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Fitchburg Firm Looks West For Expansion

Monday August 04, 2008

Taking The Reins

Those are the sorts of responses Lopez likes to hear, because what his company sells is a chance for business owners to, in some sense, stop being employers.

RMI is a professional employer organization, a “co-employer” that not only writes the paychecks and provides the benefits for its client companies but also assumes all the rights and responsibilities of an employer. That includes liability for workplace problems, the right to direct employees and even the right to hire and fire.

If that sounds like an odd model to you, you’re not alone. Lopez says many companies in the Northeast have never heard of PEOs. In fact, he said, three and a half years ago, when his 13-year-old company opened offices in Florida, where there are many more PEOs competing for business, it immediately had an easier time making headway than it has in Massachusetts.

“It’s a lot easier due to the fact that there’s quite bit of market saturation,” he said. “So there’s a lot of knowledge of our service. We don’t have to do as much explaining.”

The notion of contracting out tedious tasks like preparing payrolls and writing employee handbooks may make immediate intuitive sense, but some of the other aspects of RMI’s services require a bit more explanation. For one thing, clients can’t pick and choose what benefits to offer. The same health insurance options, dental plan and 401(k) are available to all 5,500-plus RMI “employees.”

Even more surprising to some potential clients is the fact that PEOs can fire their employees. But that’s something that they may come to appreciate once they understand it, according to Milan Yager, executive vice president of the National Association of Professional Employer Organizations.

Yager said one not-uncommon scenario is that a client refuses to fire a serial sexual harasser because he also happens to be a top producer for the sales department. The PEO, which is typically more aware of the serious liability created by that sort of situation, may opt to get rid of the employee itself. Of course, Yager said, if the company really wants to keep the problem salesman on staff, they can always terminate their relationship with the PEO.

“In reality the business person always totally has control over the business,” he said.

Similarly, Yager said, if a PEO sees a company refusing to take worker safety seriously it may decide to pull out of its contract. In some cases, he said, the knowledge that the employer organization is willing to take such an extreme step can push the business to rethink its position on safety issues.

Yager says the need for PEOs’ services reflects a gap in the knowledge of many employers, even those with MBAs.

“There is nowhere in America that we teach employers how to be employers,” he said. “A lot of businesses are scared to death that they’re going to violate wage and hour laws, and frankly most of them do violate some law.”

Legal Eagles

Lopez said his staff understands the intricacies of employment law much better than most of his clients, even including some law offices. RMI’s clients range in size from three to 300 employees, Lopez said, but most are small enough that they couldn’t afford to have a dedicated HR person on staff.

RMI serves client companies in 28 states, despite having offices only in Massachusetts and Florida, and Lopez said he has plans to open new offices in Texas and the Midwest. The current economic climate has not slowed down his efforts – the company grew 28 percent last year.

In fact, Lopez said, bad economic times actually seem to be good for his business.

“[With] the limited resources that most companies have, especially the smaller to medium size businesses, when the economy gets this difficult they have to look for ways to still deliver their product or service while economizing,” he said.

Lopez claims that, despite the significant cost of RMI’s services, the economies of scale he gets from buying benefits for many employees at once mean many companies can save money by bringing the PEO on. Just as importantly, he said, his services can help attract and retain employees by offering 401(k) plans that wouldn’t be feasible for a small company, or a variety of health insurance options for a company that would otherwise only have one option for its employees.

David McKeehan, President of the North Central Massachusetts Chamber of Commerce, said Lopez has done a good job of exposing people in the local area to the PEO concept through his involvement in the community. But he said many still don’t understand it. In fact, some officials of other business organizations in Central Massachusetts contacted for this story said they’ve never heard of them.

“I don’t think the whole concept of such a service is readily understood by businesses in this region,” McKeehan said, “And by this region I mean probably all of New England. It’s of course a very popular alternative in the south and the west.”

McKeehan said the North Central Chamber sometimes recommends RMI to members looking for a way to handle HR and liability issues.

“The real benefit is that it allows small businessman to focus in on his core business,” he said.

Still, Yager said many companies may balk at shelling out the money for a PEO, especially if they get a price estimate from one of the employer organizations and then have no idea who to call for a counter-estimate.

“In our industry the penetration is so small you could say Ray Lopez doesn’t have competition from another PEO,” he said. “He has competition from a lack of knowledge about his business.”

By Livia Gershon Worcester Business Journal Staff Writer

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