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NEWS ROOM
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May 5, 2003 Chicago Tribune Article written by Ann Meyer
Do the math to determine who should handle HR Issues
Figuring out whether your company would be better off with or without a
professional employer organization as a co-employer takes more than a little
number crunching.
On the face of it, paying such a firm 2 to 5 percent of total payroll, or $80 t
$150 per employee per month, to handle human resources matters may seem
excessive to some small-business owners who have hard enough time paying their
bills each month.
But a growing number of small and mid-sized businesses are finding that besides
making their companies run better, contracting with a professional employer
organization, or PEO, can save money in the short-term and long-term if you
pick the right one for your needs.
Through a simple cost analysis, Eric Mock, president of Medical Business Bureau
in Park Ridge, determined that by contracting with Administaff he wouldn’t have
to spend any more on personnel costs, but would realize significant savings in
labor---mainly the time he and his wife, Joanne, were spending on human
resources.
In effect, Joanne Mock had been serving as the company’s HR person, spending as
much as 90 percent of her time on personnel matters and benefits for the
17-employee medical-bill collections firm. When Administaff took over most of
those HR duties, she switched to spending 90 percent of her time on marketing
and 10 percent on human resources. “That change itself is worth it for my small
business,” Mock says.
While experts say smaller firms generally benefit most from the
cost-efficiencies that come with a co-employer arrangement, even larger
companies that have human resource professionals on staff can benefit from the
services of a PEO, says Kathleen Zydek, senior manager for human resources at
Moneris Solutions Inc. in Buffalo Grove.
The Electronic payment-processing company, which once was part of Harris Bank,
was established as a separate 100-employee unit two years ago with no HR
infrastructure, but its employees were used to big company benefits. By
contracting with a PEO, Zydek says, “With 30 days notice, I was able to get
payroll and HR all up and running.”
Though the co-employer arrangement was a lifesaver for the company the first
year, Moneris Solutions didn’t renew its contract until it had examined all
options. “We did a full apples-to-apples comparison, laying out all the
features we use that Administaff provides, compared them to other PEOs and
looked at an in-house model,” Zydek says. In the end, “There wasn’t enough of a
cost benefit to warrant making a change.”
She calculated that to handle all HR matters in-house, she would have to hire
one full-time and one part-time employee. Bottom line, she says, the company is
saving $29,000 a year by going with the PEO.
Zydek also found a big difference in costs among firms. “The differential
between the high bidder and the low bidder was $70,000 annually,” she says.
Determine needs
Whether your company gets its money’s worth from a PEO depends in part on what
services are included and whether you use them all. “We fully utilize all the
services that Administaff offers. That’s where we get the value,”Zydek says,
noting that Moneris mandates five training classes for every employee each
year, many of which Administaff offers at no additional cost. Moneris also is a
big user of Administaff’s recruitment and compensation services.
While smaller companies may be willing to forgo some services to save money,
it’s important to prioritize what’s important to you. Problems arise when firms
don’t have a clear idea of what they’re looking for in a PEO and then are
disappointed when they don’t get the right services, says Milan Yager,
executive vice president of the National Association of Professional Employer
Organizations in Alexandria, Va.
“There can be big differences in the contract” in terms of what’s provided and
what isn’t, Yagers says. “There is some real disparity out there,” says Jon
Skulborstad, president of The Synergy Plan Ltd., a Chicago-based PEO with 4000
worksite employees.
He says his company aims to “become the HR department” for clients and as a
result hires very experienced human resource professionals who can provide
training and development.
To make sure you find the right PEO for your needs, visit the PEO and interview
the staff members who will serve you, because they will have a big impact on
your company’s experience, says Robert Cerone, president and CEO of EmPower HR
in Arlington Heights. And look for a PEO that has clients in businesses similar
to yours, because staffers will have a better understanding of your needs. Also
check the owners’ resumes to gauge their expertise in the field. Consider how
long the PEO has been in business and how large it is, says Jim Mack, Midwest
–area president for ADP TotalSource, a Miami based PEO with 83,000 worksite
employees nationwide. If you have employees in other states, you may benefit
from a group that has operations in those states.
Next Investigate the financial stability of the PEO. While just a few firms
have failed through the years, Yager says the ripple effect can be massive
because so many different client companies are involved. Eric Siegel, chief
financial officer at BRI Partners LLC in Chicago, says he lost money at a
former company when Simplified Employment Services Inc., a PEO in Auburn Hills,
Mich., stopped paying health-insurance claims and failed to deposit some of his
401(K) contributions. “They just stopped processing the claims. We were out-of
pocket a couple thousand dollars for medical bills that weren’t processed” he
says, adding that he will never do business again with a PEO that self-insures
its benefits.
But the failure to pay health insurance claims was just the tip of the iceberg
for the now bankrupt SES, whose top executives pleaded guilty last year to
defrauding the government of more than $50 million in taxes by underreporting
the money their worksite employees earned.
That case, while unique, serves as a reminder to small business owners to
carefully check out any PEO before engaging in a co-employment arrangement,
says Bruce Leon, president of Tandem Professional Employer Services in Oak
Brook.
Group backs PEOs
Tandem, ADP and Administaff are three of a small but growing number of PEOs
that belong to Employer Services Assurance Corp., which provides financial
assurance to clients through $1 million surety bonds, much as FDIC insurance
backs up bank accounts, Leon says.
Regardless of whether the PEO is a member of the group, it should make its
audited financial statements available to you, says ADP’s Mack. Also ask
whether the company’s workers’ compensation insurance and medical benefits are
fully insured. If they are self insured, verify that the company is using an
A-or B-rated reinsurance carrier, Mack says.
Cerone recommends that you then ask for a complete list of clients and check a
sample to make sure they are satisfied. Be suspicious if the company is only
willing to supply a few references. Also inquire about the company’s retention
rate, he says, noting that the PEO should be looking for a long-term
relationship. Finally, before signing a service agreement, make sure you fully
understand it, including cancellation provisions.
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