Last month I wrote a piece that helps Employers identify whether or not their organization should utilize a PEO.
I felt the need to touch on that topic because, honestly, it is my belief that not every organization should use a PEO. For some organizations, using a PEO will bring value and as a result, growth. For others though, using a PEO could be a complete waste of money!
The PEO industry, by nature is not black and white. Therefore, it can be difficult for an employer to navigate alone. There are two major questions to be answered when considering utilizing a PEO:
- Is a PEO Right for My Company?
- Which type of PEO should my company utilize?
I will now attempt to answer question #2. You will want to grab a cup of coffee for this one.
For the sake of this post, I will separate PEOs into 2 categories.
*Disclaimer: These are categories made up by me and are in no way, shape or form official PEO categories.
Category#1: “Administrative PEOs”
“Administrative PEOs” are the types of PEOs that focus heavily on White-Collar Employers such as Law firms, Bookkeeping Firms, Insurance Agencies, Banks, etc. These PEOs provide tremendous value in human resources, benefits administration, and similar forms of legal compliance. These types of PEOs can also provide relief through Workers’ Comp and Safety Programs, though these areas tend to not be the main focus with these types of PEOs.
Category#2: “Blue-Collar PEOs”
“Blue-Collar” PEOs mainly provide relief for Employers that have issues in the areas of Workers’ Comp and safety/risk management. Their target client usually falls in a higher risk industry such as Construction, Temporary Staffing, Home Healthcare, Transportation, etc. While these organizations tend to focus on Workers’ Comp and Safety, they can also provide value in other areas such as Human Resources, Employee Benefits, etc.
Immediately, one can start to see in which category their organization might fall.
That being said, just because your organization falls into an industry that was categorized as needing a “Blue-Collar PEO”, this may not be the case. This also goes for “Administrative PEOs”.
Let’s take a Landscaping Contractor for example.
ABC Landscaping, Inc. has been in business for about 10 years and they have grown to about 20 Employees. Depending on their situation, these guys could benefit from either type of PEO.
Let’s play with two scenarios
Scenario#1: ABC Landscaping, Inc. is having some growth issues because their bids are just not competitive with other Landscaping Firms. It seems like this company is stuck at 20 Employees. Fortunately, there has never been any employee discrimination type claims or Human Resource issues. Though, their Workers’ Comp Claims have been out of control and they are paying almost double the regular workers’ comp rate which is contributing to their non-competitive bids.
Scenario#2: ABC Landscaping, Inc. is starting to experience growth on a large scale; so much so, that they may have to increase to 40 employees by the end of the year. The organization has a great safety program and never has any Workers’ Comp issues. Though, since hitting the 20 Employee mark, there have been a lot of questions from employees about benefits, time off and the company’s overtime procedures. These questions have forced management to take on a new role and shift their focus from generating revenue to researching these HR issues.
Based on the non-official categories listed above, it is fairly easy to determine that Scenario#1 might leave ABC Landscaping, Inc. with a “Blue-Collar PEO”.
This means Scenario #2 would leave the company with an “Administrative PEO”.
Here is how the company would benefit in each scenario.
Because of their Workers’ Comp claims experience, ABC Landscaping, Inc. is stuck paying a Workers’ Comp Rate of $26.00 per $100 of payroll, instead of the (California) Average rate of about $14.00. As mentioned above, they have 20 employees. Let’s say these employees are all Full-Time and make an average of $13.00/hr. That brings their annual payroll to about $540,000. Instead of paying approximately $75,000 like their competitors, they are stuck paying about $140,000. PEOs that specialize in high-risk industries can generally reduce that $26 rate and save the company a considerable amount of money. Due to the organization’s great relationships with their employees, they can focus on their Workers’ Comp issues that are affecting the business.
Because of their favorable Workers’ Comp experience, ABC Landscaping, Inc. is accepted by a PEO that only likes low-risk companies. As mentioned above, the organization is growing at such a high rate that they cannot keep up with Human Resource Obligations and are feeling overwhelmed by their rapid growth. An “Administrative PEO” will help the company focus on building these types of systems, as well as, implementing benefits plans to keep employees happy and the company out of trouble. Because ABC Landscaping, Inc. has done such a great job with their Workers’ Comp and Safety in this scenario, they can take time to address these other areas of the business.
So there you have it!
I’ve said it before and I’ll say it again. There is no one-size-fits-all answer when you are dealing with such a fluid industry.
Research and careful analysis are necessary to make the right choice. If you choose to bypass these steps, you may end up with a PEO that does not fit your company’s needs and causes you more headaches than you set out to fix.
As always, feel free to reach out to discuss this post or ask any questions that come to mind.
Partner – TCA