THE OUTSOURCING OPTION For small and midsize companies, outsourcing benefits and human resources to a professional employer organization (PEO) is a more likely solution than hiring a dedicated staffer. By allowing many small companies to access the resources of a much larger organization, PEOs can provide comprehensive human resources and benefits services at a relatively low cost.
PEOs do everything an HR coordinator would do, including managing payroll, workers’ compensation, health insurance, and retirement plans. Many also provide free consulting to help with establishing HR policies, as well as benefits education.
The way it works is this: A PEO enters into a relationship with your company in which it takes legal responsibility for every aspect of the business related to your employees. This includes payroll, tax compliance, workers’ compensation, health insurance, and retirement benefits. So, because they legally employ all their clients’ employees, PEOs can spread risk over a huge pool of employees and negotiate low rates for health, workers’ comp, and various other insurances. No matter how many employees you have, if you buy health insurance through a PEO, you qualify for a large-group rate.
PEOs charge an administrative fee in addition to the cost of wages and benefits. Usually these fees are set as a percentage of payroll, somewhere in the range of 2% to 7% for complete services. So, for example, a company with a payroll of $500,000 might pay somewhere between $10,000 and $35,000; that’s thousands less than even the lowest-paid human resources professional.
Remodeler Todd Jackson brought on a nationwide PEO called Paychex after his company grew from three to 25 employees in just four years. Paychex helped Jackson create much-needed HR systems and at the same time improve administration of his company’s benefit package, which includes health insurance, 401(k), and a profit-sharing plan. The whole service, including free consulting and on-site benefits education costs, less than $60 a month per employee.
“As our volume grew,” Jackson says, “our staff grew, so our need for better systems grew. Paychex allowed us to get a handle on the overall benefit package so it wasn’t a burden.”
Paychex also offers online self-service —each of Jackson’s employees can access his or her own records online without consulting office staff. More importantly, employees can make their own adjustments to retirement and medical withholdings, a huge time savings because Jackson offers his staff consumer-directed health insurance that requires they take an active role in shaping their own plan.
GOING IT ALONE Although hiring professional help is an attractive option, many remodelers feel it’s not worth the cost and opt instead to manage benefits and HR administration by themselves. When that’s the case, it’s typical for companies to add benefits one or two at a time over several years. David Crane, owner of Crane Remodeling in Nashville, Tenn., provides his employees with holidays, vacation time, and health insurance, as well as both a 401(k) with a 25-cents-to-the-dollar match, and a profit-sharing plan. But it didn’t happen all at once.
“We’ve added benefits progressively,” Crane says. “As soon as we brought on full-time employees, we did vacations and paid holidays. Then a few years later we did health insurance, and a few years after that we added the 401(k). Starting out as a small company, you have to think at first about what you can afford and what you need most.”
At companies large enough for benefits to be an administrative burden, remodelers usually have some help in the office to lighten the load. Conscientious and capable administrators can be invaluable in this situation.