How Businesses Benefit From PEOs

Please note that these sessions are for educational purposes only. TriNet provides HR guidance and best practices. TriNet does not provide legal, tax, or accounting advice. The materials in these sessions and the products, advice and opinions expressed in these sessions are solely those prepared by the presenter and not necessarily those of TriNet.

Katrina Faessel:
Our next presentation will be a top to bottom explanation of the advantages you might expect when you work with a PEO. If our presenters are not able to get to your questions in the session, please join them at their Q&A table immediately after. And now help me welcome to the virtual stage, Kristin Russum, Director, Organizational Development, and Athena Fleming, Director, Sales Strategy and Execution at TriNet.

Kristin Russum:
Hi everyone. We're very excited to have you with us today. As you might have noticed, we are from TriNet and we are a professional employer organization. You'll see us referred to as PEO. We'll get into a little bit more about what that means and some definitions. But we wanted to just take a little bit of time today and maybe show how some organizations are handling their HR and what you might or what you should be looking for as you explore the PEO option.

Our agenda today is we're going to talk about some common HR solutions that people are currently using. And then we'll think about like, the positives, the pros and cons of each one of those. You may be experiencing those particular pain points right now. Then we'll talk about how to maybe look at the right HR option for you. It will, again, make a definition about the PEO and the advantages of this model. And then we'll finish it all up with what are some questions or thoughts you need to be asking of your potential vendors as you're exploring a PEO type model. So, we're going to talk about the four main ways that most small and midsize businesses typically handle their HR needs.

So the first one is you can do it yourself. There are some advantages to that. If you have the time and the desire to be involved in HR aspect of your business, then doing it yourself or say maybe having your office manager or an in-house accountant handle can really help you to maintain a strong sense of control over what's going on.

Obviously, doing it yourself or assigning it to somebody who's already on your books can save resources, at least in the short term. And then, depending on your business size, sometimes hiring in-house, having, you know, maybe one employee take on some additional HR responsibilities can be extraordinarily cost effective.

The disadvantage is that what we find is, many of our entrepreneurs and business owners don't really have an expertise in HR, nor would they consider themselves experts in HR. We find, a lot of times, that the business owners really don't have the time necessary to dedicate to learning all of the ins and outs and the little nuances that materialize in dealing with your people issues and in human capital.

And then lastly, when you have a small number of employees, you can keep some level of control. But what happens when you grow? And most of the organizations that we know about are really looking to grow. So at what point do you go, "Okay, Uncle! I can't do this anymore."

And then we lastly have this huge compliance risk. I think, prior to COVID, when many people were in the office and everybody was in one location, maybe you could keep your arms around that. But now with a distributed workforce, it's really difficult to keep on top with every jurisdiction, every location, every state that you might have an employee, and those laws are changing rapidly and coming online, more coming online daily.

So how do you avoid potential hefty fines or getting cited by some jurisdiction for some law that you weren't even aware that you were maybe in violation of or you weren't compliant with? We'll talk a little bit more about how you can mitigate that risk in the future, but the second option that we see for many of small business size is that if they really want to control it, you can hire additional staff. So, as you grow, maybe you are bringing in your first professional HR person. It could make great business sense maybe from a cost benefits perspective to have that person who is seated in your office, who you have control over and who has a dedicated function exclusively to the HR role.

You know, of course, there's always a downside to that expertise and professionalism and that there's a cost that comes to that. Typically, HR individuals aren't inexpensive and it may not be the best option if resources are tight. And then, even the best of HR people need resources and other support mechanisms for them to keep abreast of all of the compliance obligations.

So there's still some of that compliance risk that's associated even with bringing someone in-house. And then the third option is, and can be a little more scalable than in-house HR, you can tap into expertise by outsourcing and using different vendors. For example, someone who might be handling your flexible spending, if you have that, or your benefits, or what have you.

You can select vendors based on what you need. And as you grow, you can add different vendors. Of course, the other side of that coin is that managing multiple vendors with different financial obligations or renewal rates or just processes can be cumbersome. And then we find sometimes that buying a la carte services is not always the most cost effective. And then candidly, a lot of vendors that are out there are really geared more to that enterprise wide type client and may not quite understand some of the nuances that your organization is a small or medium-size business may be facing.

And then the fourth option, and of course, Athena and I are particularly excited about this option is just using a PEO as a single vendor solution, and it is under this co employer relationship. What we find is they tend to be flexible in what they offer. They're scalable as the business grows. A key value prop of PEOs is that they can help smaller businesses access those big-company benefits, those big-company resources, that robust HRAS system that your employees are looking for in order to do their own self-service functionality.

And, you know, candidly, they can pick and choose what they need typically with prices that make sense to them. Of course, there's a disadvantage to PEO and that is, you know, sometimes that perception of a loss of control. And you know, that is a real concern and hopefully with some of the questions that we're going to show you a little bit later, you can get around that.

Athena, anything that you want to add, anything that you've seen with others that I didn't list here?

Athena Fleming:
You know, we talked to a lot of different businesses and it really depends on what your strategy is and where your business life cycle lies, right? So, are you looking for your business to grow? Do you need more assistance because you're looking or you've brought on a client in a different state so you need to hire someone in that locality? Those are some of the really drivers and looking at different types of HR and looking at a PEO as a single source vendor for your HR.

We also find that when we speak to, you know, when looking at clients are using PEO, 98% of PEO clients would recommend a PEO to other business owners. So in that fashion, it's where you are in your life cycle. It might make a lot of sense to look at this as an option and improving your HR and your company's infrastructure.

Kristin:
I think you hit on that and it was the second slide about, you know, or even the first slide about being an expert, and that's where I think a lot of our business owners are, you know, really thrilled to be able to go, "Hey, you handle it," because they want to focus on their business, not on, you know, "Did I pay payroll correctly?" You know, "Am I hitting the particular law in a particular state that I just opened up a business in?"

So, I would agree that that's a good observation specifically related to the life cycle as well. So, for those folks who may not be as familiar with what a PEO is, let's talk just briefly about some definitions. And PEOs are not staffing companies. So, traditionally, PEOs manage functions such as payroll, tax compliance, employee benefits, workers' compensation, and HR compliance. That's the definition of the PEO. And then, we enter if you become a client of a PEO, it is a specific legal relationship and it's called co employment. The PEO is the legal employer of the client's employees. This arrangement usually allows a company to transfer many of its key employer responsibilities over to the PEO, including aspects of employer related risk and or compliance. Think of things like, if you all of a sudden receive garnishment paperwork for one of your employees, are you handling that correctly?

There are laws around that, and that's the type of thing that a PEO can help with. The formal agreement between a client and a PEO typically will specify the division of responsibilities, and it's really important to stress that once an organization enters into this co employment relationship with the PEO, employees still work for that organization. That's that co employment.  The employer still retains complete control over their operations, hiring, terminating their workforce, expanding, contracting, building company culture, and really establishing that employment brand. So those pieces don't change with a PEO relationship. So now, Athena, I know, I want to hear what you believe are some of the advantages of a PEO and what you've uncovered as part of your work with clients.

Athena:
Absolutely, so it's very exciting to be discussing the advantages of the PEO relationship. And it's wonderful to speak to business owners and clients because not every business is the same. Every business has its different nuances, and we're really here at TriNet to be consultants and to discuss your business, to see if it's the correct time to choose a PEO and evaluate where your business, where you're looking to go.

One of the really great resources for individuals, companies looking at PEO relationship is the National Association of PEOs. They do a lot of work and provide information in one's place so that organizations can evaluate PEOs and they also provide accreditations. And what they have found is that there is a strong ROI to utilize a PEO, and in some cases, we see a 27% savings or almost $2,000 per year per employee of return on investment in utilizing a PEO.

Now, what are those areas where you can save cost? Number one, there's HR personnel costs that Kristin discussed earlier. There's a high cost in hiring HR personnel to manage your employees. And there's also so many different facets of HR, right? There's the hiring side, there's the education and performance management. Sometimes it'll take a team of individuals of HR expertise experts to manage your employee base. So we see cost savings in HR personnel.

Number two, health benefits. The biggest bottom line for your company is those health benefits. So there's a cost there. Number three, workers' compensation. We talk about risk. It is something that is essential for your business organization. Number four, employee unemployment insurance.

Number five, external expenditures: payroll, benefits administration, performance evaluation, expense management. All those different nuances come to and bring a massive cost savings when looking at bringing all of those umbrellas under a PEO establishment. So we'll look at number one, the first advantage of using a PEO and drill into some of those items that I just discussed.

First, flexibility and scalability. It's necessary for businesses. You know, when you provide a bundle of HR solutions, it covers your business as it grows, as your business needs grow. That can encompass, like I said earlier, you know, looking at different regions to hire employees, expanding your talent pool, so you can find excellent talent to meet the needs of your changing business. Also, you know, having an HR platform that handles as few as five employees or as many as 1,000 employees.

And really, when you're looking at PEOs, it's really important to consider. There's thousands of PEO companies out there looking to manage your HR business, but they're not all the same. So, you know, as you look, we'll talk about as you look at PEOs and the questions to ask, make sure that the PEO you're talking to can manage the life cycle of where your business is today and the regions in which you have employees.

Third, big-company benefits. You know, When employees are looking to make a change, company benefits are essential in attracting that great talent. PEOs can offer your small to midsize business a plethora of benefits that can entice great talent to come on board to your organization and stay with your organization long term. One of the things to really look at is, what is the retention of employees and, you know, how long does that PEO retain its clients under its umbrella? Offering those big-company benefits can definitely allow your employees to stay with your business long term and allow you to grow.

The ability to add value added services as you grow is also essential. It's really difficult to manage various contracts and various vendors under your umbrella. And what we find is business owners really got into business because they have a product or service that they're excited about, and it's difficult to manage other vendors that help improve your employees experience within your organization. Some of those value-added benefits can include employee discounts, pet insurance, ancillary benefits that really help your employees to stay with your business and help you to keep employees happy and delighted for a longer period of time.

Kristin:
I get excited when we talk about that benefit slide. And the idea a lot of times with small organizations is they're unable to offer, say a robust 401k plan. And that is such a big draw for people who are, you know, seriously trying to save money from a tax-free perspective, but also to put aside for their retirement. So I think that's a huge draw for many PEOs that you can access that type of thing. And I think we've actually got a slide for that, Athena. I think we may still, there we go. Yeah.

Athena:
You do. Absolutely. You know, access to that big-company infrastructure, Fortune 1000 benefits, you know, is a huge draw for organizations. You know, retirement benefits that we've talked to many companies that it's a large expense to offer retirement benefits and PEOs like TriNet, we have a massive portfolio and we can offer that at a much lower cost, and are really happy to evaluate your situation currently, if you have a retirement program, or if not, and see what it would be to come on to TriNet.

Definitely a huge draw and a huge benefit in utilizing a PEO as well as having a plethora of health care benefit options for employees and their families. You know, families change. Obviously, every family situation varies from year to year and having a large book of options for your employees to choose various benefit programs that change with the employee's life cycle is a really great incentive to keep employees to attract that high caliber talent that you're looking for in your industry and also to retain your best employees.

We've had many conversations with different industries where the war on talent is real, and we see many employers that, you know, their competitors are looking at their top-rated talent and trying to steal them away. But if you're offering, you know, a robust set of benefits, a great compensation program, you have a greater chance of keeping your employees within your organization, and we all know how difficult it is to find great talent to start.

And then obviously you want to keep that great talent long term. So that all is really, you know, part of the picture. And when you're looking at partnering with the PEO is looking for a PEO that has, you know, excellent benefit options, healthcare benefit options in every region where you do business or where you're considering expansion plans.

And really, not all PEOs—because there are so many out there—can offer you various levels of benefits. So something to look at as you're evaluating different PEOs is making sure that PEO can cover the region in which you're doing business and where you're planning on hiring. Also, when we're looking at big-company infrastructure, look for different voluntary benefits and discount programs. Some PEOs have the ability to provide discount programs. For instance, at TriNet, we have a page where you can have discounts on car rentals, hotels, cell phones. Those are all benefits that employees receive when they're working for those large organizations. You can offer that as an SMB as well.

So look for those different programs. You know, I've seen many small businesses throughout my lifetime that are partnering with different organizations to offer discounts, and that takes a lot of time off of your plate as well. Looking at a PEO that has that under their umbrella, something really great and a great incentive for your employees.

HR technology platform is really important, not only for your leadership team and the team administering and processing the payroll, but also for your employees. So when you're looking at PEOs, look at their HR technology platform. Our team provides a demo so that you can take a look at our technology platform.

It is rated one of the top, if not the top platform in the industry. So it's a definite benefit for your administrators and for your employees. We hear all the time from employers what a great incentive it is to utilize the TriNet app, the mobile app, when employees are going to their doctor's offices, when they can look at their paycheck online, so another really great benefit. So look for those PEOs that have that great HR technology platform.

Kristin:
I spent trying to find a gym membership that I could offer to my employees, it was hours out of my day that I will never get back.

Athena:
Exactly. All right. Advantage number three of utilizing a PEO is access to HR expertise. You know, we, at TriNet, have a wonderful staff that is based across the United States and actually globally that support payroll and employee needs. And when looking at different PEOs, the support that you receive for payroll questions is really important. We spend a lot of time in implementation to make sure all the Is are dotted and Ts are crossed on every single payroll cycle. You, as an employer, want to make sure that your employees have their correct paychecks and that builds in your value of their time, their experience. And so, having that support for any payroll questions and employee needs is really something that's important. And it's, you know, the main factor of utilizing that PEO is starting with that payroll engine, you know, all the way through the employee life cycle.

Having HR and human capital consultants is also something that's really important. No employer wants to think about issues that might arise, but they do. And there's different issues that arise on a daily basis and having great consultants that can answer those questions to help with any employee issues that there might be, they might be having or talking even about things like expansion and what is payroll benchmarking for different areas?

Those types of HR and human capital consultants are something to look for when you're looking at PEOs as well. As well, you know, we talk about benefits administration, you know, having a PEO that can answer questions when it pertains to benefits so that the leadership team isn't the one-stop shop for all questions is really important when we talk to clients. They sometimes joke that they'll, you know, put TriNet's number on their door or…

Kristin:
Call here first.

Athena:
Call TriNet first because…

Kristin:
Call TriNet first.

Athena:
…they can answer the questions and it, you know, obviously takes time, gives you time back as an executive or leader or owner of a business to focus on other business needs that help your business grow.

Performance management is another area where we, at TriNet, have a wonderful performance management module so that you can look at, and track and trace and performance management in one place, so that you can understand, year to year where your employees are tracking, and so your employees can see where they're tracking as well and make any adjustments or receive the kudos that they deserve, right? All of that is a piece of that HR expertise puzzle. And you know, when you can place all these functions in one area, it really helps you to manage your business.

Lastly, support and HR compliance with local state and federal laws. We talk about this all the time. Jurisdictions have various laws and it is close to impossible as one person to track all the changes and in various laws. Ensuring that your PEO has the support to be able to answer questions and to make sure that your Is are dotted and Ts are crossed, your finances, taxes, et cetera, is really important.

Kristin:
I think we've got a slide on that one, Athena, that typically will really impress people about, "Wait, what? I have to be knowledgeable in all of these things?"

Athena:
Yes.

Kristin:
Yes, you do.

Athena:
Yes, we do. It's like one of my favorite slides because it just shows how much the workforce has changed and this dates back to 1900 when there was only, you know, a couple of different laws that we had to track and looking at present day and for columns. It's just mind blowing, but also really important, obviously, as a business owner that you're compliant in all these areas, and every business is different and has different laws that they have to comply to.

As a PEO, when you're looking at partnering with a PEO making sure that you have the compliance support for workplace safety, sexual harassment, you know, having that EPLI insurance policy, many businesses don't have it you know, baked in, but you know, when speaking with, you know, HR attorneys, with all the technology out there and, you know, there's just so many different nuances in a business that you might be a blind spot, having that EPLI policies is really important. So, having a PEO that's going to back your organization in case something happens just gives you peace of mind and allows, you know, business owners to sleep at night.

And making sure that they're covered. Obviously, the Affordable Care Act has been in, you know, in effects for about 12 years, making sure you're covered there and again, any new regulations, making sure your PEO’s an expert in that just helps with that peace of mind.

Kristin:
I know we have just a few more minutes left, Athena. Maybe you could walk us through, you know, what are the top few things that someone should be asking when they're considering a PEO and they're considering a new vendor.

Athena:
Yeah, absolutely. So here are five tips in selecting a PEO. First, make sure the pricing makes sense. There are many different ways that PEOs price. You can see per employee per month flat rate pricing. There's a percentage of payroll and everything in between. So my suggestion is to ask for a sample invoice so that you can really look at the different categories where you may be charged or, you know, that might not be fixed, might be a variable cost. So that's number one.

Number two. Verify that the PEO is legitimate and stable. Again, going back to NAPEO, it's a great resource. So take a look, and consider, you know, "is that PEO accredited?" ESAC accreditation is the gold standard. TriNet is ESAC accredited, just like FDIC for banks. You know, see how long that PEO has been around. Those are really important things to consider when you're looking at a partner, because you're looking for a long-term partner and business relationship.

Hiring a PEO, number three, that knows your business landscape. The PEO takes on, you know, a ton of responsibility. And a manufacturing business is much different from a technology business. Find a PEO that understands your business. Find, you know, a PEO that understands your business landscape. You want to make sure that the firm can help you and be a partner. I heard in the earlier section, things like R&D tax credits, if you're a technology company, you might be eligible for R&D tax credits. Does your PEO understand that? And can they help you identify tax credits that can help put some money back in your pocket so you can grow your business?

Number four, find a PEO that provides HR expertise in addition to products. We've talked a lot about that. Do they have support for your leadership team and your employees? Can they answer questions in various states? Look for PEOs that really can be your partner and provide expertise in case, if you're looking to grow. Like, can they do benchmarking and identify ways to help your business expand and for you to meet your goals?

And number five, look for big-company benefits. As we discussed earlier, it will help you attract great talent. It will help you retain that talent from those competitors that are looking to pull away your top performers and it provides overall compensation benefit to your employees.

So with that, I think we've covered a lot of information in the past 30 minutes, Kristin, and we are here to answer any of your questions. We have teams standing by for specific business questions that you might have and I guess we're going to move into Q&A next.

Kristin:
Yeah, I think here we'll have to go to that other site, Athena, so we can answer any questions. So hopefully you'll join us on our alternative table operations and Athena and I will be there to answer any questions that you have.

Athena:
Yes. Thank you.

Kristin:
Thanks.