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Are you INSANE…. Why go PEO? | PEO Blog

Thursday October 06, 2011

by Joe Caulfield
Now that I’ve got attention I’d like to share some stats and my thoughts on why the business community should consider using a PEO.

Why is the Professional Employer Organization (PEO) a $51 billion industry?
Why are there are over 700 PEOs working in all 50 states?
Why have 50,000+ small and mid-sized business organizations bought into the PEO concept?

Are the business owners who are players just not bright? 

ARE THEY WASTING THEIR MONEY?

All PEOs have the task of selling to the small and medium business market. They sell to small business owners, a turnkey system of human resources that includes:

• Payroll + Job Costing +
• Worker’s Compensation +
• OSHA Regulation +
• Benefits + Ancillary Benefits
• Human Resources +
• Regulatory Compliance

PEOs contractually assume substantial employer rights, responsibilities, and risk through the establishment and maintenance of an employer relationship with the workers assigned to its clients. Simply stated PEOs mitigate a company’s risk.

When you start looking at the reasons a PEO could be bad for a business the list ends up being very short.

On most surveys, you find three main reasons that people list as potential hazards.

1. Loss of loyalty from employees = everyone entering into a PEO arrangement has this same concern – the answer is that PEOs are the co-employer of record for administrative purposes only. You are still the boss.

2. Loss of control of major issues that could face my company = the fear may exist, but fortunately, this objection is not reality. The only control question is one regarding gain. You have gained control of your costs and found someone else to do the paperwork, and you will spend more time with your employees because of it.
Furthermore, the client companies agreement gives them the right to terminate services. The client company is the boss.” A PEO relationship allows them to gain more control.

3. Cost = there is mass confusion in this area.  The reason for the confusion is very simple.  Entrepreneurial schools, business schools and most other schools don’t train people in this area.  Literally, it is left out of the general-education curriculum for business people. I had to go to Ernst & Young to get an answer.  The answer is “payroll burden.”  Payroll Burden is ALL those things you spend on, or in support of employees that contributes to overall costs.  Why is this important?  Business people do not know what they are spending now. In the face of this, they use hard costs as a number, or they use hard cost plus SBA numbers (which is better), but the fact remains – they do not actually know the magic number.  As a result when a PEO consultant says 17% or 21% or whatever, there is no data of comparable magnitude. This means the cost can SEEM high. 

The answer is cost analyses, which some companies now have that help the business owner see exactly what they are spending, so that they have a comparison. It should be stated that PEOs take the variable cost of having employees, and make it a “fixed cost” – how does one measure the importance of that?

When you look at a PEO’s ability to deliver:

• Regulatory compliance,
• Payroll,
• 401(k),
• Medical plans,
• Plans administration,
• Dental,
• Vision,
• Human resource consulting,
• Better cash flow,
• Predictability of employee costs,
• Mitigate risk,
And the list goes on…

There is not a bigger bargain on the planet. Plus, the client and her/his staffs are now focused on their core competencies in driving more dollars to the bottom line.

Finally, there is also the fact that a normal small business cannot begin to afford the type of personnel that a PEO has.  When you look at the talent pool within PEO’s it is staggering.  The benefits experts, human-resource experts, legal experts, payroll experts, tax and compliance experts and safety experts could make you drool in envy.

Joe Caulfield has been in and around the PEO business since 1994.  He is the author of a PEO sales book entitled “Rapid Sales Success”.  To find out more, visit Joe’s website at www.rapidsalessuccess.com

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