Good employee benefits boost worker job satisfaction in any company, and the ability of a small business to offer a competitive benefit package lets those businesses compete more effectively in the war for talent. The key to the success of a small business to offer competitive benefits is often a professional employer organization (PEO), a growing source for benefits, human resources expertise and other employment-related services.
"Small businesses want to add or upgrade their benefits to compete effectively for the best talent and retain good workers," Milan Yager, executive vice president of the National Association of Professional Employer Organizations (NAPEO), said in a statement. "They are learning that PEOs can provide great benefits efficiently and cost effectively. An estimated 40 percent of business clients entering a PEO arrangement significantly upgrade their total employee benefit packages."
-
Number of Americans co-employed by a PEO: 2 to 3 million
-
Average number of employees per PEO client: 16
-
Average gross pay per employee: just over $25,000
-
Number of PEOs in the U.S: About 700
-
Average length of PEO contract: 1 year
-
Number of states that require PEOs to be licensed: 20
Source: National Association of Professional Employer Organizations |
Professional employer organizations are companies that contract with small- to mid-sized businesses to manage their human resource and personnel functions.
While the responsibilities of the PEO will vary by contract, typical duties include paying wages; reporting, collecting, and depositing employment taxes with state and federal authorities; handling claim management for workers compensation and unemployment insurance; ensuring safety and nondiscriminatory regulatory compliance; and supplying employee handbooks and other policies. And, importantly, it also provides benefit packages, including group health insurance.
In contrast, a small-business purchasing alliance, which is another means for small businesses to find affordable health insurance, offers access only to health care insurance.
The National Federation of Independent Businesses (NFIB), whose member companies average 10 employees, looks at PEOs as a possible way to avoid government-mandated health coverage by making affordable insurance more readily available. Fifty-six percent of employees in its member companies currently lack health insurance.
When small businesses contract with a professional employer organization, the PEO becomes a co-employer of that company's employees. And the owner of the business becomes an employee of the PEO, while retaining ownership of their company.
It's all perfectly legitimate under U.S. tax code, which allows a business to have two "masters," says Yager. Yet the dual role of small-business people as both employees of the PEO and owners of their company can be threatening, Yager concedes. "At first, they don't like having to tell the PEO how much they get paid," he says. "But you get paid the same; you still control that. The PEO has responsibility over salaries, but it doesn't set them."
The PEO industry is rather new, emerging just in the last 20 years, NAPEO says. But it's grown exponentially in the past several years as the health care crisis has worsened and as nearly every state has eased up on a key regulation affecting PEOs. In the past, a PEO could purchase benefits only for each of its client companies individually — which, effectively, meant it had no more buying power than the small business itself. Now, no longer is it four-person "Family" Construction seeking an HMO for affordable coverage; it's 126,000-employee Staff Leasing PEO.
Because of their economy of scale, PEOs can offer a variety of health plans. For example, a Florida PEO offers an HMO, a point of service plan (POS) through Blue Cross and Blue Shield, and a preferred provider plan (PPO), with separate dental and vision plans also available.
Small businesses with PEO arrangements are also more likely to offer workers a 401(k) retirement savings program in an era when access to 401(k) programs is dropping among small-business workers, according to the U.S. Small Business Administration (SBA). One reason is the cost barrier. Without a PEO, a business faces more than $7,000 to establish a 401(k) program. A business client of a PEO can avoid this expensive set-up fee by having its workers participate in the PEO's plan, NAPEO reports.
Any business can find value in a PEO relationship, NAPEO states. An average client of a NAPEO member company is a business with 16 worksite employees. Increasingly, larger businesses also are finding value in a PEO arrangement, because PEOs offer robust Web-based HR technologies and expertise in HR management. PEOs can partner with companies that have 500 or more employees and work in conjunction with their existing human resources department.
NAPEO reports that PEO clients include many different types of businesses, ranging from accounting firms to high-tech companies and small manufacturers. Many different types of professionals, including doctors, retailers, mechanics, engineers and plumbers, also benefit from PEO services.
But not all businesses will be welcomed with open arms by PEOs. Some, like off-shore drilling enterprises, professional athletic teams, and dog groomers, are hard to regulate for safety issues and thus make less appealing clients, according to NAPEO information.
The PEO industry is estimated at $42 billion in gross annual revenues, with over 700 PEO's offering a array of benefits in all 50 states. With the additional benefit offerings avcailable through a PEO, the average member company has grown over 20 percent per year in each of the past six years, NAPEO reports.
PEOs provide enhanced access to employee benefits for 2-3 million working Americans, with the number growing every year because of the savings and benefits that a PEO can provide to small businesses. PEO expertise improves the work environment and increases safety.
The average gross pay of a PEO worksite employee is just over $25,000 annually. Because the average client of NAPEO's member PEOs has only 16 worksite employees, without the PEO relationship these workers would not have protections under Consolidated Omnibus Budget Reconciliation Act (COBRA), the Age Discrimination in Employment Act (ADA) or the federal Family and Medical Leave Act (FMLA).
Continue to: Small businesses offer big benefits through PEOs, part II
|
British Citizens:
Canadian Citizens:
