Benefits Business

HR opportunities

Agencies and their partner firms can help overworked clients

By Len Strazewski

He’s harried, overbooked and rarely attends a meeting that isn’t interrupted by a phone call. She’s managing recruitment for new positions in one division, overseeing a workforce reduction in another, and trying to prepare a report on rising employee benefit costs at the same time. After hours, they get to check state and federal compliance documents and maybe review materials for an upcoming open benefits enrollment period.

Human resource managers are among the busiest executives around and, as clients, they can be difficult to support as their varied administrative duties take them from early morning pre-shift employee meet­ings to after-hours document preparations for a late drop at the overnight delivery service.

When they have a free moment—which is never—they are supposed to think strategically about their company’s human capital management goals, rising health care costs and other issues that are central to the firm’s success.

How can their independent insurance agents and brokers help out? A growing number of employers of all sizes—from large corporations to small start-ups—are outsourcing many aspects of their human resources activities in an effort to free their human resource executives from regular administrative duties and give them the time to go from constant reaction to proaction and strategic planning.

As a result, human resource services is becoming a larger part of the agency services, and many agencies with employee benefits operations are providing some of the basics: benefits enrollment administration during open enrollment periods, assistance with employee benefits communications, and consulting on government compliance issues.

The overworked human resources department, however, may provide some additional opportunities for agencies that are willing to expand those basic services into a more comprehensive human resource outsourcing operation or develop synergistic relationships with outsourcing companies or professional employment organizations (PEOs).

“There’s great synergy and potential for independent agents and brokers in working with human resource service companies,” notes Milan P. Yager, president of the National Association of Professional Employers in Alexandria, Virginia. The association represents more than 350 PEOs, about half of the nation’s total.

The organization is celebrating its 25th anniversary this year and has strong ties to the insurance industry—particularly producers who helped start the PEO industry as a way to get their clients access to larger group employee benefits underwriting and better workers compensation rating.

Yager says many of the PEO members are owned or co-owned by insurance firms or have close working relationships with agencies. The firms serve as co-employers with primarily small businesses, with 100 or fewer employees—many of whom have had a history of high workers compensation rates and an inability to get affordable employee benefits.

In their 25 years of operation, the PEOs have evolved into broader, more sophisticated employ­ers, providing both risk management services, such as safety and loss control, as well as human resource administration, such as payroll, recruitment and compliance.

The co-employment relationship is enabled by state laws and, according to the association, both the PEO and the client company establish employ­ment relationships with worksite employees. Each entity has a right to independently decide whether or not to hire or discharge an employee. Each entity has a right to direct and control worksite employees.

The PEO directs and controls worksite employees in matters involving human resource manage­ment and compliance with employment laws, and the client company directs and controls worksite employees in manufacturing, production, and delivery of its products and services.

The client company provides worksite employees with the tools, instruments, and place of work.

PEOs manage their employment liability exposure by monitoring and requiring compliance with employment laws, developing policies and procedures that apply to worksite employees, supervising and disciplining worksite employees, exercising discretion related to hiring new employees, and ultimately terminating worksite employees who do not comply with requirements established by the PEO.

In addition, the PEO provides worksite employees with workers compensation insurance, unemploy­ment insurance and a broad range of employee benefits programs. The PEO handles employment tax issues, workers compensation insurance and claims filings and federal compliance such as FMLA and COBRA.

Some of the services may overlap with the human resource services many agents are now offering. As those services continue to expand, agencies may want to start their own PEO as an umbrella for HR services or build a referral relationship with a local PEO.

Yager also notes that independent agents should realize that a relationship with a PEO need not be restricted to a referral to agency customers for human resource services.

“As large purchasers of insurance, PEOs are also potential agency clients that require access to the insurance markets and support for their own risk management activities,” he says. “Agencies can also support PEOs by managing insurance company relationships and assisting with claims management,” a traditional role for agents and brokers.

Agents also may want to consider relationships with the larger human resource outsourcing companies for their largest clients. Large corporations have been using payroll and employee benefits administrative services since the 1960s when data processing companies began expanding payroll services to include health claims management, recruitment and other human resource line functions.

In the 1990s, the largest investment companies and employee benefits consulting companies began providing comprehensive human resource services to corporations with thousands of employees in widespread locations, including international worksites.

Until recently, these firms have virtually ignored small to medium-sized companies, leaving them available for PEOs and agents offering HR services and payroll functions.

However, now they have begun to turn their attention to small employers that cross over into more traditional independent agent and broker market areas. Last year, the Human Resource Outsourcing Association expanded its interest to regional employers and released a study of mid-market employer outsourcing needs.

The study indicates that the giants may become competition for agents that have some large client companies. The market survey highlights companies with 3,000 or more employees, among the largest client employers for many independent agencies, but now considered a good target size for the outsourcing giants that include Hewitt Associates, Accenture, Convergys and others.

The association surveyed about 5,000 employers and discovered that about three-fourths of respondents used some form of outsourced human re­source services. More than half—55%—were outsourcing three or more aspects of human resources administration.

The most commonly outsourced services were directly in the range of many independent insurance agencies with employee benefits operations: health and welfare plan administra­tion, retiree services pension and retiree medical plans, employee self-service and contact centers.

However, the study noted that mid-sized firms also sought more flexible arrangements that could adjust to changes in the economy. Respondents indicated that they were concerned that the large outsourcers could not offer that flexibility.

While economic issues were a key driver of the need for outsourced services, cited by 62% of respondents, almost as many respondents noted that freeing up human resource executives from administration in order to work more strategically was also a leading goal.