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It’s no secret that the fun of running a company is not in the details. Managing human resources paperwork, payroll, and recruiting all take time and money away from actual business. That’s why Geary Broadnax decided to seek help with the details.
He turned to a PEO: a professional employer organization. A PEO acts as an off-site human resources department for businesses that need extra assistance. PEOs allow companies to outsource services such as payroll, recruitment, and training so that small businesses can focus on work instead of paperwork. He became a client of Administaff, a Houston-based PEO with more than 5,000 clients across the country. Broadnax, president and CEO of Dovarri in Houston, handed over the aspects of his business that had been causing stress — paying taxes and dealing with benefit issues. Now, Broadnax concentrates on managing Dovarri’s primary service, which is developing customer relations management systems and sales force automation software to help growing businesses manage their sales efforts.
According to the National Association of Professional Employer Organizations (www.napeo.org), the PEO industry generates approximately $51 billion in gross revenues annually. The organization estimates that 40% of businesses in a PEO relationship upgrade their total employee benefit packages as a result of their association with these operations.
Though they have recently become more popular, PEOs have been around for a while. Staff Resources Inc., in Chico, California, was founded more than 30 years ago and now has more than 300 clients, based mainly in California. Newer PEOs are also experiencing rapid growth. One such group is The PSP Group in Mamaroneck, New York, which was founded in 1999 and is expanding its service nationally.
Working with a PEO is not without cost. The PSP Group and Staff Resources estimate that their clients pay between 2% and 8% of their gross payroll. Administaff says that its clients pay between $80 and $100 per person per month above their regular HR costs.
PEOs generally work with small to mid-sized companies with anywhere from four to 2,000 employees. Each PEO has different restrictions, however, and some refuse to work with companies of a specific size or that have only been in business for a short period of time.
So what should employers consider when looking for a PEO? Brad Avooske, president of Staff Resources, says that companies should consider the length of time the PEO has been in business and its creditworthiness. He also recommends that the PEO be accredited by the Employer Services Assurance Corp, which provides financial assurance to PEO clients, similar to the FDIC protection offered in the banking industry. If the PEO goes under, the client will be reimbursed.
“A lot of people don’t take the necessary time to understand PEOs,” says Dominick Crea, president and owner of The PSP Group. “PEOs allow small businesses to really focus on their business. It’s a new generation and a new way of thinking.”