The benefits of PEOs

March 1, 2000
With more and more distractions facing dentists every day, some have turned to professional employer organizations - or PEOs for short - for help.

With more and more distractions facing dentists every day, some have turned to professional employer organizations - or PEOs for short - for help.

Daniel A. Cacchione,

Senior Vice President,

CNA UniSource

Each day seems to bring more distractions to dentists who are trying to stay committed to proper care. Dentists also must juggle the growing number of tasks associated with being an employer: payroll taxes, workers` compensation coverage, employee benefits packages, recruitment, training, and workplace safety issues.

In response, professional employer organizations (PEOs) have entered the scene. PEOs assist dentists in taking charge of the persistent and sometimes complex details associated with running an enterprise. A PEO can eliminate a sig-nificant portion of a dental practice`s administrative bur-den, allowing its owner and staff to concentrate on more vital and lucrative areas of their practice.

How does a PEO work?

A PEO contracts with businesses to provide human resource support and other employment-related services. As such, the PEO acts as a "co-employer" of the company`s workers, along with the business owner (known as the worksite employer).

PEOs essentially become the "back office" for their clients, managing human resources activities. Examples of these activities include payroll and tax filings, unemployment and workers` compensation, employee benefits administration, and regulatory compliance. The business owner retains responsibility for day-to-day management of employees and all other aspects of the business which are not contracted to the PEO. Unlike temporary agencies or employment firms, PEOs do not provide personnel.

Most employers do not specialize in managing employment issues. They simply don`t have the time and staff necessary to study and analyze employment-related laws and trends. PEOs do.

PEOs usually establish what turns out to be a long-term relationship with their clients. According to the National Association of Professional Employer Orga-nizations (NAPEO), based in Alexandria, Va., 90 percent of business owners who sign on with a PEO remain loyal customers years after they sign their initial service agreement.

One of the chief attractions for clients is the significant reduction in employee-related paperwork that a PEO can provide. According to the Small Business Administration, an estimated 20 to 25 percent of small-business owners` time is spent on employee-related paperwork and administration. Since 1980, the estimated number of federal regulations for employers has increased by more than 30 percent. State regulations also have increased dramatically.

One PEO client, who practices in Indiana, contracted with the organization to help her comply with employment laws, calculating the payroll, and nego-tiating workers` compensation for her 13 employees.

"I used to spend hours figuring my payroll costs and taxes and complying with all state and federal employment regulations. That meant there was less time for my patients and the work I really wanted to accomplish," the client said.

Literally thousands of details must be handled when you are running a practice and employing staff members. PEOs serve as their clients` human resources department - ensuring they under-stand the regulations that are essential to their individual situations.

PEOs also offer complete payroll services and workers` compensation coverage, including assistance with claims reporting and handling. Co-employees can expect their paychecks to be accurate and on time. Payroll tax deductions are correctly calculated. Clients can request and receive payroll reports exactly how they want them.

A PEO also can offer payment of workers` compensation through a payroll system. Instead of passing on large workers` compensation premiums and adjustments to its clients, one PEO uses a "pay-as-you-go" approach to workers` comp, allowing an employer to make changes to employee rosters without being overburdened by heavy costs.

Keeping good employees

An ever-increasing number of health-care professionals and business owners are recognizing the need to attract and retain superior talent in a labor market that`s extremely "hot" for job seekers.

"With today`s job market booming, it`s hard for small enterprises to compete with large employers for good people," one client said. "But PEOs help level the playing field by offering the same benefit packages as those available through large employers."

Professional practices with as few as five employees can provide benefits packages similar to those offered by Fortune 500 companies. The reason PEOs can offer benefits at an attractive cost is simple: Using the co-employer relationship, PEOs literally become very large employers. And, bigger employers can negotiate better products from insurance companies and financial organizations.

In addition, most small em-ployers struggle to find affordable health-care coverage for employees. In fact, according to the Small Business Administration, most small employers offer wages similar to large firms. However, they fall flat in the benefits area, offering a limited portfolio of services.

With a PEO, employers are able to offer a higher level of benefits than they could find elsewhere. Also, health insurance rates are likely to be more affordable and more stable.

PEOs may offer a variety of medical plans, dental coverage, retirement plan options, pre-paid legal services, disability, and flexible spending accounts.

PEOs also help companies keep their employees. You don`t want to lose your best people to the competition! Many PEO clients claim their employees not only like the benefits provided through the PEO, they also like having immediate access to human resource experts who can answer their questions. Some larger PEOs provide an extended-hour call center for their co-employees and clients so they can get information on insurance coverage, payroll questions, and human resource issues.

"My employees no longer have to wait to talk with me about their benefits," one client said. "I used to have to be an expert on co-payments and the intricacies of health insurance coverage. I never wanted to be an expert in this area. Now, with the PEO, I no longer have to take on this role."

Managing expenses

A PEO provides a host of tools that help manage expenses and the risks associated with being an employer. Examples are regulatory com-pliance, unemployment pro-ceedings, and human resources policy development. A full-service PEO provides unlimited access to human resource specialists. As an expert in human resources, the PEO also can offer expertise in employment-related regulation and laws for its clients, even in response to a "difficult" or "sensitive" question regarding an employee-related problem.

Some PEOs also provide employee handbooks for all clients, which ultimately can help protect employers and provide better expectations for employees. Hand-books establish employment po-licies, which become the structure of the organization. Issues such as vacation, sick leave, and e-mail usage are clearly defined. Em-ployees and management both have clear expectations and guidelines, leaving less room for interpretation and mistakes. Many new PEO clients never before have prepared handbooks or used templates specifically written for their organ-izations.

Other services that can help PEO clients mitigate risks include pre-employment screening, substance abuse screening, consultations on workplace safety, and pre-paid legal services.

The services discussed above are evidence that PEOs understand the risks that come with being in business and can supply the tools needed to minimize any potential hazards.

Within the past five years, the PEO industry has exploded. According to NAPEO, about 3 million American employees work in organizations that have a co-employer relationship with a PEO ? which is up from only about 10,000 people in 1985. Approx-imately 2,000 PEOs are in the United States, according to NAPEO. This number has mul-tiplied from only 10 in 1982. During the past five years, estimated industry revenues have grown at a 30-percent compounded annual rate ? from $5 billion to $18 billion. This growth rate is double that of the temporary staffing industry, another rapidly expanding field. Only a handful of large, stand-alone PEOs operate in multiple states.

While most PEOs can effectively serve clients of diverse sizes, the services are most beneficial and cost-effective for employers that could be considered small or mid-sized.

Be sure to do your homework before entering into a co-employer relationship. It?s important to research an organization?s service history and financial stability. Owner-employers also should ask for a list of client references.

Throughout the United States, business owners, financial analysts, and the media are acknowledging that PEOs are changing the face of employment and perhaps may be the future of small- to medium-size businesses and professional prac-tices.

It?s a phenomenon that can give you time to be ? first and foremost ? the dentist you want to be. Turning over the details of employment to a PEO can make a huge difference in conducting a professionally rewarding practice.

For more information about this article, contact the author at (312) 551-5059.

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