Cutting a Good Deal for Employees

As Published in the November 7-13, 2005, Issue of the Central Florida Business Journal/Orlando Sentinel

When Mark Wolfendale purchased Total Medical Solutions a couple of years ago, the Longwood medical equipment company had just eight employees. The company’s health benefits package wasn’t bad for such a small outfit: Employees were given $150 a month to use toward whatever health-insurance plan they could find.

That might have been good enough to keep the small company alive, but Wolfendale had bigger ambitions.

“I was looking to grow the company considerably over the next five years. That meant rapidly adding people, and I knew a PEO was the way to go.”

A PEO, shorthand for Professional Employer Organization, is an outsourcing business that leases—or as the industry prefers, “co-employs”—workers of a given company. The lease arrangement allows the PEO to take over a host of administrative and human-resource functions for small and midsize businesses.

In Wolfendale’s case, his workforce has more than tripled, to 27 and counting. Thanks to Oasis Outsourcing, the PEO with which he contracted, his workers have a full range of medical, dental and vision insurance benefits, as well as a 401(k) plan and an Employee Assistance Program. Oasis also handles his payroll, workers’ compensation, state unemployment and other administrative functions.

Without the benefits package, Wolfendale is convinced many of his employees would be long gone, if they had ever come aboard in the first place. “We have a lot of young employees with growing families; health benefits and 401(k)s are very valuable to them,” he said.

Acknowledging selfish motives, he said the benefits package “has allowed me to keep everyone and make the decision from an owner perspective on who we want to keep on board. It’s allowed us to put golden handcuffs on people.”

Oasis, a large, privately held PEO headquartered in West Palm Beach, is among an estimated 700 PEOs nationwide, according to the National Association of Professional Employer Organizations. About 2 1/2 million U.S. workers are covered by PEOs, the vast majority of them working for companies with fewer than 100 employees.

The typical company that contracts with a PEO has 18 employees and pays somewhere between 2 percent and 4 percent of its total payroll for the PEO’s services.

“Most PEOs say you need at least five or 10 workers for their services to be economical, but any business with more than one employee can benefit,” said Milan Yager, executive vice president of the Arlington, Va.-based trade association.

“To be successful in today’s marketplace, the business owner needs to be the most productive employee and doesn’t need to be pulled away by human resource matters, by payroll, by risk management and other administrative duties,” Yager said.

Bill Clements, Florida district manager for one of the nation’s oldest and largest PEOs, Administaff, said the industry has experienced average annual percentage growth in the double digits for more than a decade. There’s still plenty of room for more growth, however, he estimated that no more than 5 percent of U.S. businesses use a PEO.

That percentage will rise, Clements predicted, as small businesses realize that PEOs can give them strength in numbers, particularly when it comes to employee health-insurance plans.

“If you’re small, it’s difficult to find an insurance company that will cover you; if they will cover you, the rates are high and not affordable,” Clements said. “So, the company either doesn’t offer a plan, or if it does, a lot of employees can’t afford it.”

Employees of Southern Acoustics get their major-medical health plan through United Health Care, “the same package a large company would have,” said Bill Moore, co-owner of the Casselberry acoustical contracting company. He has been in business since 1988 and has contracted with Administaff for all but the first year of the company’s existence.

“We started out real small, but as we grew we needed help,” Moore said, joking that he and his partner are on the PEO’s payroll. “We lease even ourselves from Administaff.”

But there’s no joking about his employees’ health and retirement benefits, Moore said; they have kept turnover low and the staff happy. And he is saving money by getting the benefits package via a PEO that co-employs 86,000 workers.

Bob Palumbo also appreciates the health benefits he can deliver through Administaff to his 50 employees at Advanced Information Systems Group, an Orlando defense contractor. But the chief financial officer says a particular benefit to him is the PEO’s help with government compliance issues.

For a small company that provides information-technology services in a number of states, “it’s easy to overlook the simple things, like what it takes to get state unemployment filed,” Palumbo said, or figuring out dependent care coverage. “That stuff will drive you wacky.”

Peter Zimmermann, owner of StarchildAcademy in Apopka, said a PEO “lets you worry about all the other things in your business you need to worry about. It helps you retain and motivate your staff, and it helps make your life a lot easier.”

Zimmermann, who has a background in financial analysis, switched PEOs last year when he shopped around and found what he considered the best deal. He’s now a happy client of Oasis Outsourcing.

He doesn’t use all of Oasis’s offerings for his academy, a combination school, day care and extended-day facility with a staff of 80. Oasis, like many PEOs, offers recruitment and screening services for new employees, but Zimmermann says that’s a responsibility he won’t outsource. As a regulated child-care facility, “we have to do special background checks through the local sheriff, Florida law enforcement and the FBI.”

But he does appreciate the Employer Practices Liability Insurance he receives through Oasis, which protects him if, for example, a disgruntled ex-employee sues him. He also doesn’t have to worry about searching for a carrier for workers’ compensation insurance. Oasis takes care of that for him.

Such peace of mind is an important part of what a PEO offers employers, said Mark Perlberg, Oasis president and chief executive officer. “The regulatory environment gets tougher and tougher,” Perlberg said. “A large company can handle it, but when you’re a small or medium-sized business, you’re not in a position to hire people to worry about that kind of thing. A PEO gives you an advantage.”

Mark Wolfendale of Total Medical Solutions agreed that having the expertise of a large PEO is a distinct advantage. But the real payoff to him is the prospect of a stable, topflight work force.

“If you have employees with skill sets you want to retain for the long term, the golden handcuffs that [comprehensive] benefits give you are worth the investment. If I lose a skilled person, it will take me three months to find and train somebody else, and another six months to get them to the productive level of the person who left.

“If you have a small company that’s not growing, and your people are replaceable with low skill sets, maybe a PEO is not the way to go.”