One of the biggest headaches for a smaller agency owner is human resources management. Lets face it… most agency principals did not become business owners to become people managers. They were creatives, or account service people, or marketing grads, etc. The many and often distracting issues of human resources management probably came as an unpleasant surprise to most agency principals.
If you are lucky, somewhere in your organization is a person who handles HR matters—employee policy issues, maintaining personnel files, healthcare benefits management, the 401(k), and so on—but in smaller agencies, this person is seldom a trained HR professional. They may know little to nothing about workplace safety issues, regulatory matters, or legalities that could leave the smaller agency vulnerable to future employee lawsuits or other litigation. Never mind the daily hassles of just dealing with HR management. In fact, the federal Small Business Administration says that between 1980 and 2000, the number of labor laws and regulations grew by almost two thirds. The SBA estimated that owners of small or mid-sized businesses spent up to a quarter of their time on employment-related paperwork. This deluge of regulation led to the rise of Professional Employer Organizations, or PEOs.
Professional Employer Organizations
First launched some thirty years ago, Professional Employer Organizations are outsourced HR services/management firms whose acceptance and use are growing. Today, PEOs serve approximately 3 million working Americans, with nearly 700 operating in all 50 states. Employers who use PEOs (in a relationship PEOs call “co-employment”) enter into “a contractual allocation and sharing of employer responsibilities between the PEO and the company.” Essentially, both PEO and client become common law employers, and each is responsible for performing certain obligations as employers and sharing other employment obligations. The client pays the PEO a professional services fee for undertaking employment management responsibilities.
Among human resource services offered by PEOs are:
- Payroll and employment administration
- Government regulatory compliance
- Comprehensive employee benefit packages (including health insurance and retirement plans)
- Employee recruitment, training and development
Why Use a PEO?
Benefiting from economies of scale (through serving multiple clients), PEOs can offer benefits packages far superior to what most smaller agencies can afford to provide. These may include health, dental, vision, disability, and life insurance, and retirement plans similar to larger companies’ 401(k)s, making smaller businesses more competitive with larger employers when seeking talented recruits.
PEOs focus on the legalities of HR management and employment law compliance, including regulatory and workplace safety laws. As they address these issues, they may recommend firing or terminating employees, so agency owners should be clear on who has authority and in which situations.
In a typical PEO-client contractual relationship, the PEO assumes the following responsibilities:
- Assigns workers to client locations
- Pays employees’ wages and employment taxes
- Reports, collects, and deposits employment taxes with state and federal authorities
- Retains a right to hire, reassign, and fire employees (although rarely exercises this right independent of the primary employer)
PEOs are not like a third-party employee contracting firm or temp agency. Some or all of a company’s employees may enter into a long-term HR relationship with the PEO. According to an NAPEO survey, the average size of a small business participating in a PEO is one having 19 employees.
Are PEOs a Good Fit for Agencies?
For smaller creative firms, one drawback that is a real consideration for a culture-centric industry such as ours is that, because the PEO is an “outsider,” they are not vested in agency culture or values. Without a clear understanding between the owners and the PEO, the outside firm may walk all over cultural values in handling employment management issues. Agency owners who like the idea of handing off HR management to a PEO should have a thorough discussion with the potential partner to understand the trade-offs and what kinds of potentially disruptive policy and operational changes they can expect.
While PEOs may not be for every small business, it is something to investigate as your agency grows and the daily demands of human resources management become heavier and more time-consuming. Learn more about PEOs at the National Association of Professional Employers Organizations.
