White Paper. Human Resources & Professional Employer Outsourcing: A Boon For Overwhelmed California Businesses. April, 2007 CPE HR, Inc.

Transcription

1 White Paper Human Resources & Professional Employer Outsourcing: A Boon For Overwhelmed California Businesses April, 2007 CPE HR, Inc.

2 The California Climate The image of California as The Golden State has lost its luster. Its business climate has been tarnished due to complex employment regulations and a punitive tax system. Sixty percent of California business leaders are aggravated by policies that restrict job growth, and are frustrated with burdensome regulatory standards. Executives consider California an unfriendly state in which to conduct business and that moving jobs out of California remains a viable option. Source: Bain & Co Since the beginning of 2007, California has added 23 new labor laws to its books. The new legislation includes laws relating to discrimination, employment, health and safety, workers compensation and wage deduction. Despite California s attractive landscape and beautiful weather, the cost to run a business has discouraged entrepreneurs. Studies Support Business Leaders Perceptions Numerous studies support the perception that California is amongst the most difficult states in which to own, operate and manage a business. The Milken Institute s Cost-of- Doing Business Index ranked California fourth among the nation s most expensive states. California s costs were 24 percent greater than the national average. The index measures wages, taxes, electricity and real estate costs for industrial and office space. # of Laws A recent survey of 1,600 senior 0 attorneys across the country showed that California was ranked in the bottom tier of states for its business legal climate. It slipped one point to 45 in 2006, from 44 in The results were driven by high levels of class action lawsuits and large judgments in civil cases. Source: Business Law Journal, University of California, Davis Tom Donohue, President and Chief Executive of the U.S. Chamber of Commerce said, California is becoming a target for litigation tourism, where plaintiff s lawyers file lawsuits for residents living out-of-state. The U.S. Chamber of Commerce supports litigation reform, and California is high on their agenda. The challenges facing California businesses reduce their competitive advantage compared to bordering states with more flexible regulations, California Labor Laws

3 such as Nevada and Arizona. Once considered the place to be, California formerly dominated the rankings on Forbes top 25 Best Cities for Business" report. Just 5 years ago, six of the top 10 cities came from the State, with San Diego and Santa Rosa finishing in the top two positions. However, in 2006, not a single California city made the list. The risks to companies operating in California remain fluid, and the high expense of conducting business in California has made the state a lackluster environment in which business leaders can remain competitive. Furthermore, it has become clear that the expertise required to manage a small to mid-sized business has outgrown the experience and training of many entrepreneurs who started these businesses. These complexities have led to one of the hottest trends in California, and the nation as a whole: Human Resources Outsourcing. Human Resource Outsourcing firms help companies reduce costs and efficiently manage HR-related issues, while navigating California s business labyrinth, an intricate combination of policies and regulatory standards that are difficult to escape. Putting HR In Expert Hands HR Outsourcing enables companies to shift responsibility of non-revenue generating competencies that can be handled easily, and inexpensively, by off-site experts. These functions include the areas of labor compliance, risk and safety, payroll, benefits, and other complex workplace regulations. HR Outsourcing helps companies reduce costs by effectively managing HR functions while allowing businesses to focus on their core operations that impact profitability. Human Resources Outsourcing helps In a recent survey by the Society for Human Resource Management, or SHRM, companies reduce costs professionals in the industry were asked their opinions on HR Outsourcing. Reasons to by effectively managing consider outsourcing included saving money, focusing on strategy, improving compliance, HR functions. improving accuracy, lacking experience inhouse, taking advantage of technological advances, and offering services they could not provide. Once HR and other operations are outsourced, many companies are showing a strong return on investment, according to a recent survey of American executives, by IDC, a global provider of market intelligence. The 2006 survey of executives at the IDC Midwest Conference in Chicago showed nearly 85 percent of the respondents saved as much as

4 they spent on outsourcing, with 26.4 percent reporting a savings of twice as much. And the savings, according to nearly 95 percent of the respondents, went toward operational performance and innovation, which improved shareholder value. According to IDC, companies worldwide are expected to spend more than $103.3 billion just on HR Outsourcing this year, up significantly from the $61.2 billion spent in In the U.S., outsourcing HR services is the fastest growing segment of the broader business process outsourcing (BPO) industry, and is expected to grow annually at a rate of 16 percent. In the U.S., outsourcing HR services is the fastest growing segment of the BPO industry. In line to capitalize on those numbers are the Professional Employer Organizations, or PEOs. The increase in small businesses and the difficulty for them to manage the many facets of HR administration is leaving the door open for the PEO - the matriarch to the BPO solution. PEOs Answer the Call The PEO industry, formerly known as Employee Leasing, or Staff Leasing, has become a rudder for California companies trying to navigate choppy seas. Taking on the responsibility of all human resource functions, the PEO can serve a multitude of roles. Primarily, the PEO creates a coemployment relationship with its clients, thereby sharing the risks and responsibilities of being an employer. Co-Employment is defined as the contractual allocation and sharing of employer responsibilities between the PEO and the client. The PEO assumes the role of the Administrative Employer, wherein the PEO is recognized as the legal Employer-of-Record and takes on numerous administrative, and strategic, functions for their clients. These functions include: Paying the Employees and Filing Payroll Taxes Issuing Workers Compensation Insurance Coverage Providing Employee Health Insurance Coverages Training Management and Staff Implementing Risk Management and Safety Plans Providing Employment Consulting and Compliance Managing Administrative Human Resource Functions The client maintains the role as the Administrative Employer and continues to manage and oversee all day-to-day activities relating to their internal operations. They provide worksite employees with the tools, instruments and place to work, and continue to oversee the hiring, firing,

5 establishment of wages, and direction of the workforce. The PEO assists in ensuring that worksite employees are provided with a worksite that is safe, conducive to productivity, and operated in compliance with employment laws and regulations. In addition, the PEO provides worksite employees with workers' compensation insurance, unemployment insurance, and a broad range of employee benefits programs. Helping California Businesses and Their Employees Through the co-employment relationship, small organizations access the economies of scale enjoyed by large corporations. The PEO client can offer premium benefit packages and retirement plans, typically provided by their larger competitors. They can maintain a simple in-house HR infrastructure or none at all by relying on the Through the co-employment PEO. The client also can reduce hiring relationship, small overhead. Costs related to monitoring of, and compliance with, employment laws are organizations access the reduced, as are the often significant costs of failure to comply with such laws. In economies of scale enjoyed addition, the PEO provides time savings by handling routine and redundant tasks for its by large corporations. clients. This enables the business owner to focus on the company's core competency and grow its bottom line. In addition to providing important services to their business clients, PEOs offer substantial advantages to worksite employees. In many cases, these employees would not be provided the number, or quality, of benefits that a PEO can offer. These benefits may include health insurance, retirement savings plans, disability insurance, life insurance, dependent care reimbursement accounts, vision care, dental insurance, employee assistance plans, job counseling and educational benefits. Each individual small business's cost of establishing and administering this range of plans would be prohibitive. However, due to economies of scale, PEOs can sponsor and offer these plans at an affordable cost. A Surging Industry The average PEO is on the rise, with an average growth rate close to 20% per year. After a decline in the number of PEOs in 2003, a strong economy has resulted in a surge over the past four years. The PEO industry serves between two and three million employees per year, with most assisting companies with less than 50 employees. The average PEO is on the rise, too, with a growth rate close to 20 percent per year for the last six years, according to a

6 survey by NAPEO, the national trade association for the industry. CPEhr, one of California s leading PEOs, helps its clients understand and comply with the state s complex regulations regarding topics like discrimination and workplace safety. Based in Los Angeles, CPEhr has been an industry leader in California since 1982, long before the term PEO was even invented. CPEhr is growing in excess of 20 percent annually, exceeding industry averages. As one of California s oldest and most experienced PEO providers, CPEhr provides a central location for the daily support and administration of complex HR issues facing statebased organizations. The frustration brought on by California s obtrusive standards can be offset by the value found at CPEhr. The premier PEO understands the unique challenges facing California businesses, and will personalize an HR program tailored to the needs of each client. CPEhr was on top of the outsourcing movement from the beginning, and will continue to be a leader in supporting California businesses in the future.

7 About CPEhr With 25 years experience in the California marketplace, CPEhr has a unique advantage in its knowledge of state-based business employment challenges. While CPEhr s hands on service is unparalleled in the region, its reach extends to over 26 states, nationwide. CPEhr currently services 15,000 worksite employees at hundreds of client worksites. Due to its extensive experience working with California businesses, CPEhr is in the position to provide its partner clients the most accurate, up-to-date and creative employment solutions available in the California marketplace. It is one of the largest, independently owned Human Resource and Professional Employer Outsourcing firms in the nation. Its strength, coupled with the flexibility afforded to a privately held corporation, enables CPEhr to provide personalized services within the structure and foundation of a larger corporation. CPEhr is proud of its renowned customer service and client satisfaction. CPEhr Mission Statement To be the cost-effective strategic partner and human resources arm for our clients, To protect our clients against labor-related exposures, To facilitate the success of our clients by enabling them to focus ontheir core business, To support the welfare and well-being of our clients and work-site employees. CPEhr will make reasonable promises and deliver them meticulously with care and consideration. Contact information: info@cpehr.com Phone Website Founded: 1982 Corporate Employees: Gross Revenues: $225 million Serviced Employees: 15,000 Worksite Locations: 300+ Serviced States: 26 Estimated 2007 Growth: 20-25% Corporate Headquarters: 9200 Sunset Blvd. Suite 1100 West Hollywood, CA