Professional Employer Organizations

Benefits and HR Powerhouses with Employment Responsibilities

As human resources outsourcing (HRO) gains momentum in America, thousands of businesses are leading the trend by working with professional employer organizations (PEOs), powerhouses of employee benefits and HR services.

PEOs exemplify the hottest HRO trend: multi-process HR outsourcing. They give businesses a one-stop source for the management of human resources, employee benefits, payroll and workers’ compensation.

PEOs deliver one comprehensive HR package that can be more cost-effective, efficient and robust than maintaining an in-house HR and benefits department and negotiating for competitive benefits piecemeal. PEOs provide solutions to businesses through a staff of experienced HR professionals who are the best in their field, and they offer a broad range of benefit plans and employee services.

Howard Stone, executive vice president of administration for Invision, an eBusiness consulting firm, cited two main advantages of working with their PEO, “access to a broader range of benefits, especially health care, to suit our employees, at a rate we could afford; and the availability of a full-time professional HR department at a fixed cost.”

Employee Benefits Powerhouses

PEOs are powerhouses of employee benefit plans for businesses that are having difficulty negotiating quality coverage for their employees. They provide access to a comprehensive employee benefits package that enables their clients to compete for the best talent. PEO’s benefit programs range from major and supplemental health-care choices, including vision and dental care, to 401(k) programs, EAPs and even adoption assistance. PEOs assume the burdens of finding and negotiating the benefit programs and can handle the burdensome and often complicated regulatory requirements, such as those of HIPAA and COBRA. They also handle the details of enrollment and administration.

Nearly eight in 10 PEOs (78 percent) are sponsoring health care plans for their clients, and 94 percent offer 401(k) plans, according to NAPEO’s most recent survey. “We heard PEOs could provide Fortune 500 benefits to small companies, so we selected one,” said Addie Cinquino, vice president of operations for Engineered Assemblies Corporation, a manufacturing company. “When employees and job applicants compare us with other companies our size that do not have a PEO,we have so much more to offer.”

Marshall Boutwell, president/CEO of $83 million, 16,000-member Gwinnett Federal Credit Union with 32 FTEs in Lawrenceville, Ga., has worked with a PEO and particularly values the health care benefits. “Our PEO was able to give us a more efficient health care cost model. They tailored the benefit package to our needs, rather than offering only one option,” he said.

PEOs’ Benefits Include New and Popular Options

PEOs enable client worksite employees to take advantage of many benefit options available to U.S. employers and workers. Nearly all PEOs have established Section 125 “cafeteria” plans to offer client worksite employees the opportunity to offset medical expenses with tax-free dollars. Without the PEO, most small businesses lack the expertise to establish and administer such a program.

When a PEO serves them, many workers can enjoy flexible spending accounts. The PEO handles the administrative details so employees can set aside money from their paychecks before taxes are withheld, thereby reducing federal income and social security taxes. PEOs may also offer the option of health savings accounts (HSAs). The PEO serves as the HSA facilitator and educator, working with the insurance carrier and the financial institution offering HSAs. The PEO puts the HSA into place on behalf of workers at its client locations and educates the business owner and workers about their options for coverage of health-care costs. HSAs may be one of several coverage options that a PEO offers. To add an incentive for participation, the PEO client may contribute to each employee’s HSA. Employees own the accounts, which are portable if they move to a new employer.

PEOs Take Care of Benefit Compliance

Since their inception, COBRA and HIPAA have challenged employers of every size with a multitude of specific requirements for administration and employee notification. The myriad details required by each act have caused worry lines for those not fully familiar with the laws and unable to put all policies and procedures in place. PEOs can virtually eliminate these worries by specializing in HIPAA compliance, including the required privacy policies and procedures, employee notification, risk analysis on health information flow, and employees’ rights.

PEOs that sponsor health care plans for their clients also understand the requirements under COBRA and handle the administration of COBRA with respect to their health care plans. They handle the COBRA claims, provide the required notices, educate the employees about their rights, and clarify the termination provisions. As with all responsibilities, the PEOs’ and clients’ respective responsibilities are clarified by their client service agreements.

Robust HR Technology, Secure Data

A growing number of PEOs have invested in robust technology to support their HR and benefits programs. For any size business client this means a sizeable investment in technology is avoided, allowing the business to invest instead in their own products and services. Because of their significant cost, these portals are often only available to smaller worksites via a PEO arrangement.With the PEO portals worksite employees can review and update their benefits accounts online 24×7, a popular feature. They are becoming more comfortable with interface technologies for benefits and policies, according to research by the Society for Human Resource Management (SHRM). SHRM also emphasizes that employers with benefit programs need to ensure that data integrity, data security and employee privacy are protected. The PEO takes care of this important safeguard and spares the business client the headache of insecure data. The PEO’s reputation rests on a proven track record to deliver the assurance that employee privacy is protected.

Team of HR Professionals, Suite of HR Services

Many PEOs deliver HR management solutions to organizations seeking to hire and retain the most productive employees by providing a team of experienced human resources professionals who deliver a suite of services.

Compliance

PEO professionals facilitate the development and documentation of workplace policies and procedures in accordance with all applicable state and federal employment laws. With more than 60 federal laws regulating employment, it is virtually impossible to stay on top unless you have PEO specialists. For many businesses, having a PEO can eliminate the need to keep an HR professional on staff. Many PEOs assist in developing an employee handbook and provide related guidance and training. They manage required record-keeping and reporting and help focus an organization on workplace rules and employee conduct. They also offer training programs to help clients decrease their exposure to liabilities from harassment, discrimination, wrongful termination and other employment law claims.

Recruitment and retention

PEOs arm their clients with recruiting tools to find the best applicants. Today’s complex employment realities require the sophisticated resources that PEOs provide, including skill evaluations, psychometric tests, background checks and in-depth interviews. Businesses also benefit from the lower fees PEOs provide for such services. Without using a thorough screening process, which the PEO can implement, a business runs the risk of placing the wrong person in the job, leading to lost productivity and costly turnover.

PEOs can also tailor preemployment tests to predict success on a specific job and loyalty to the employer.Business executives often dread the mountain of résumés and numerous interviews involved in recruiting. PEOs remove this burden and deliver good candidates quickly, then handle the paperwork for the new hire process.

PEOs can provide their clients with knowledge about why people leave a company, and why they stay. Losing employees means higher unemployment costs, so a PEO’s proven ability to cut the turnover rate contributes to the bottom line. “My unemployment costs motivated me to select a PEO,” said Brian Bell, president of Capitol Marketing. “I had high turnover in my telemarketing business, but my PEO has significantly reduced the turnover and saved me at least six figures a year.”