By Kaye Patchett
Tucson Business Edge
When Devin Maddock’s efficient bookkeeper-office manager retired, he looked in vain for a suitable replacement.
Failing to find the right person to administer his payroll and handle the countless forms that are inseparable from employing 14 people, Maddock, owner of Maddock Machinery Corp., 1901 N. Ninth Ave., outsourced his human resources to CheckMate, a professional employer organization. His only regret: “I wish I had done it earlier and not wasted my time.”
Unlike traditional payroll outsourcing companies, PEOs perform most of the human resources functions that the personnel department of a large organization typically handles.
CheckMate and Focus HR, which are the only Tucson-based PEOs, enable businesses to outsource all aspects of payroll, benefits administration, workers’ compensation, payroll tax compliance, unemployment insurance and risk management. They manage claims, provide access to 401(k) plans and other benefits, create employee handbooks, do employee background checks and drug screening, offer advice on matters relating to employment law and keep companies in compliance with federal and state employment regulations.
According to the National Association of Professional Employer Organizations, the average PEO client is a business with about 16 work site employees. About 700 PEOs operate in 50 states.
PEOs and their clients usually enter into a co-employment relationship under which the PEO becomes the “administrative employer” and the client company is the “work site employer.” In this option, the PEO, as the employer of record, puts a client’s employees – including the CEO – on its own payroll, using the PEO’s federal ID number. The national group estimates that 2 million to 3 million Americans are co-employed in a PEO arrangement.
In an alternative option offered by Focus HR, the PEO processes payroll and taxes under the client’s federal ID number just as a payroll company would do, while also assuming all of the human resources functions offered under its co-employment option. Focus HR, 6009 E. Grant Road, will also run employment ads and screen job applicants before sending them to a client company to be interviewed.
“It’s like one-stop shopping,” said Tracy Cole, CEO of Focus HR, a privately held Tucson company. “The reason why companies come to us is, they’re spending somewhere close to one-quarter of their time on employee-related paperwork. It costs them time and money, but it doesn’t increase their revenue or their profitability.”
Tom Collier, CEO of Tucson’s Better Business Bureau, said outsourcing human resources has proved to be a huge time-saver. “I can always make more money, but I can’t make more time,” he said. “I can think of at least 14 or 15 forms that taking on a new employee used to require us to fill out. Right now, we fill out two forms and send them to Focus HR.”
Tom Lickliter and Lawrence Bailliere co-own CheckMate, a national PEO franchise at 4727 E. Fifth St. Since opening in 1998, the business has grown, with more than 2,000 employees on its system, outsourced by companies with anywhere from one to 250 employees. Clients include Les White, owner of 28 Subway stores; cell phone businessman Joe Christiani and numerous other Tucson businesses.
Lickliter said one of the biggest problems small-business owners face is keeping track of fast-changing government regulations and employer liability issues. For example, he said, the Fair Labor Standards Act, which determines whether or not a salaried employee is exempt from overtime, recently underwent “huge” changes.
“We got all the information, distributed it to our clients, and made sure their salaried employees would still fall into compliance,” Lickliter said.
Lickliter and Bailliere also own an insurance agency, Precision Insurance, through which they broker health, dental and other employee benefits.
“We’re the agent liaison to the carrier for our clients,” Lickliter said. “Employees call us direct when they have any questions about claim filing or anything of that nature.”
PEOs offer clients training programs and discounts. CheckMate offers credit union membership, discounted fitness club and Costco memberships and a discount vision care program, as well as computer training classes, sexual harassment seminars and employee-related management training.
“Outsourcing is becoming extremely popular in many aspects of business,” said Lickliter. “Companies outsource their delivery instead of hiring drivers, their computer business. We’re another step of outsourcing, but you can outsource the administrative duties of being an employer.”
What is a PEO?
Professional employer organizations provide human resources outsourcing for small to medium-size businesses.
Selecting a PEO
• Assess your human resource and risk management needs.
• Make sure the PEO will meet your needs. Meet with the people who will be serving you.
• Ask for client and professional references.
• Ask for the firm’s banking and credit references. Ask the PEO to demonstrate that payroll taxes and insurance premiums have been paid.
• Investigate the company’s administrative and risk management service competence. What experience and depth does its internal staff have? Do any of the senior staffers have professional training or designations?
• Understand how the employee benefits are funded. Is the PEO fully insured or partially self-funded? Who is the third-party administrator or carrier? Is their TPA or carrier authorized to do business in Arizona?
• Review the service agreement carefully. Are the respective parties’ responsibilities and liabilities clearly laid out? What guarantees are provided? What provisions permit you or the PEO to cancel terms of the contract?
Source: NAPEO – PEO Industry Information from www.napeo.org