Share Your Liabilities With A PEO

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Have you reached that threshold in small business ownership where you’re able …

Have you reached that threshold in small business ownership where you’re able
to acknowledge that you’re not a superhero? That’s practically what you’d have to be to successfully grow your business and perfectly manage the day-to-day administrative duties at the same time. If you’re like other smart business owners, you’ve embraced your mere mortal status and elected to outsource human resources and the tedious tasks associated with it to a Professional Employer Organization (PEO).

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  • 1. 1Share Your LiabilitiesWith A PEOUnmasking the super powerof co-employmentProduced & Distributed by G&A Partners
  • 2. 2What’s so super about co-employment?Outsourcing administrative responsibilities is a smart strategy for employers who wantto focus on the fundamentals of their business. However, under most HR outsourcingstructures, the company is still carrying all of the burdens and risks of being an employer:penalties for late payroll tax submissions, workers’ comp claims, wrongful terminationlawsuits, and the list goes on.Co-employment is often disguised within the shadows of HR outsourcing and can be easilymisunderstood, but it’s a relatively straight-forward legal structure that allows a PEO tobe the “employer of record” for your company’s employees. What’s so super about that?It provides you a sort of business insurance that no other outsourcing structure can -- itallows you to share some of your employment liabilities with your PEO.There are various ways to structure an administrative or HR outsourcing arrangement, andeach has its strengths and weaknesses. Most full-service PEOs can structure their offeringto match your needs, but before you can uncover the power of sharing certain liabilitiesthrough co-employment with a PEO, it is helpful to understand the distinction betweenthe various models.Have you reached that threshold in small business ownership where you’re ableto acknowledge that you’re not a superhero? That’s practically what you’d haveto be to successfully grow your business and perfectly manage the day-to-dayadministrative duties at the same time. If you’re like other smart business owners,you’ve embraced your mere mortal status and elected to outsource humanresources and the tedious tasks associated with it to a Professional EmployerOrganization (PEO). Maybe you’re already experiencing the benefits of outsourcingyour payroll or benefits administration: reduced costs, limited paperwork andminimal time and effort. But are you familiar with your mild-mannered PEO’s truesuper power called co-employment?Share Your Liabilities With A PEO: Unmasking thesuper power of co-employmentPosition Your Company For Success
  • 3. 3Comparing outsourcing modelsAdministrative Service Outsourcing (ASO)Under an Administrative Service Outsourcing (ASO) arrangement, a service providerperforms the administrative duties associated with one or more of your back officefunctions. Outsourcing tedious tasks, like payroll, HR or benefits administration, is verycommon. An administrative service provider can collect payroll data and cut checks ormake direct deposits to your employees’ account. They can also conduct open enrollmentfor insurance benefits and assist in submitting benefit premiums on time. This canalleviate an administrative burden, but you and your company are still responsible forseeing that everything is done correctly and fully liable for any mistakes that might occurin the process.Human Resource Outsourcing (HRO)Using the Human Resource Outsourcing (HRO) model, a professional service provideressentially becomes an adjunct HR department for your company. Not only can they assistwith administering payroll and benefits, but they can also help with hiring, training,compensation, succession planning and termination of employees. Outsourcing HRprovides companies access to a breadth and depth of HR expertise that they often can’tsustain within their own in-house HR departments, but many of the responsibilities and allof the risks associated with employment still remain.PEOs & Co-EmploymentUnlike other HR outsourcing arrangements, in a co-employment relationship, a PEObecomes the employer of record to your workers. So in addition to assuming muchof the responsibilities for yourcompany’s complex employee matters,such as employee relations, healthbenefits, workers’ compensationclaims administration, payrolladministration, payroll tax compliance,and unemployment insurance claims,a PEO also shares some of the risks ofemployment with you. That means thatthe PEO can share certain liability for monetary fees, penalties, or settlement obligationsthat can result from administrative mistakes and missed deadlines. (But thankfully,because the PEO is managing those administrative processes, such mishaps are rare.)Position Your Company For Success“So in addition to assuming muchof the responsibilities for yourcompany’s complex employeematters ... a PEO also shares some ofthe risks of employment with you.”
  • 4. 4Look! Up in the sky! ... Co-employment & liability sharingDespite its ability to share certain liabilities (in a single bound), co-employment can be afrightening concept for business owners. If you relinquish some responsibilities for youremployees, doesn’t it stand to reason that you are also handing over a certain degreeof control? Not at all. While co-employment is indeed a paradigm shift, the changes areprocedural, not fundamental. You still determine your strategic objectives, you still dictateyour company’s agenda, and most importantly, you still direct your employees’ activities.The biggest change you and your employees will experience is in employment andadministrative processes, and if you pick the right PEO to partner with, the change is forthe better. Things run smoother and demand a lot less of your time, because experiencedHR professionals carefully oversee and seamlessly execute proven administrativeprocedures.If you still aren’t convinced, that’s okay. To further unmask the power of co-employmentand liability sharing, let’s walk through a few examples that better illustrate the point.Tax StructuringA small commercial printing company has outsourced its payroll administration to a payrollservice provider for nearly a decade. Over the years, the service provider has done a verygood job. Payroll is almost always perfect and they even submit payroll taxes for the smallcompany accurately and on time. That is, until they didn’t.When their client companies started to shrink, the payroll service provider was forced tocut a few key employees, including the woman that had managed the printing company’saccount for four years. As you might expect, a few things fell through the cracks, includinga notice of taxes due. However, when the smallcompany was hit with penalties for late taxes, theonly reparation from their service provider was asincere and heartfelt apology.A qualified PEO is just as capable of executingflawless payroll as an administrative serviceprovider. Within a co-employment arrangement, however, the PEO is listed as theemployer of record with certain taxing authorities, and thus becomes responsible for stateand federal payroll taxes. That means that the PEO’s proverbial neck is on the line, notyours, to pay any penalties or fees if a mistake occurs.Position Your Company For Success“... the PEO’s proverbial neckis on the line, not yours, topay any penalties or fees if amistake occurs.”
  • 5. 5Safety & Risk ManagementAfter several years in an HRO arrangement, an accident-prone manufacturing companydecided to enter into a co-employment agreement with a PEO. As co-employer, the PEOmaintained a much lower Experience Modifier Rate (EMR), so the company was able tosignificantly reduce the amount it paid in workers’ compensation insurance premiums.Plus, thanks to the PEO’s better-rated workers’ comp coverage, the manufacturer becameeligible to bid on and win several government contracts.The PEO also took responsibility for submitting workers’ comp premium payments andconducting the company’s yearend workers’ comp audit, so there were no costly mistakesor miscodings. Better still, under the co-employment arrangement, the manufacturingcompany no longer had to pay a workers’ comp deposit, and in fact, when they cancelledtheir previous policy, their prior carrier refunded their original deposit. The companywas able to reallocate that money to purchase a new piece of machinery for the plant.Best of all, because the PEO ramped up the safety training for employees throughout thecompany, the company experienced noticeably fewer workplace accidents and they saw asizable decrease in the cost of claims filed.PEO professionals may know little about operating machinery inside a manufacturingplant, but they know how to make HR and administrative processes run like a well-oiledmachine. It’s what they do, and because they do it for a multitude of clients and serveas co-employer for thousands of worksite employees, PEOs experience a lower averageoccurrence of accidents and can maintain A-rated workers’ comp coverage. But only theirco-employment clients can reap the benefits of that.Benefits AdministrationWhen a growing family-owned business engaged a PEO, their new partner quicklydiscovered some outstanding issues with regard to benefits administration. For starters,the company had continued to pay costly health insurance premiums for several employeeswho’d been terminated months earlier. Overthe past year, these extra premiums cost thecompany more than $100,000.Paying unnecessary premiums is like spillingcash. (And like any spill, once the money isdispersed it can rarely be recouped.) Sadlythough, paying excess premiums is relatively common for companies attempting tomanage their own benefits. PEOs, however, have proven processes that prevent excesspremiums from ever happening.Position Your Company For Success“Paying unnecessary premiumsis like spilling cash. (And like anyspill, once the money is dispersedit can rarely be recouped.)”
  • 6. 6Human Resource ManagementA large law firm has an excellent working relationship with their PEO of six years. In fact, thefirm’s HR director values the professional advice she receives from her PEO so much that sherarely makes a big move without first consulting them. So when a young law associate isn’tperforming up to the standards of the firm and the senior partners are eager to show him thedoor, the HR director quickly contacts her PEO for advice before terminating the young lawyer.That was a smart move on her part. Her PEO representative directed her on how best to proceedand was by her side, literally, throughout the termination process. And when the litigious youngassociate decided to file a claim for wrongful termination, the PEO continued to stand by thefirm to fight the claim. Because the HR director followed the advice of her PEO to the letter, thefirm could demonstrate strong cause for termination and they followed the appropriate steps toensure the termination was executed properly. The claim was quickly dismissed.HR matters can be tricky, and for those HR professionals going it alone inside their organizations,it can be especially tough. A PEO provides them access to a variety of professional consultantswith a breadth of skills and experience that few mere HR mortals can achieve on their own. PEOscan provide a reliable resource and a welcomed sounding board for those lone HR professionals.What’s the source of a PEO’s super strength?A common question for PEOs is how do they do it? -- how, under co-employment, can they sharethe risks of all their client companies? You could ask a trapeze artist a similar question. How canhe risk falling from high above the ground without a net to catch him? The answer for the PEO isno different than for the trapeze artist. They are both trained experts at what they do, so the riskof a mistake is minimal.There are no secret super powers at play. Instead, a PEO’s strength is its focus and dedication.A PEO employs HR professionals who have extensive experience and knowledge of a varietyof HR disciplines, so they can understand and manage the nuances of HR that an in-house HRprofessional may not be trained nor have time to manage properly. PEOs also dedicate significantresources to developing systems and proven processes that greatly reduce the possibility of themost common and costly mistakes employers often make on their own.ConclusionOutsourcing your administrative and HR functions is a smart strategic move for any growingbusiness. You can’t unlock the full power of your PEO, however, unless you are willing to takethat super human step to co-employment, because only when you enter into a co-employmentarrangement can you share some of your employer liabilities and unleash your company’smaximum power potential.Position Your Company For Success