of hiring a full-time HR staff to provide these services for its employees. Fancy benefits are often out of the question. And many larger companies would rather continue to focus on the company’s core business, says Milan P. Yager, executive vice president for NAPEO. Therefore, larger businesses are increasingly seeing the