The Benefits of Outsourcing HR. John W. Allen, G&A Partners

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1 The Benefits of Outsourcing HR John W. Allen, G&A Partners

2 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

3 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

4 They all outsource HR

5 Agenda Who s outsourcing? Why are they outsourcing? What are they outsourcing? How & when are they outsourcing? To whom are they outsourcing? Q&A

6 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.

7 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

8 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

9 What are they outsourcing? Payroll Health and welfare administration Recruitment Compensation planning Performance planning Learning management Relocation Records management

10 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

11 The trend is clear the big boys are outsourcing HR, but what about the rest of us?

12 The Million Dollar Employee

13 If growth in the PEO industry is any indication, small businesses are outsourcing more and more of their HR functions too.

14 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%

15 Why the Growth? What s driving businesses, large & small, to outsource HR?

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17 Using a PEO helps you focus on what you do best!

18 Growing Burden of Regulation

19 Average administrative cost per employee $1,152 per year ($414 - $6,274 per year) Bureau of National Affairs

20 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)

21 So what is a PEO?

22 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

23 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

24 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

25 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

26 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

27 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

28 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

29 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-thejob injuries Happier, more productive employees

30 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.

31 Service fee is a percentage of payroll & includes: FICA/Medicare SUTA FUTA Workers compensation insurance Employee benefits costs Miscellaneous charges PEO s fee

32 PEO in Action Aluminum Frame Manufacturer

33 PEO in Action Freight Forwarder

34 For more information, visit 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

35 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

36 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

37 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?

38 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.

39 What if the PEO fails to remit payroll taxes?

40 Any protection against third party liability on WC claims? Texas labor code section (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.

41 For More Information: John W. Allen G&A Partners 4801 Woodway, Suite 210 Houston, Texas (800)