08 Jul Employee Leasing
Running a service business is a full-time job. This is as true for large multi-truck operations or the small family business. The business owner wears many hats. His job description includes much more than cleaning carpet. He also takes charge of selling the service and other marketing functions. But it doesn’t stop there. Our small business owner also runs the human resources department, responsible for hiring, firing and the myriad of federal, state and local laws governing employee matters.
Caring for all these personnel issues does nothing to make the company product. It doesn’t bring in a dime. Wouldn’t it be nice to turn over all these hassles to someone else? You can!
The concept is widely known as employee leasing. Companies who offer this service prefer to be known as Professional employer Organizations or PEOs. The term employee leasing can bring to mind temporary staffing companies or some questionable operators of the past.
The PEO hires your employees. They now work for a company with hundreds maybe even tens of thousands of employee. Your folks continue to work on your jobs but the responsibility for writing payroll checks, depositing payroll taxes, filing paperwork from I-9’s to 941s now rests with the new “co-employer.”
Business owners can now concentrate on what they do best and for most of us that is not government paper work. Make the bids, sell the job and get it clean with fewer distractions. We would consider a doctor, lawyer or other professional foolish for cleaning their own carpets rather than hiring an expert. The same logic applies to us. The core competency of our businesses is carpet cleaning, restoration and related services. It makes sense to spend our time on what we known best.
Joseph C. Dominguez, president of SCI Companies, a major PEO, describes PEOs this way, PEOs similar to SCI provide small to large businesses with access to experienced professionals in human resources, benefits, payroll and OSHA compliance. They can help clients manage employee costs and reduce turnover. By bringing employees into a larger overall group, PEOs are able to negotiate with insurance companies to secure healthcare policies for businesses that they would be hard-pressed to afford on their own. For example, our clients and their employees have access to a major healthcare provider, CIGNA Health Care through SCI. Additionally, with federal and state laws in a constant flux, PEO clients can avoid potentially costly employee litigation by adopting best HR business practices as recommended by their PEOs. As you can see, by outsourcing HR services to a PEO, business owners can concentrate on making their business grow instead of being burdened by paperwork and administrative duties associated with employment.”
A common refrain when cleaners get together and talk shop is how hard it is to find and keep good employees. Using the services of a PEO reduces turn-over by allowing the small company access to big company benefits at a reasonable cost. For example you could offer a 401(k) plan without the overhead of hiring an administrator. The economy of scale often makes health insurance more affordable for the PEO.
There may also be significant savings on unemployment insurance. This is especially emphasized if you have part-time employees, seasonal employees or add staff for large projects. Lay-offs really hurt your experience rating. Spreading that over a large number of employees allows the PEO to maintain a reasonable experience rating and lower costs. One large multi-truck operation who must lay-off employees during the slow season reported 5 figure savings when they switched to leasing.
Unemployment insurance and liability insurance on your employees often must be paid by a single up-front payment. That can be difficult, especially for the owner/operator hiring his first employee. Chris Muetterties, a master cleaner from California, says using an employee leasing organization made the transition to having employees “painless.” He adds that you will know exactly what your costs for each hour you employee works. Taxes, insurance, benefits and other costs are all included in one payment made to the PEO with each payroll.
One cleaner says employee leasing is a “must” considering the high cost of workmen’s compensation insurance in California.
Other offerings from PEOs include assistance from risk management and human resource professionals, Cafeteria plans, health savings accounts, require labor postings for your office. Some offer credit union membership or employee discounts on travel, entertainment and restaurants.
Selecting a PEO
- Review your business to determine your employees want and the services that would benefit you. PEO often offer a choice of packages or levels of service. You want to select the one that fits your needs.
- Meet the people who will be serving you. Can you have a good working relationship with them?
- Ask for references from other clients. You’ll want to talk with companies who already use the PEO.
- Check the firms financial background. Get bank and credit references. While checking reference, check with your state’s attorney general and employment tax office. PEO’s have a good track record in recent years. But their have been cases where tax money from employees and employers was not deposited or insurance premiums never paid.
- See if the PEO you are thinking of dealing with is a member of NAPEO (The National Association of Professional Employer Organizations). Their website, www.napeo.org, lists members along with a wealth of additional information on PEOs.
- Investigate the training level of the PEO’s staff. Are they competent in areas such as administration and risk management?
- Review the service agreement. Is it what you want? Will it suit the needs of your company?
This list was compiled with assistance from NAPEO.
Does a PEO Want Your Business?
In the early years of employee leasing, many PEOs were willing to accept any size client. This still may be true for some smaller PEOs still in the start-up phase of business. Most PEO want to work with companies employing 10 or more people. The average client has 16 to 18 employees.
PEOs recognized by all 50 states and federal government.
What about the legal status of having another company as the employer of record even though you still control your own staff in matters relating to cleaning? PEOs have legal recognition by the IRS (Internal Revenue Service) and payroll tax departments in all 50 states.
Is a PEO right for You?
That certainly depends on your individual situation. But if you want to attract better employees while reducing turn-over, reduce payroll tax paper work head-aches and perhaps save money in the process, then PEOs are worth looking into.