Share Your Liabilities With A PEO Unmasking the super power of co-employment Produced & Distributed by G&A Partners

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1 1 Share Your Liabilities With A PEO Unmasking the super power of co-employment Produced & Distributed by G&A Partners

2 Share Your Liabilities With A PEO: Unmasking the super power of co-employment Have you reached that threshold in small business ownership where you re able to acknowledge that you re not a superhero? That s practically what you d have to be to successfully grow your business and perfectly manage the day-to-day administrative duties at the same time. If you re like other smart business owners, you ve embraced your mere mortal status and elected to outsource human resources and the tedious tasks associated with it to a Professional Employer Organization (PEO). Maybe you re already experiencing the benefits of outsourcing your payroll or benefits administration: reduced costs, limited paperwork and minimal time and effort. But are you familiar with your mild-mannered PEO s true super power called co-employment? What s so super about co-employment? Outsourcing administrative responsibilities is a smart strategy for employers who want to focus on the fundamentals of their business. However, under most HR outsourcing structures, the company is still carrying all of the burdens and risks of being an employer: penalties for late payroll tax submissions, workers comp claims, wrongful termination lawsuits, and the list goes on. Co-employment is often disguised within the shadows of HR outsourcing and can be easily misunderstood, but it s a relatively straight-forward legal structure that allows a PEO to be the employer of record for your company s employees. What s so super about that? It provides you a sort of business insurance that no other outsourcing structure can -- it allows you to share some of your employment liabilities with your PEO. There are various ways to structure an administrative or HR outsourcing arrangement, and each has its strengths and weaknesses. Most full-service PEOs can structure their offering to match your needs, but before you can uncover the power of sharing certain liabilities through co-employment with a PEO, it is helpful to understand the distinction between the various models. 2

3 Comparing outsourcing models Administrative Service Outsourcing (ASO) Under an Administrative Service Outsourcing (ASO) arrangement, a service provider performs the administrative duties associated with one or more of your back office functions. Outsourcing tedious tasks, like payroll, HR or benefits administration, is very common. An administrative service provider can collect payroll data and cut checks or make direct deposits to your employees account. They can also conduct open enrollment for insurance benefits and assist in submitting benefit premiums on time. This can alleviate an administrative burden, but you and your company are still responsible for seeing that everything is done correctly and fully liable for any mistakes that might occur in the process. Human Resource Outsourcing (HRO) Using the Human Resource Outsourcing (HRO) model, a professional service provider essentially becomes an adjunct HR department for your company. Not only can they assist with administering payroll and benefits, but they can also help with hiring, training, compensation, succession planning and termination of employees. Outsourcing HR provides companies access to a breadth and depth of HR expertise that they often can t sustain within their own in-house HR departments, but many of the responsibilities and all of the risks associated with employment still remain. PEOs & Co-Employment Unlike other HR outsourcing arrangements, in a co-employment relationship, a PEO becomes the employer of record to your workers. So in addition to assuming much of the responsibilities for your company s complex employee matters, such as employee relations, health benefits, workers compensation claims administration, payroll administration, payroll tax compliance, and unemployment insurance claims, a PEO also shares some of the risks of employment with you. That means that So in addition to assuming much of the responsibilities for your company s complex employee matters... a PEO also shares some of the risks of employment with you. the PEO can share certain liability for monetary fees, penalties, or settlement obligations that can result from administrative mistakes and missed deadlines. (But thankfully, because the PEO is managing those administrative processes, such mishaps are rare.) 3

4 Look! Up in the sky!... Co-employment & liability sharing Despite its ability to share certain liabilities (in a single bound), co-employment can be a frightening concept for business owners. If you relinquish some responsibilities for your employees, doesn t it stand to reason that you are also handing over a certain degree of control? Not at all. While co-employment is indeed a paradigm shift, the changes are procedural, not fundamental. You still determine your strategic objectives, you still dictate your company s agenda, and most importantly, you still direct your employees activities. The biggest change you and your employees will experience is in employment and administrative processes, and if you pick the right PEO to partner with, the change is for the better. Things run smoother and demand a lot less of your time, because experienced HR professionals carefully oversee and seamlessly execute proven administrative procedures. If you still aren t convinced, that s okay. To further unmask the power of co-employment and liability sharing, let s walk through a few examples that better illustrate the point. Tax Structuring A small commercial printing company has outsourced its payroll administration to a payroll service provider for nearly a decade. Over the years, the service provider has done a very good job. Payroll is almost always perfect and they even submit payroll taxes for the small company accurately and on time. That is, until they didn t. When their client companies started to shrink, the payroll service provider was forced to cut a few key employees, including the woman that had managed the printing company s account for four years. As you might expect, a few things fell through the cracks, including a notice of taxes due. However, when the small company was hit with penalties for late taxes, the only reparation from their service provider was a sincere and heartfelt apology.... the PEO s proverbial neck is on the line, not yours, to pay any penalties or fees if a mistake occurs. A qualified PEO is just as capable of executing flawless payroll as an administrative service provider. Within a co-employment arrangement, however, the PEO is listed as the employer of record with certain taxing authorities, and thus becomes responsible for state and federal payroll taxes. That means that the PEO s proverbial neck is on the line, not yours, to pay any penalties or fees if a mistake occurs. 4

5 Safety & Risk Management After several years in an HRO arrangement, an accident-prone manufacturing company decided to enter into a co-employment agreement with a PEO. As co-employer, the PEO maintained a much lower Experience Modifier Rate (EMR), so the company was able to significantly reduce the amount it paid in workers compensation insurance premiums. Plus, thanks to the PEO s better-rated workers comp coverage, the manufacturer became eligible to bid on and win several government contracts. The PEO also took responsibility for submitting workers comp premium payments and conducting the company s year-end workers comp audit, so there were no costly mistakes or miscodings. Better still, under the co-employment arrangement, the manufacturing company no longer had to pay a workers comp deposit, and in fact, when they cancelled their previous policy, their prior carrier refunded their original deposit. The company was able to reallocate that money to purchase a new piece of machinery for the plant. Best of all, because the PEO ramped up the safety training for employees throughout the company, the company experienced noticeably fewer workplace accidents and they saw a sizable decrease in the cost of claims filed. PEO professionals may know little about operating machinery inside a manufacturing plant, but they know how to make HR and administrative processes run like a well-oiled machine. It s what they do, and because they do it for a multitude of clients and serve as co-employer for thousands of worksite employees, PEOs experience a lower average occurrence of accidents and can maintain A-rated workers comp coverage. But only their co-employment clients can reap the benefits of that. Benefits Administration When a growing family-owned business engaged a PEO, their new partner quickly discovered some outstanding issues with regard to benefits administration. For starters, the company had continued to pay costly health insurance premiums for several employees who d been terminated months earlier. Over the past year, these extra premiums cost the company more than $100,000. Paying unnecessary premiums is like spilling cash. (And like any spill, once the money is dispersed it can rarely be recouped.) Sadly Paying unnecessary premiums is like spilling cash. (And like any spill, once the money is dispersed it can rarely be recouped.) though, paying excess premiums is relatively common for companies attempting to manage their own benefits. PEOs, however, have proven processes that prevent excess premiums from ever happening. 5

6 Human Resource Management A large law firm has an excellent working relationship with their PEO of six years. In fact, the firm s HR director values the professional advice she receives from her PEO so much that she rarely makes a big move without first consulting them. So when a young law associate isn t performing up to the standards of the firm and the senior partners are eager to show him the door, the HR director quickly contacts her PEO for advice before terminating the young lawyer. That was a smart move on her part. Her PEO representative directed her on how best to proceed and was by her side, literally, throughout the termination process. And when the litigious young associate decided to file a claim for wrongful termination, the PEO continued to stand by the firm to fight the claim. Because the HR director followed the advice of her PEO to the letter, the firm could demonstrate strong cause for termination and they followed the appropriate steps to ensure the termination was executed properly. The claim was quickly dismissed. HR matters can be tricky, and for those HR professionals going it alone inside their organizations, it can be especially tough. A PEO provides them access to a variety of professional consultants with a breadth of skills and experience that few mere HR mortals can achieve on their own. PEOs can provide a reliable resource and a welcomed sounding board for those lone HR professionals. What s the source of a PEO s super strength? A common question for PEOs is how do they do it? -- how, under co-employment, can they share the risks of all their client companies? You could ask a trapeze artist a similar question. How can he risk falling from high above the ground without a net to catch him? The answer for the PEO is no different than for the trapeze artist. They are both trained experts at what they do, so the risk of a mistake is minimal. There are no secret super powers at play. Instead, a PEO s strength is its focus and dedication. A PEO employs HR professionals who have extensive experience and knowledge of a variety of HR disciplines, so they can understand and manage the nuances of HR that an in-house HR professional may not be trained nor have time to manage properly. PEOs also dedicate significant resources to developing systems and proven processes that greatly reduce the possibility of the most common and costly mistakes employers often make on their own. Conclusion Outsourcing your administrative and HR functions is a smart strategic move for any growing business. You can t unlock the full power of your PEO, however, unless you are willing to take that super human step to co-employment, because only when you enter into a co-employment arrangement can you share some of your employer liabilities and unleash your company s maximum power potential. 6

7 About G&A Partners G&A Partners helps growing businesses by becoming their HR partner and helping them minimize costs, increase productivity and reduce risk. As experts in human resources, employee benefits, compliance, and payroll, G&A takes on integral HR and administrative functions and relieves business owners of these responsibilities so they can focus their time, talent and energy on growing their business. For more information visit or call today at: (888) Disclaimer: No part of this document, in whole or in part, may be reproduced, stored, transmitted, or used for design purposes without the prior written permission of G&A Partners. The white papers of G&A Partners are made available for educational purposes only and are not to be used to provide legal advice G&A Partners. All Rights Reserved.