How Businesses Benefit From PEOs

Please note that this session is for educational purposes only. TriNet provides 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.

We hope you enjoy today's event and with that we'd like to turn it over to Kristin Russum, Director, Organizational Development, and Athena Fleming, Director, Sales Strategy and Execution at TriNet to give us a top to bottom explanation of the advantages you might expect when you work with a PEO.

Kristin Russum:
Hi everyone. Welcome to How Businesses Benefit from PEOs. My name is Kristen Russum.

Athena Fleming:
And I am Athena Fleming.

Kristin:
We're very excited to be with you today and hopefully being able to impart a little bit of information about, what you should be considering as you're evaluating how you want to handle your human capital needs.

So as we get into our agenda—four options for handling HR—so we'll talk through what those look like. We'll really take a deep dive into what is a PEO, some of the advantages of using a PEO and then due diligence when selecting the right PEO. And then if time permits, we may have a few questions that we'll try to field when we come through.

So as mentioned, we're going to get into our four options. So option for handling HR number one. You can do it yourself or delegate the job to current internal staff.

You know, there are a couple of advantages to that. If you have the time and desire to be in the HR aspect of your business than doing it yourself or having, say, your office manager or an in-house accountant handle basic HR duties can really satisfy that control of that particular arm.

Of course, when we think about that, doing HR yourself or assigning it to someone whom you're already paying resources or, you can spend some of your resources there. And depending on your business size, sometimes hiring in-house, having one employee take on additional HR responsibilities, or doing it for yourself for a little bit, can be very cost effective.

So, we've got a couple of disadvantages too. What we typically find is really a lot of our founders and CEOs are maybe not as savvy in the HR space. And then really, do you have the time to master and perform all of the HR functions of their business and doing that effectively?

We know that, if you think about not many business owners get into their business thinking, “Oh, I've got a passion for HR,” it becomes a necessity there. And that's where we would encourage you to try to stay focused.

Athena:
Yeah, absolutely. I’d like to say one thing, Kristin, from what I’ve seen.

Kristin:
Yes, please do.

Athena:
What I've seen in the field is, you know, and business owners don't necessarily get into business to do HR. And a lot of that falls on the CEO, the CFO, and it takes a lot of time to manage internal HR for your organization, for your employees. And it takes the sight away from the reason that you're in business, you know, working with clients, creating a product, creating culture, and that is, um, doesn't get the time to put back into the organization. So you know that can be a disadvantage that we see in the field and why we've seen a lot of clients or come to TriNet looking for a different solution.

Kristin:
Yeah absolutely. I mean, I think about just the idea of scaling and the elements of scale that become problematic. And scale is a good thing to have if an organization is growing rapidly. If you think about doing and handling your HR in-house, your HR has to scale as well. And we know how difficult it is to find good people.

We also think about another disadvantage. And, you know, this is the sweet spot that TriNet sets is the compliance risk. There are thousands, that may be, we may be, you know, rapidly approaching tens of thousands of laws on the books right now that affect small, medium sized businesses in the U.S. and they change with, like, the velocity is absolutely amazing. Even though there's really no way for a single business owner can keep abreast of these laws, you're still responsible for adhering to them.

The law doesn't, doesn't say, “Oh well, he didn't know about it, so you get a pass.” Unfortunately, that's not quite how it works. And some laws might, you know, create a scenario where you get shut down if you're not adhering to all of the payroll laws, for example, and timely deposit of, you know, IRS withholdings. That could be very problematic and cause a lot of issues there.

All right. So as we move then to option number two, you can hire additional staff to run HR. So, business owner, if you really want to control your own HR function, this is one way you could do it. Also, for larger companies who may be graduating from their SMB phase and getting up there in size may see that it makes good business sense to have a dedicated HR professional in seat.

Some of the disadvantages are a real experienced a knowledgeable HR professional or a team of HR professionals doesn't come cheap. Anybody seen that triangle that says good, cheap and fast? So if you get solid HR talent, you're going to be paying for that HR talent. So if the company you’re at doesn't have the revenue to justify in-house HR, it may not be the best option. And then what we find, often the more employees you have, the more work you have to do. And we talked about that on the last slide as well, that you have to scale your HR team as well. And, you know, so being able to support that piece is really important and having a plan for that and a budget for that primarily.

So as we move to option number three, you can outsource to multiple vendors. You get a vendor for payroll and another for benefits and so on. This is probably the most common scenario that we find when clients are exploring moving into a PEO. This option can be more scalable than in-house HR. And the reason for that is that certain brokers and or different vendors can do different tasks that you may have to hire a headcount internally, but you still have to manage those vendors and make sure that they're meeting your requirements as an organization and adhering to any compliance obligations that you've maybe set aside.

If you're a highly regulated industry, for example, you've got to make sure that your vendor also adheres to those same things. You can tap into real HR expertise. The in-house option may not bring to you by doing that. Like you may be able to call a consultant and or your broker to ask questions about benefits, for example.

A couple of the disadvantages: you're managing additional vendors. That's cumbersome and how do you know who's on first and who does what? Who has what? So having a bit of a, you know, herding cats mentality with who's going to do certain things. It can also be not necessarily cost effective.

Oftentimes when we look at multi vendors, some of the structures are their payment schedule is not as transparent. And so often you don't know what you may be paying and you don't have a real true understanding of the cost.

And then I think, you know, one of the larger things would be just the idea that not all HR vendors understand the particular nuances of small, medium size businesses and the verticals that they're in.

And Athena, I think you can probably speak to this that, you know, our SMB, these are they're small, but they're mighty and they have needs that really mirror what larger organizations bring. But, you know, sometimes that scale is that is that pretty accurate with what you see out there?

Athena:
Absolutely. Especially post-COVID. You know, we've seen many small businesses change dramatically. Businesses that thought they would always have employees in one location and their employees would always come into one office, had to adjust. And that adjustment has continued in the past two years. So you have employers whose entire business has changed, so they might have employees in 12 states, which wasn't planned for previously. And that becomes very complex. And you're looking at, you know, what a large organization might see with those complexities.

And, they really need that advice from an HR manager that can understand that legislation because they're not going to understand laws in every state or they'll have to hire outside resources to make sure that they're compliant. So, yes, 100% it becomes very, very complex.

Kristin:
It really does, or you may have to have your attorney on speed dial, and we know that can get that can get quite pricey. You know, you think about that remote scenario, Athena, and that's such a real thing.

And we know working with some of the clients that we do right now, that, “Hey, we've got a we've got an office presence in California, in New York and in Florida, and then, you know, three states. Okay, we know what those three states are.” And then the next thing you know, they're in 22 states and they didn't want to let anybody go. And so they had to figure out how to scale with that.

Athena:
Yes.

Kristin:
It's a, it's a real challenge.

So as we think about option four, then you can use a PEO. Yay, go TriNet!

So we're going to tell you a little bit more about a PEO in a second, but here are a couple of major advantages and disadvantages. We tend to be flexible in what we offer small, medium-size businesses and scalable, so depending on what you need, PEOs typically will have a solution that will fit your needs.

The key value prop of a professional employer organization is that they can help smaller businesses access those big company level benefits and take advantage of Fortune 500 infrastructure. But in a way, and certainly with the pricing that makes sense to them.

Disadvantages, we've got a couple listed here, just employees, employers feel loss of control. You know, what does that look like? And then confusion sometimes with, okay, who owns what? And are my employees still my employees? You know, who where are the bright white lines there?

I know from my personal experience of being an in-house HR team, and I’ve been in both scenarios where I was the solo HR person and had a multi-vendor relationship, I’m good, but, you know, having to remember all of the different laws and making sure you didn't drop the ball on so many things, really does make a PEO a very appealing construct, especially something like that would have allowed me to continue to scale and help the organization on more value-added activities like culture development and really getting the right people in seat. So, just my point of view as it relates to what it looked like there.

Athena:
Absolutely. Love that point of view and I'm sure you know, managing HR, that is that is really what excites, you know, HR managers is building that culture, and the administrative part, I think is necessary. It's part of the organization, but when you can really hit culture, that changes the entire organization.

Kristin:
It really… we start to get some lift. I mean, who wants to chase down missing direct deposits? You know, not me. Absolutely.

Athena:
Absolutely.

Kristin:
All right, so why don't we talk a little bit about the definitions of a PEO. And Athena, why don't you take that one?

Athena:
Absolutely. What is a PEO? A PEO is a professional employer organization and we work with small to midsize companies and help outsource their human resources, specifically employment and HR management services.

So what does that mean? That means payroll and things like the direct deposit that Kristin just mentioned. That can mean that benefits administration, workers’ compensation and we can also look at retirement services.

PEOs are… there is a National Association of Professional Employer Organizations as well, which is NAPEO. You can also find more information about different PEOs there. There are thousands of PEOs in the marketplace, not all PEOs are the same. There are very many different nuances, so we're going to get into a little bit of what to look at when you're evaluating moving your HR services to a PEO construct.

What's really important is defining what is co-employment. Co-employment is part of the PEO construct. When you work with the PEO to provide HR services, your company enters into a co-employment relationship. That co-employment construct places the PEO as the employer of record is responsible for collecting, remitting and filing payroll and reporting payroll taxes. So the PEO’s actually on the hook for administrating all of that that information. So in essence, the PEO, your employees, will see the PEO as the employer of record.

For example, when they're receiving their paychecks, they'll see that PEO’s name or logo as the employer of record. However, that does not take away the management and the fact that you are still the business owner. And so beyond the employer of record, the PEO does shoulder the risk that your business is still responsible for establishing best practices for hiring, making hiring and firing decisions, and defining culture.

That still remains with the business with yourself and we are on the back end to make sure that we're administrating all of the services to maintain and mitigate any risk that might come across your business.

Kristin, anything to add there?

Kristin:
Yeah, thank you. You know, we do get quite a few individuals who are very confused by this construct. And, you know, I like to say, well, you know, really, you as the employer are still defining the who, what, where, when and how, all of those things remain exclusively under your control.

My job as an HR professional within TriNet, is to advise and give counsel and mitigate risk and to tell you, “Hey, these are best practices or things that you could or shouldn't do.” But ultimately, the decision to hire and or fire give raises, get promotions, all of those things are all your responsibility, and under your control.

Athena:
Absolutely. Now let's look at the advantages of using a PEO. The first advantage is flexible and scalable. So that the bundled HR solutions covers your business as it grows. We typically work with employers that handle as few as one to as many as 1,000 employees. And that gives you the opportunity to scale and grow the access and the amount of businesses that are part of that PEO allows you to have economies of scale in negotiating power when they look at things like medical benefits, workers’ comp insurance, EPLI, which can be offered by many PEOs like TriNet.

So all of those services are bundled and provide us economies of scale when working with different vendors. So as your organization looks to partner with a PEO, you can provide your employees benefits that they might see at very, very large competitive organizations.

In addition, we talked a little bit about multi-vendor solutions, many PEOs like TriNet have the advantage of offering ancillary benefits, so that you can offer things like perks, discounts, you know, other benefits that you might not be able to negotiate as your own business just because there isn't enough time in the day to work with that many vendors. So we're very flexible, we’re scalable with your business and allow you to add as many employees as you need as your business grows. And that's advantage one.

And looking at the next advantage: access to big-company infrastructure and benefits. As I spoke earlier, the more health care benefit options for employees means that you can attract a higher quality of talent for your business. You know, obviously when individuals are looking for changes in career, etc., benefits are a very large portion of the evaluation process. So being able to find those employees is really important to have that as part of that recruiting package in your organization and things like retirement benefits. And small and mid-sized businesses don't often have the ability to manage retirement packages or they're very, very expensive. So being part of the PEO, that is part of that negotiating power that we have. So those can be included as part of the benefit as well.

Kristin:
Athena, if I could pop in here, I mean, I think about retirement. It's that when you have your own retirement plan, you have to have an audit, you have to have, you know, checks and balances. Just the dollars and then administering those monies, to get the money from your account into your participants’ account in a timely way, you know, can be some really high penalties if you miss those deadlines. And that ability just to have something turned on and available to your employees without really having to think about it is just so much peace of mind. It's amazing.

Athena:
Yes, absolutely. And so important in this day and age is to make sure that you have those types of benefits set up for you, for your employees so that they stay with you longer. You know, we've seen so much attrition, so much movement in talent. You know, there's definite talent wars in different industries. If you can bundle those benefits into your employee packages, they're going to stay with your organization longer, help you grow, help you be more successful.

The other thing that really is a huge advantage is that the buying power of those benefits and discount programs that we offer, we can offer, for instance, organizations like TriNet, it might offer services and discounts for mobile devices, cell phone carriers, theme parks. You know, there's different packages that you might see at a large Fortune 100 company, you can offer that to your organization.

The HR technology platform for administering and benefits is something that TriNet prides ourselves on. You know, we have a tech platform so that you can have your employees have access to their HR stack. Expense, time and attendance, and, you know, paychecks, W-2, all on one platform so that you can have access to that on the go.

The next advantage of using a PEO is access to that HR expertise. Kristen, I know this is near and dear to your heart and I would love to pass the baton to you.

Kristin:
I love it. You know, what this does, typically is it frees up the employer to do what they do best and allow some of the more mundane tasks which are infinitely critical to your employees. If you mess up a paycheck, you're going to hear about it. And it's a huge distraction. So, helping and allowing your employees to have access to tap into their own payroll, their individual HR questions. You know, typically those will have some sort of support center to help with everyday needs. For example, chasing down “where's my direct deposit?” That type of thing.

And then usually you'll have access to be able to tap into some HR expertise that can help you with more difficult questions. I think about things like a tricky leave of absence or maybe somebody has been injured on the job and you're trying to figure out how and why and what does that support look like. And, you know, those types of things that again, unless you're doing HR day-in and day-out, you may not be as familiar with it. And your knee jerk reaction may not be the best one to support the employee and or mitigate risk for your organization.

And then, you know, it's all of that compliance. I mean, there's just so many laws. It's, it's just crazy. A couple of other things that we see, you know, strong PEOs may also have a strategic planning arm where they can help with things like workforce planning or employee engagement and retention. How do you keep the employees that you have and do you have a plan for that? Are you, are you suffering from attrition and you want to shore that up?

You don't have to think of all of those ideas on your own. You have a partner when you're using a PEO to get there. I do get very passionate about this, Athena, I really do.

Athena:
I know. Ongoing HR compliance support—we talked about this earlier. Earlier, Kristen mentioned the amount of laws has changed dramatically. As you can see from the 1900s to present day, the box has just grown immensely. The amount of laws and legislature is important. It's important to track. It varies state by state. And you have to really consider when you're partnering with a PEO, one that has that back office that is going to look at those legislatures and make sure that you're compliant in every state, every city that you're practicing in.

You know, obviously, workplace safety is very important. You know, sexual harassment training and ensuring that your handbooks are up to date, making sure that you have employer practice liability insurance in case something does happen that you're not expecting. You know, something as catastrophic as we've seen in the marketplace, where a business owner wasn't expecting that can make a business go under, and you can't recover from some of these types of things that happen.

The Affordable Care Act, new regulations like payroll transparency, there's new laws that are coming, you know, day-in and day-out and it's really important to have an understanding of what is involved in ensuring your business and your employees are taken care of and that  you have things in place to make sure that your business can grow and thrive.

Kristin:
Yeah, Athena. As I think about this, this compliance, you know, the one thing that we think about is federal compliance. And we've mentioned offhand about state compliance, but we're seeing compliance obligations and different laws and regulations get down to the city level and certain cities specifically have enacted ordinances that require, for example, minimum wage that you have to pay or just even nuances into the vertical or the industry that you're in. You may have a law that's applicable to you in a particular city that you need to be aware of. So it can become a bit of a landmine for many, many companies.

Athena:
Absolutely. And that takes us to the due diligence in selecting a PEO. As I mentioned before, there are thousands of PEOs available. Some are national players, some are local players. It really does, it depends on what type of business organization you're looking to grow into.

So, what we advise is really making sure that you take a look at these five categories. First being making sure that the pricing makes sense. Some PEOs provide a flat rate per employee, per month pricing model, which helps you when you're thinking variable versus fixed cost. As your organization grows, the cost changes. As your organization may retract, your cost changes in that model.

Others charge a percentage of payroll. And we've seen everything in between from allocating different cost, etc. You know, one of the steps that might be responsible is asking a PEO for a sample invoice to see what their invoice looks like, to see how things are charged, and then asking how different charge rates affect pricing. Does a bonus or commission add additional charges? So make sure that when you're evaluating different PEOs, you're looking at the various pricing models because they are different.

Second, verifying that the PEO is legitimate and stable is also very important. As I mentioned earlier, NAPEO is a wonderful resource for individuals or businesses that are looking for a move to a PEO. What we've also seen is there have been studies that show a strong ROI. One study showed that companies utilizing a PEO showed a cost savings calculated at roughly 27% per year. Those cost savings really can relate to HR personnel. And you know, hiring an individual can be very costly. Health benefits, workers’ compensation, employee, employer unemployment insurance and then external expenses which are, you know, payroll benefits, administration, etc.

So, you know, making sure that you're finding that right legitimate and stable partner is very important because you can eliminate those fees that you're paying with a multi-vendor solution.

Kristin:
Hey, Athena, if I could pop in here, the one thing that we don't want to forget is that, you know, looking that they have accreditation through the Employer Services Assurance Corporation. So think FDIC for PEOs and the ESAC continually monitors HR outsourcing firms for adherence to important financial, ethical and operational standards. So you know that you're, you know that your employees are not going to be hung out to dry if all of a sudden your PEO goes belly up. So that's an important element to think about.

Athena:
100 percent. Absolutely. The third that we see is hiring a PEO that knows your business landscape. TriNet, for example, offers industry specific expertise. A manufacturing organization may be very different or is very different from a health care practice. They have different needs. It's important to understand what those needs are, what is important to offer in a staff for those organizations. So looking to PEOs that can understand your business is really, really important.

Other things like the size of your business, do they work with organizations that are your size or do they work a different proportion of that market? You’re a large organization and you have a thousand people. Has the PEO worked at that that size of organization? So ensure that they have the back office support to support your needs and your business needs as you grow and evolve.

The fourth category is understanding and finding a PEO that provides expertise in addition to products. You know, Kristen's a perfect example. Her expertise in the operations space is really surmount to taking that and just, you know, planning with our clients. I'm not sure, Kristen, if you'd like to share a little bit about what we do.

Kristin:
Yeah. I mean, I think from an expertise perspective, what you want is to make sure that the people that are sitting in seats that you're going to be getting advice from, do they really know their stuff and are familiar with all of the laws in the states that you work in, have expertise in the variety of topics, compensation, benefits, work comp, all of those things you want to make sure that whenever you pick up the phone that you're going to be able to get a credible answer and a response to your immediate need.

Athena:
Absolutely. Next, ensuring that you are looking for big company benefits, number five. You know, there are national players and local players that offer different benefits categories. And if your organization does change, as we mentioned earlier, and move into a different state or city, does that PEO offer benefits in that area?

It's really important. We see it time and time again where employees are not covered in different locations. So, just consider what type of organization you are immediately and where you're looking and striving to become, is really what we ask and how we go through the process with our prospects, with companies that are looking to join TriNet. We really are a partner. We are an arm of your business to ensure all of this compliance, ensuring that your company has the benefits that they need for their employees today and in the future.

Kristin:
Well, I feel like we've had a really great conversation, Athena, talking about ways that you can handle your HR and just the things that you need to be thinking about as you're exploring PEOs. Are there any other thoughts that you want to leave our group with before we finish up today?

Athena:
Absolutely. I appreciate everyone's time. I would just say that this is definitely achievable. It absolutely takes planning. There are things to consider. Do you want a renewal to start in the quarter, beginning of the year?

You know, we definitely help with that process. So we look forward to the opportunity to speak with your organization and make sure that we are understanding what your needs are. And this is achievable and we look forward to working with you.

Kristin:
That's great. And just as a reminder, we do have some resources for you on the landing page, on the event page here. So we encourage you to look at that information.

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