John W. Allen, G&A Partners The Benefits of Outsourcing HR
What do these companies all have in common?
• ABB • Bank of America • Best Buy • BP Amoco • British Telecomm • Cap Gemini • Credit Suisse • General Motors • Goodyear
• International Paper • Levi Strauss • Motorola • Proctor & Gamble • Prudential Financial • Sony • Sun Microsystems • TXU
And what about these governmental entities?
• U.S. Defense Finance & Accounting Service (DRAS)
• U.S. Office of Personnel Management • United States Postal Services • Transportation Security Administration • State of Florida • State of Texas HHSC
Agenda
• Who’s outsourcing? • Why are they outsourcing? • What are they outsourcing? • How & when are they outsourcing? • To whom are they outsourcing? • Q&A
John W. Allen
• President and COO of G&A Partners • 25 years of management consulting
experience • Has been responsible for providing
support services to organizations valued up to $5 billion and with as many as 46,000 employees.
• Specializes in providing administrative services to emerging growth companies.
Amazing Facts
• In 2003 HRO transactions impacted an estimated 2.8 million employees, or 4% of the U.S. workforce
• In 2004, the Top 22 HRO deals covered over 700,000 employees
• HRO revenues grew to $61 billion in 2005 • HRO Today reports continued growth in 2006
and 2007
Why are they outsourcing?
• Reduce costs/Increase EBITDA • Gain access to cutting edge technology • Avoid additional investments • Provide more self service tools to employees • Focus HR on strategic vs. tactical
What are they outsourcing?
• Payroll • Health and welfare administration • Recruitment • Compensation planning • Performance planning • Learning management • Relocation • Records management
To whom are they outsourcing?
• Accenture HR Services • ACS • ADP • Aon Consulting • ARINSO International • Ceridian • Convergys Employee Care • ExcellerateHRO • Fidelity Employer Services • Hewitt Associates • IBM Global Business Services
If growth in the PEO industry is any indication, small
businesses are outsourcing more and more of their HR
functions too.
• Number of PEOs has grown from a handful in mid 1980s to more than 800 today.
• Number of co-employees has grown from 10,000 in 1984 to over 3,600,000.
• Gross revenues billed by PEO Industry grew from $5 billion in 1991 to over $51 billion today.
• Wall Street estimates annual growth rate of 20%
$1,152 per year
Average administrative cost per employee
($414 - $6,274 per year) Bureau of National Affairs
Average administrative cost per employee
• 6% - 12% of payroll (SBA & US Chamber of Commerce)
• 8.45% of payroll (UT-Austin) • $600 to $750 per annum per employee (major
insurance company estimate)
How does a PEO work?
1. Service Contract 2. Employment relationship
with/and responsibilities of the PEO
3. Shared relationship and employer responsibilities
4. Employment relationship with/and responsibilities of the client
What services does the PEO provide?
• Payroll Administration – Provides time & attendance solutions – Issues paychecks and W-2s – Accrues vacation, sick and other leave – Withholds and deposits taxes – Withholds and remits garnishments & premiums for
employee benefits – Files all payroll tax returns
What services does the PEO provide?
• Employee Benefits Administration – Group Health Plans – Group or Voluntary Dental, Vision, Life, AD&D, STD,
LTD & LTC – Section 125 Cafeteria Plans – 401(k) Retirement Plans – HRAs, HSAs, FSAs, & Gap Plans – Prepaid Legal, Purchase discounts, Wellness, EAP
What services does the PEO provide?
• Human Resource Management – Compiles job descriptions & employee handbooks – Provides recruitment assistance – Conducts pre-hire background checks – Advises clients on employee discipline or performance
problems – Educates clients on regulatory compliance issues – Handles unemployment claims & COBRA and HIPAA
administration – Conducts exit interviews
What services does the PEO provide?
• Risk Management – Workers Compensation Coverage – Master Safety Plans – Site Inspections – Safety Training – Accident Investigation – Workers Comp Claims Administration – Drug Testing & Modified Work
What responsibilities do you retain?
• Management of business operations • Use of facilities and equipment • Safeguarding assets & people • Employee compensation • On-the-job supervision • Quality control
How would your company benefit?
• Greater focus on your core business • Broader range of affordable employee benefits • Workers compensation insurance at competitive
rates, with no deposit or annual audit • Fewer compliance issues & employee lawsuits • More time and money
How would your employees benefit?
• Better, more affordable benefits • Higher “take home” pay • Greater understanding of company policies and
procedures • Improved safety awareness and fewer on-the-
job injuries • Happier, more productive employees
So how much does it cost ?
• The cost of PEO services is generally less than or equal to the cost to do everything in-house.
• Additional savings come by redeploying talent, reducing turnover, reducing workplace injuries and avoiding employee lawsuits.
Service fee is a percentage of payroll & includes:
• FICA/Medicare • SUTA • FUTA • Workers compensation insurance • Employee benefits costs • Miscellaneous charges • PEO’s fee
For more information, visit www.napeo.org
• “PEOs take load off companies by filling human resource function”
• “Human resource outsourcing can boost bottom line”
• “PEOs can help small business grow” • “PEO’s: help for small companies in good times and
bad”
• “PEOs: the wave of the future” Source: NAPEO website
Guidelines for Selecting a PEO
• Lists available thru NAPEO or TDL • Verify that PEO is licensed & in good standing • Ask for banking & credit references • Ask for client & professional references • Visit their offices • Review customer service agreement
Licensing Requirements
• Controlling person must be 18 years of age and of good moral character
• Controlling person must have educational, managerial, or business experience relevant to the operation of a business entity offering staff leasing services
• Must demonstrate net worth of $100,000
Q&A
• Who controls the workplace? Will the PEO be telling me how to run my business?
• What if the PEO fails to remit payroll taxes? What recourse does the IRS have?
• Does the PEO’s workers comp policy protect my company against third party liability?
Who controls the workplace?
• The client controls who performs the work and how and when they do it.
• The client recruits and sets the compensation for all employees. The PEO screens new hires and has right to reject.
• The client disciplines & terminates employees subject to PEO’s review to ensure compliance with appropriate statutes and regulations.
• The client implements safety programs. The PEO helps them design, implement and train.
Any protection against third party liability on WC claims?
• Texas labor code section 91.042(c) states that for workers compensation insurance purposes, a PEO and its client are “co-employers.” As such, both entities are covered by the PEO’s policy. Alternate employer endorsement required.
• Law Again Supports This Position: – Regalado v. H.E. Butt Grocery Co. – Esquivel v. Mapelli Meat Packing Co. – Aquilar v. Wenglar Construction Co., Inc – Gibson v. Grocery Supply Co., Inc. – Marshall v. Toys-R-Us Nytex, Inc.
For More Information:
John W. Allen G&A Partners
4801 Woodway, Suite 210 Houston, Texas 77056
(800) 253-8562 www.gnapartners.com