Due to continually changing State and Federal Labor Law, having an updated employee handbook is difficult, time-consuming and costly. However, with PEO (professional employer organization) or ASO (administrative services organization), these documents are updated continuously by top labor lawyers to insure compliance.
For a small business to have a fully compliant employee handbook would cost between $2,500 and $5,000 annually. That does not include the cost of managing the process of having new employees sign off on receiving, reading and understanding the document, nor does it cover current employees acknowledgement of subsequent changes. Who manages that process at your company and are they filing everything away safely and securely?
One of the most common questions regarding the utilization of PEO services is: who’s in charge?
Many business owners and managers wonder if employee-related decisions will be affected by the presence of the PEO as the employer of the record.
In a PEO relationship, a PEO and the business owner share certain responsibilities in what is known as a co-employment relationship. The business continues to manage the day-to-day activities of the employees (including hiring, firing, scheduling, training, delegating, setting rates of pay etc…). And the PEO assumes other agreed upon responsibilities and liabilities, including, but not limited to payroll, workers compensation insurance and risk management, benefits and labor law compliance.
In short, the customer is always in charge and retains the right to exit the PEO relationship with 30 days notice.
However, the PEO’s contractual relationship must include language giving it sufficient scope of control in order to be considered the employer of record.
We estimate that it costs a company between 15 to 30% on top of gross payroll in labor costs (including, but not limited to: FICA, FUTA, SUTA/SUI, Workers Compensation Insurance, Compliance, HR administrative costs, employee benefits).
What is your number? How do you fight this?
Well, you cannot eliminate it entirely, but you can lower it. Using a PEO, ASO or other HR outsourcing solution, can dramatically decrease your employer liability and increase your employer viability and reduce turnover.
We often come across small businesses that tell us the other PEO’s that are quoting their business. We are okay with that. Competition is out there, we are well aware of that fact.
However, we see PEO’s quoting business they either cannot get through risk management or underwriting, but they are quoting anyway? There is one national provider that I am aware of that will quote anything to basically block other providers from getting their foot in the door. Then, once the prospect has been sold on the concept and signs on with this provider, the provider will pull an “Aw, shucks…I didn’t know you had employees in that workers comp code…we cannot cover that.”
What they are really saying is, “We just wasted a good amount of your time, but we were able to block our competitors from winning this business…so we win by not winning, too.”
How can a small business owner stop this from happening?
As I see it…and by the rate of clients that are signing up with some form of
HR outsourcing, whether it is payroll services, ASO, BPO or PEO…or even some
web-based HRIS…HR outsourcing is not the wave of the future, but the current
way of doing business.
Consider that a small business owner can potentially save $500 per employee
annually on HR. I have seen PEO’s do just that for small business
owners. How? Easy…economies of scale.
I have seen some payroll services charge as much as $6.00/check…and I have seen some charge as little as $1.00/check.
It depends on frequency of payroll, quantity of checks being cut, how many locations your company requires checks to be delivered and what other services are being provided. For instance, if you have a payroll provider that offers Sect 125, or a 401k, or pay-as-you-go workers compensation insurance, then you can expect to pay more.
The payroll part of the equation is the easy part…it is the additional services and convenience that providers make their margin.