--Gary Blume, Bowen, Miclette, Inc., Houston, Texas
--Dennis O'Hara, J.W. Flynn Company, Indianapolis, Indiana
A year ago, when we reviewed the PEO phenomenon, we started with a definition of a PEO. That definition bears repeating since PEOs are still relatively new. The National Association of Professional Employer Organizations (NAPEO) defines a PEO as an organization that "provides an integrated and cost effective approach to the management and administration of the human resources and employer risk of its clients, by contractually assuming substantial employer rights, responsibilities and risk, through the establishment and maintenance of an employer relationship with the workers assigned to its clients."
Let's look at that definition. It states: "... by contractually assuming substantial employer rights, responsibilities,
and risks." The contract is the key to understanding what fees are charged for this assumption of risks. "Substantial" does not mean all rights and responsibilities. A client who assumes that the purchase of liability insurance, including EPLI, is not necessary is very mistaken. The relationship between an employer and the PEO is co-employer; therefore, not all risk is assumed.
Having said that, however, PEOs can be a source of new income to an agency. Its expertise in processing various taxes would certainty be enough incentive to warrant investigation of a PEO's value. Other advantages are the additional benefits to the employees of credit union membership, group plans, and other 401(k) plans offered only to "Fortune 500" companies; and defined work-related responsibilities.
In addition, the U.S. Small Business Administration puts the annual cost of regulation, paperwork, and tax compliance for firms with fewer than 500 employees at about $5,000 per employee. They also estimate that small business owners spend between 7% and 25% of their time handling these tasks. If you own your agency, ask yourself if you have ample time to train employees, keep records, calculate taxes, create employee manuals and keep them up to date, and properly administer human resources, while trying to increase new business sales. Chances are your client doesn't, either.
A PEO also may be your answer because the workers compensation market is going through unsettled times, The small employer with one medium claim can have a relatively high loss ratio. Placing small employers in a PEO can have a positive effect on the bottom line premium.
Richard Keardy, president/CEO of Dallas-based AMS Employers Group, Inc., says that although some feel that the PEOs have lost their impact in the insurance market, this is simply a correction period and those that survive will experience tremendous growth over the next several years. He comments: "This year has marked a significant measure for the future of many PEOs. As the workers compensation market has tightened across the country, it has especially affected the PEO industry. Many PEOs have been unable to renew with their carriers or have renewed at rates that have negatively impacted their previous pricing strategies and operating margins."
Kearby adds: "PEOs cannot be all things to all markets. Finding a PEO that specializes in certain risks such as construction, banking, medical, etc., will ensure better service and success to your clients. Additional services such as Internet services, certificate programs, loss control, loss run data, claims management, and sales support are also essential to the success of your PEO relationship."
Doug Mishler, vice president/marketing for Amerisure Business Solutions, says: "Amerisure's independent agents report that there is substantial opportunity for PEO growth among their existing policyholders and with new clients. In fact, the Department of Labor estimates that there are 97 million people in the workforce today. NAPEO estimates that PEOs service fewer than 3 million workers. With those numbers in mind, we believe this huge variance represents unlimited potential for PEO growth, and Amerisure Business Solutions (ABS) is positioned to capture a high percentage of that market."
As a PEO, Amerisure Business Solutions provides payroll administration, benefits, benefit administration, risk management, unemployment insurance, workers compensation, and human resources. ABS markets tHrough its network of independent agents.
Some PEOs specialize in specific industries or occupations. That is influenced, in some cases, by the location. In the Sunbelt, agriculture, construction, and seasonal tourist clients are predominant. This is not always the situation.
Gary Blume with Bowen, Miclette, Inc., of Houston, Texas, has a different perspective. Gary utilizes the ABS product. "I've been selling PEOs for six years. The success of a PEO in this area is not based on a particular industry, but rather on the personality of the management team and the growth potential of their business. I find the decision to use a PEO follows the same logic as to whether or not a company will bring new technology. It's all about how to best position your business for the future and streamline your operation. Really, it's a simple decision when you look at it that way.
The Houston market is experiencing explosive job growth. The projections for the next three years are very good, especially for entrepreneurial types of business. Simply put, a PEO can have a positive impact and help these businesses grow faster, attract and retain key employees, and shift liability away from the employer. It's a quality and cost-effective model for running a business."
Dennis O'Hara, J.W. Flynn Company of Indianapolis, Indiana, an ABS producer, is experiencing success in the PEO area. "The market is tightening with all the consolidation, and the PEO extends our companies' offerings.
"When I present the PEO concept to a manager, one of the drivers for small to medium-sized businesses is the fact that they get 'Fortune 500 benefits' at an affordable price. With the rising cost of health insurance, this is an especially important benefit because we base their insurance premium on thousands of people rather than ten or twelve."
As competition gets stiffer, PEOs will get better. Even though many employers are reluctant to go to an outside source for employee services, the NAPEO states that PEOs are growing at a rate of 30% per year, and that's good news.
The PEO could be your answer to company consolidation, the workers compensation market, and agency growth.
Contact:
Amerisure Business Solutions
339 6th St.
Bradenton, FL 34205
Phone: (941) 745-1836
Fax: (888) 756-3526
Contact:
AMS Employers Group, Inc.
Sales and Underwriting
CA:
1 LeHavre Place
Moon Bay, CA 94019
Phone: (888) 393-2555
Fax: (650) 726-7195
TX:
800 S. College St., Ste.126
McKinney, TX 75069
Phone: (972) 529-1798
Fax: (972) 529-1938
FL:
650 Cresent Executive Ct.,
Ste. 300
Lake Mary, FL 32746
Phone: (407) 585-2010
Fax: (407) 585-2014 *
