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As the ​leading publication dedicated solely to the PEO industry, PEO Insider is your best source for hard-hitting technical insight, timely updates, and practical perspective on all things PEO.
PEO Insider Issues

Summer Sales Issue

Like PEOs, the shops and vendors on the boardwalk by the ocean offer a variety of yummy and fun things. How do you decide? Burgers or hotdogs? Popcorn or pretzels? A walk on the beach in your new flip flops or a bike ride?

Patrons on the boardwalk may be drawn in by the sound of burgers sizzling on the grill, the aroma of freshly popped popcorn, or the stacks of colorful flip flops. Small business owners may be drawn to your PEO through your online advertising, a call from one of your salespeople, or a search of the NAPEO online “Find a PEO” directory.

Like the beachgoer who wants to make sure the burger is juicy, the butter on the popcorn is real, and the flip flops are comfortable, your small business owner prospect will discern the value of using your PEO by what is on the inside.


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Longevity

The PEO industry is relatively young, a mere 33 years. The oldest company in the world that is still operating is Kongo Gumi, a construction business in Japan established in 578. There is a restaurant in Austria, Stiftskeller St. Peter, that opened its doors in 803, and a pub in Ireland, Sean’s Bar, that started up in 900. Now those are old industries.

Still, the relative youth of the PEO industry does not diminish the accomplishment of long-lived PEOs. We’ve all seen PEOs come and PEOs go, but more important, we’ve seen companies that have endured the ups and downs of the economy, the hard and soft insurance markets, and the constantly changing regulatory environment.

Despite the industry’s challenges, we see PEOs reaching the 10-, 20-, and even 30-year marks. In an industry that pretty much invented itself, with no road map or play book, companies are achieving longevity. Read on to learn the principles behind how eight PEOs have done just that.


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The Legal and Regulatory Roller Coaster

Here we go: Up and down, around and around. Step right up and hop on the legal and regulatory roller coaster.

PEOs are no strangers to this wild ride, but in times like these, it’s not any less exhilarating, or nauseating, as the case may be.

On the federal level, these measures are currently in flux as the new administration comes in:

  • The Department of Labor’s (DOL’s) fiduciary rule;
  • Blacklisting rules and a minimum wage increase for federal contractors;
  • The new overtime regulations under the Fair Labor Standards Act (FLSA);
  • The applicability of joint employer status to PEOs; and
  • The allocation of client and PEO responsibility for Occupational Safety and Health Administration (OSHA) and state rules for recordkeeping obligations and worker safety.

One thing that is not in flux is the new EEO-1 form: The old form had 121 data points, while the new one has 3,360. PEOs should be ready for this new twist, however, because the Equal Employment Opportunity Commission (EEOC) for the first time will use analytics software to identify indicators of potential discrimination on the front end.

On the state level, the rules in the states and local jurisdictions remain a jumble. State licensing and registration laws offer a mix and match variety of provisions addressing everything from direction and control to hiring and firing and treatment of taxes to benefits payments. Human resources and employment laws, governing things such as “ban the box” rules and paid sick leave, can vary down to the local level. Proposals designed to raise revenue, which affect PEOs, are on the rise among the states.

Finally, two PEO execs offer their experience keeping up with and navigating issues in the states, which may make your journey a bit smoother.

So, hang on, and don’t be surprised if by the end of the ride things have changed again.


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Reinvesting for Growth

As PEOs progress, and by necessity, grow, various things happen, creating different possibilities. For example, your company might be topping out of its current capacity. Having trouble keeping up with client needs might be an indicator of this. You may feel like you don’t have the right internal numbers and skill sets to answer every call promptly and easily. Maybe you feel as if your PEO is not keeping up with its competition. You have come to a fork in the road: You could stay the same, or you could bump up to the next level. Bumping up to the next level, however, requires an investment.


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Developing Strategic Goals

“The PEO business is so easy and uncomplicated that it basically runs itself,” said no one ever. Everyone who has ever been in the PEO industry knows what a crock that statement is: Running a PEO is difficult and complicated, to say the least. What helps, however, is planning, setting goals, and figuring out how to achieve those goals.

This feature focuses on setting goals. There are many tools available to help in the process, tools that help each PEO determine its own formula for developing strategic goals. These tools, listed in the glossary below, are available to all businesses, but for PEOs, context is everything.

The first and last articles in this feature examine how two of the most applicable tools work in the PEO context. In between, several PEOs with different models from around the country talk about how they do it.


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New Frontiers

The landscape for PEOs is getting interesting. A brand-new type of business is emerging, HR industry disruptors are revealing lessons and opportunities for PEOs, the possibility of serving international clients is opening up, and changes in the workforce are leading to new ways to reach employees. All of these developments present new frontiers for PEOs.

The gig economy has gotten a lot of attention. This new business model has taken off, well ahead of the legal and regulatory framework’s ability to answer questions about the employee rights, data security and privacy, and independent contractor issues that have already arisen. A serious issue, worker misclassification, poses risks to the gig companies themselves and the PEOs that work with them. Flexibility, adaptability, and proper administration of gig workers, however, can mitigate these risks.

The initial apprehension felt when online-only HR providers—Software as a Service—came on the scene has subsided somewhat, at least for now. It’s clear now that PEOs have advantages over these companies—PEOs are strategic partners with customized, hands-on service, with the emphasis on service. Furthermore, the “disruption” allowed PEOs to reexamine the quality and effectiveness of their own marketing efforts and revitalize their service delivery and user experience.

Global opportunities are opening up for PEOs, too. One particular PEO has developed a global market strategy by working with a local economic development organization, which opened the door to international companies interested in expanding to the U.S.

Now that most everyone has a smart phone, Millennials populate the workforce, and people expect around-the-clock service and access, PEOs are shifting to mobile-first design. This allows access to employee self-service for people in industries that don’t necessarily use computers in their work, caters to the way Millennials work, and makes services and information available 24/7.

While technology has played a big part in these developments, PEOs will always be people-centric, setting them up for success in these new frontiers.


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A Year in the Life of PEO

PEO people are so engaged in the industry that they can discuss everything from the minute details of their PEO lives to broad issues of universal importance across the PEO operational spectrum. Each PEO does things it’s own way, yet each has a stake in the direction of the industry. Listening to them talk about their businesses and the operating environment, you will often hear them finish each other’s sentences. It’s like playing a game of “Mad Libs,” each person filling in the blanks with his or her unique ideas.

It’s not that they interrupt each other—it’s just that they “get” each other, despite coming into the PEO industry in different ways, being in different phases of their business life cycles, and finding their own ways to deal with the industry’s challenges.

On September 8, 2016, five PEO professionals got together in a meeting room in Austin, Texas, during NAPEO’s 2016 Annual Conference & Marketplace. PEO Insider® invited them there to talk about anything and everything having to do with their lives in the PEO world. This issue’s feature presents the transcript of this discussion.


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A Fresh Look at the Ever-Changing PEO Space

The PEO landscape is constantly changing. PEOs, however, are used to it—it’s been changing since day one, and PEOs are proficient at navigating the ups and downs of the space where they operate. What is certain is that these changes always conspire to make the PEO industry interesting.


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The Changing World of HR

You know when you haven’t slept well for a few nights in a row, and you feel tired, worn out, and walk around in kind of a daze? You feel, well, like a zombie.

This is a pretty common state for many small business owners these days, as the low unemployment rate, while good news, means that businesses have an even harder time finding workers to fill jobs. Finding and keeping skilled workers has always been a challenge, and now it is keeping small and mid-size business owners up at night.


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The Butterfly Effect

In the life of a PEO, anything and everything affects sales: The way the receptionist answers the phone, how a client’s payroll is processed, the way HR folks interact with worksite employees, and of course, the quality of the services and the effectiveness of the sales team.

The PEO operates under the concept that any little thing can have big implications for getting and keeping clients—its own butterfly effect.

The PEO carries a lot of responsibility for each client, each worksite employee, and itself. While only a few are tasked with representing the PEO during the sales process, everyone in the organization has a role as a brand ambassador in building business.


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The Key to PEO Profitability

There is an arch bridge in Greece from 1300 B.C., and it’s still standing. There are hundreds of arch bridges from the Roman era across Europe and the Middle East, many also still standing.

The arch is a very simple structure, yet it has great strength, stability, and endurance. Building it requires a frame to support the side stones until the keystone is placed, but then the arch is self-supporting and maintains its strength through the weight of each of its parts.

Although it is very complicated, the PEO can build a strong financial structure based on these principles. Each element—balancing costs and revenues, finding and keeping the right employees for your PEO, using the right technology and workflow processes, focusing on client fit, and matching your service profile to your client base—works together to support the PEO, held together by comprehensive and granular reporting, analysis, and decision-making.

This structure is the key to a strong, stable, and enduring PEO.


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The Journey to CPEO

Imagine embarking on a journey that was 17 years in the making, a journey that will expand business opportunities and provide certainty for the PEO business model.


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How to be a Compliance Superhero for Your Clients

Imagine your clients, slogging away, day after day, dealing with legal compliance, changing regulations, federal laws, state laws, new laws… all the while trying to run their businesses, into which they’ve invested their blood, sweat, and tears. Regular hours? Forget about it.

 

If only these small business clients had someone to help, a superhero of sorts, to save them from these burdens.

 

Actually, if you are reading this, you are likely one of those very superheroes. As a PEO, you help your clients with these problems every day. Because things change constantly, this feature is designed to provide the very latest about the legal and regulatory issues that affect you and your clients right now.


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The Beautiful PEO Operations & Technology Ecosystem

The PEO business is all about people. All of the PEO’s services are designed to benefit client companies and their employees. HR, benefits, payroll, and risk management are all done for people. Under the surface, each PEO has a rich operations and technology ecosystem that makes it all work.

All of the PEO’s functions require data, and this data must flow smoothly through the PEO. Like a coral reef, the PEO has a technology infrastructure that its operation depends on. The reef has hard coral, such as brain and elk horn coral, which serve as the framework. It has soft coral, such as mushroom coral and sea fans, which serve as a different kind of framework, much like the cloud does for PEOs. Like the coral reef, the PEO’s operations and technology work as an ecosystem that supports its life.

The coral reef is rich in life. An endless variety of life—fish, turtles, sharks, eels, crabs, shrimps, urchins, sponges, and algae—flows in and out of the reef, finding shelter and nourishment. An endless variety of PEO client and employee data flows through the PEO’s technological ecosystem in the same way, allowing the PEO to provide its services.

Technology, like the reef, can grow and adapt with changes in the PEO or its clients. Older coral may die, leaving its exoskeleton behind, but new coral builds upon it. There is always something new, just as in the PEO.

It’s a kind of beauty the PEO, its clients, and its co-employees can appreciate.


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The Complicated Machinery of the ACA

Rube Goldberg was an American inventor and cartoonist who lived from 1883 to 1970. His cartoons are easily recognizable. They depict complicated contraptions, completely over-engineered to perform straightforward tasks in ridiculously convoluted ways. They often involve a chain reaction, so they are not only overly complicated, but they take longer, too. The term “Rube Goldberg machine” has expanded to mean any complicated and confusing system.

The Affordable Care Act (ACA) is one such system. It has lots of pieces and parts, each part has its own unique complexity, and it continues to unfold in its labyrinthine manner as the law gradually becomes fully implemented. PEOs and other interested parties watch as it does so.

Right now, here are the things to watch:

  • Changes in store for healthcare consumers, providers, and PEOs;
  • Transitional relief, as it expires and employers are subject to new requirements;
  • A host of new affordability guidance on everything from employer flex contributions to counting hours of service;
  • The potential for state innovation waivers to affect health policy;
  • The affect the ACA’s changes to disability claims can have on administering employee benefits plans; and
  • The ins and outs of 1094-C and 1095-C reporting.

Keep your eye on the ball, or the gear, or the coin as it moves through the ACA, and you will be able to make it to the other end.


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The Evolving PEO Value Proposition

How would you describe the PEO value proposition? While it’s intangible, you may imagine it as something that flows. It’s constantly evolving as PEOs change to meet small business needs, keep up with developments in HR, benefits, and technology, and adapt to the changing workforce. You may envision the PEO value proposition as an ethereal thing, composed of many different colors that blend, change, and flow in different directions.

You may envision it this way because of the many different ways PEOs structure and promote their offerings, and the many different variations and combinations of the offerings themselves. However, it is possible to identify themes running through:

  • Pure-play PEOs, PEOs also offering some mix of non-co-employment such as ASO, specialized and niche PEOs, and PEOs appealing to a broad business base;

  • Disruptors to the PEO value proposition, such as the Affordable Care Act (ACA) and online-only HR technology entrants such as Zenefits; and

  • Indications of where the PEO value proposition is going, for example, PEOs taking advantage of the opportunities created by the ACA, adapting to compete with the latest market entrants determined to take market share, adding compliance assistance as a major focus, preparing for technology to become a bigger part of the value proposition, and recognizing the opportunities the Small Business Efficiency Act (SBEA) presents.

It’s always interesting to see what PEOs do. And the value proposition is a beautiful thing.

 

 


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PEO Snapshot

It’s hard to get a good snapshot of a moving target, and the PEO industry moves pretty fast. PEO Insider® was able to find out exactly how fast, and in what directions, when it sat down with five PEO professionals during NAPEO’s 2015 Annual Conference and Marketplace in Phoenix, Arizona, in September.

When you get PEO people together, you just know the conversation is going to be good. Members of the group, representing companies of different sizes, models, and geographies, talked about their experiences in different markets, their clients’ and their own challenges, the state of the industry, emerging issues, and their thoughts about what’s coming up in 2016.


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Outside Influences

And How They Affect the PEO World 

The state of the economy, the insurance markets, and access to financing affect all businesses and industries. However, because PEOs serve small and mid-size businesses, and a multitude of industries, that extra layer magnifies the effect these forces have on PEOs. In the last year, the Small Business Efficiency Act (SBEA) has entered the picture.

The PEO Index, discussed in our first feature, provides a 10-year history of how the PEO industry tracks with unemployment data and the gross domestic product (GDP). The index shows not only that PEO clients fare better than non-PEO clients, but it also shows that the same elements that drive GDP growth or contraction can be applied to the industry. Increasing government regulation dampens productivity, but again, PEOs have a positive effect on their clients in this area. While the future of the economy is uncertain, the time is ripe for PEOs to reach out to help businesses make progress in a challenging environment.

The workers’ compensation insurance market is definitely in a better place than it was three years ago, but PEOs continue to face structural challenges and increased regulatory interest. While the National Council on Compensation Insurance (NCCI) has filed rate decreases in 30 states, seven states had rate increases. Carriers are also facing dismal interest returns on their investments, leading to adjusted pricing for customers, including PEOs. Some carriers have left the market, and while other carriers have absorbed those customers, regulators are responding to the failures. However, market condition now are generally stable and PEOs have ways to manage their risks.


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A Walk Down Main Street

What’s Really Happening in the Small Business World? 

For PEOs, it’s hard to know what is really happening within any given small business.

It’s possible to collect data from small businesses about their optimism, and conversely, pessimism, towards such things as new job creation or the ability to fill existing jobs, plans for capital outlays and increasing inventories, expansion, and the outlook for sales. Trends in these areas provide a broad context and can tell PEOs a lot about their clients and potential clients.

So too can data that aggregates information from small business owners about the challenges they face from industry and economic issues, product demand, tighter consumer credit, and laws and regulations. Such data provide insight into the environment in which clients and potential clients find themselves operating.

One of the most important statistics for PEOs is the state of small business employment. Tracking small business employment not only indicates how the economy is performing, but also takes the pulse of small business, because in a small company, employees are pretty much everything.

More telling than economic data and statistics, however, are narratives from real small business owners, revealing their every-day struggles and challenges, in their own words. This feature presents narratives from nine small businesses across the country, of different sizes and in different industries. These narratives can help PEOs interpret the economic data and statistics, and really see how it filters down to real life in the small business world.


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Gobbling Up Technology

Supporting Growth • Integrating Data • Improving the Client Experience

Do you remember those early video games that were so addictively fun, yet so frustrating when you failed a level or ran out of lives? Somehow, the fun always won out and you kept playing. PEO technology is like that, too. It can do so much for the PEO and its clients, yet getting to the next level or figuring out how to make it all work can be frustrating at times. Still, the excitement of finding new ways to support your PEO always wins out. With both vintage video games and PEO technology, the fun comes in developing a strategy to beat the game.


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The PEO Business Model

To be a PEO, you have to do certain things for your clients—human resources, employee benefits, payroll and taxes, and workers’ compensation—through the co-employment relationship.

That doesn’t sound very colorful. How much variety can you create with just these four elements? As it turns out, quite a lot.


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Healthcare Compliance, Operations, and Affordability

Wouldn't it be nice if everything you needed to comply with the Affordable Care Act (ACA), incorporate it's requirements into your operation, and keep healthcare coverage for your clients and worksite employees affordable were packaged up in a neat little box? All you would have to do is open it up, read the instructions, and boom—done!
   

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The Legal and Regulatory Issue

Have you seen the YouTube video1 about the most complicated board game ever? Well, here’s a sample of some of the game play

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Finding Your Groove

PEOs operate on thin margins. There is no mystery about that. Mix in the fact that PEOs need to grow to sustain themselves more so than most other businesses, and it’s obvious why maintaining those margins as other operational resources are adjusted to facilitate growth is so important. There are so many different levels, and so many elements to balance, for example: customer service capacity, growth plateaus, flexible technology, profit and loss, cost controls, overhead, staffing levels, service model adjustments, and cash flow, just to name a few. Adjusting something in one area affects the levels in other areas. It requires many micro and macro adjustments, constantly.


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Where’s PEO?

It’s not uncommon for a PEO to feel almost invisible in the marketplace in some areas of the country. But then again, in other areas, it seems like you can’t swing a dead cat without hitting a PEO. This is a pretty strange predicament for an industry that has been around for more than 30 years, and it makes for some interesting challenges.


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Healthcare Inside and Out

The Affordable Care Act (ACA) is a colossal law made up of a massive number of bits and pieces—or to use the technical term, rules and regulations. To help their clients comply, PEOs must understand both the ACA as a whole—what needs to be accomplished—and the ACA down to the cellular level—how it is to be accomplished.


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The Past, Present, and Future of a Dynamic Industry

A recurring theme this year in PEO Insider® has been the collaborative nature of the PEO business. In this, NAPEO’s 30th anniversary year, the magazine has dedicated two regular columns—“#napeo30” and “PEO Spotlight”—to the history of both NAPEO and the PEO industry. Their development has progressed hand in hand, as NAPEO has provided a nexus for people in the PEO business to gather, network, and learn from one another. In this last feature of 2014, PEO Insider brings together five up-and-coming industry leaders for a snapshot of the industry yesterday and today, current challenges, and what they see in the future. As always, we have no intention of leaving you out—you get to be the “fly on the wall,” listening in as these five PEO professionals talk in-depth about everything from the state of the industry today, present concerns, and the business environment, to emerging issues, growth, and the future of the PEO industry.


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Developing Long-Term Strategies

Start Here

With a business as complicated as PEO, it only makes sense to define long-term goals, formulate a strategy, allocate resources, and execute the strategy. This makes sense in any business, but it’s all the more crucial when your business has a lot of moving parts, handles risk, and has slim margins—margins for profit and margins for error.

Every long-term strategy should begin with a foundation, something on which to build. However, don’t start building until you identify your priorities and define your direction. Articulate your guiding principles and purpose. Who uses your products and services? What is your brand promise? What are your strengths and weaknesses? Answering these questions will help you set long-term goals and execute your strategy.

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The Elegant PEO Technology Framework

Innovative, Integrated, Scalable

Because almost everything a PEO does for its clients depends on it’s technology infrastructure, this framework must be capable of adapting to technological advances, integrating each and every aspect of the PEO’s operation, and growing with the PEO.

In developing a framework that can accommodate all of these requirements, PEOs can look to the nautilus for inspiration. The outer shell of this creature is secure, reinforced by its unique inner spiral shape. The elegant and delicate shape of the spiral—an innovative design when it originated hundreds of millions of years ago—was so innovative, in fact, that the nautilus survives in the world’s oceans to this day. The shell has provided a framework for the nautilus to adapt to its environment over its evolutionary history, while the one thing allowing it to survive for eons—it’s shell—remains unchanged.

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Cowabunga! Riding the Waves of Opportunity

“Cowabunga!” This slang from 1960s surf culture is the joyful cry of a surfer climbing a 12-foot wall of water and getting ready to “take the drop.”

It’s also the joyful cry of a PEO salesperson following a small business trend and getting ready to close some major business.

Opportunities for both surfers and PEO salespeople come in waves. Surfers know that everything that goes into making a good wave is not evident on the water’s surface. Surfers must know their surf spot geography, keep an eye on local weather conditions, and be aware of the tides. To PEOs, the small business market is like the ocean—constantly moving, with waves visible as they near shore, but their duration and strength somewhat of a mystery.


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ACA Operational Flowchart

Your Guide to Compliance in a Few Easy Steps

The text of the Affordable Care Act (ACA) on the Healthcare.gov website is 906 pages, about two reams of copy paper. The Computational Legal StudiesTM website (http://bit.ly/1oRBKgQ) posts a version that comes in more than twice as long, at 1990 pages. The official, certified version on the U.S. Department of Health and Human Services (HHS) website is 2,409 pages. According to CNSNews.com, the 109 final regulations account for a combined 10,535 pages in the Federal Register. Ugh.

Okay, so the size of the various versions depends on type size and margins, but the ACA is still big and confusing, as PEOs have seen over the last four years of learning to comply with the law and its regulations. PEOs have always dealt with complicated and confusing things for their small business clients, and the ACA is no different.


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Regulatory Climate for PEOs, Small Business, Getting Hotter

The PEO legal and regulatory environment is like the 24/seven news cycle: the flood of information never stops. You can check any time of the day or night, any day of the week, and there will be something requiring your attention.

Surely, there can’t be that much news to fill so much time. The fact is, there is. Just like the torrent of never-ending Internet and cable reports, there are new stories every day, but at the same time, the news may not always be new—it’s often a rehash of previous news. And, the news may not always be complete—it’s frequently an announcement about forthcoming or developing news. The difference is, however, that PEOs need to pay attention to rehashed news and incomplete news as well as the latest developments, because every little regulatory change matters, and it often takes time to prepare for forthcoming changes.


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PEO: Greater than the Sum of its Parts

The basic value proposition of the PEO is simple: PEO clients receive human resources, benefits, risk management, payroll, and all of the associated compliance services, all in one place, the value of which is greater than the sum of its parts. Of course, if the PEO weren’t able to internalize this seemingly paradoxical principle, the value proposition—and the operation that creates it—would not be possible.

So, how do PEOs orchestrate all of the moving parts of their operations to deliver this value? The individual parts are important, and clients and worksite employees certainly benefit from them, but looking at the PEO holistically—as a complete system—allows the synergies that make all the parts work together efficiently.


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Strength, Agility, Endurance

As far as business and service models go, PEOs are very diverse. With options including PEO, ASO, and HR consulting, PEOs, like Olympic decathletes, don’t have to do the same thing all the time, thus building overall strength, agility, and endurance.

The diversity and options don’t end, there, either. Within each service line, options abound: delivery options, service options, a la carte options. These options mean PEOs can serve a wider range of clients, giving them choices for serving companies that may not perfectly fit PEO or that may want something different. Just as the decathlete can sprint, jump, throw, and run long distances, the PEO can meet a variety of client needs with no sweat.


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The Strategy of Risk Management

Managing risk involves dealing with uncertainty, reducing the possibility that things will go wrong, and protecting against hazards. Risk is best managed not by chance, a roll of the dice, but by a well-thought-out strategy and a methodical approach. The PEO’s strategy and approach helps lessen threats, many of which are beyond the PEO’s control.

Let’s start with the state of the insurance markets. The PEO certainly can’t control it, but it certainly can keep an eye on the markets, interpret the indicators, follow the trends, and act accordingly. The combined ratio is a key indicator for insurance carriers. High combined ratios and low investment yields year over year put stress on the workers’ comp line of business and its carriers. The Affordable Care Act (ACA) may affect the availability of health providers for work-related injuries and carriers will have to assume more of the risk associated with terrorist attacks if the Terrorism Risk Insurance Act (TRIA) is not renewed. Even so, the overall trend for workers’ comp is improving and, within this environment, PEOs still have options.

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The ACA: A Guide to the Year Ahead

There are apps for just about everything these days. You can get business apps to do all the same things you can do with your computer, and much more: read credit cards, do video conferencing, and organize trips. You can get apps that help you find parking places, translate languages, and count calories. You can get any game you want, as well as beer-drinking apps and a keyboard app that makes cat sounds.


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Making Change

Or, How to Turn Whatever is Thrown At You Into Opportunity

One of the first things you notice about people in the PEO business is how they handle challenges. The last few years have been rough on all businesses, especially small ones: a weak economy, high unemployment, severe layoffs, shrinking workforces, whole industries struggling, low consumer confidence, stalled hiring, suppression of wages, indecision in business, lending restrictions, a gridlocked government, and a frail recovery. Yet, PEO people still tend to say things like, “We’re all going to find a way to be successful,” “We’ve figured out a way to create our own niche and deliver value,” and “There is so much opportunity.”

The inherent paradox of the PEO business is that when small businesses—the PEO’s lifeblood—struggle, that’s when they need PEOs the most. This paradox has existed since the very inception of the PEO industry. Throughout the industry’s lifetime, PEOs have adapted and thrived through changing economies, market cycles, and business environments. On the surface, how they do this is somewhat of a mystery.


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The Rich Mosaic of PEO Profitability

A lot goes into PEO profitability. Zoom in, and you see the individual elements of your PEO’s financial and operational picture. Like the individual tiles, or tesserae, in a mosaic, they do not reveal much of a picture when viewed so closely. Zoom out, however, and a rich and detailed picture emerges.

Part of this zooming out is applying business intelligence to your PEO. This requires studying the various metrics and what they mean, developing baselines for improvement, and studying and analyzing areas that lead to the PEO’s success. Some of these areas are accessibility and response, productivity and profitability, client retention and growth, internal retention and growth, and product offerings. By aggregating the results of these analyses, you can create a scorecard to manage the big picture of your PEO’s profitability.


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Worksite Liability! Employment Risk!

It All Comes Down to the Worksite

Every PEO’s goal is to help client companies succeed. The PEO’s infrastructure, strategy, and technology are designed to help it meet this goal. All of the PEO’s people work towards this goal. PEOs develop policies, procedures, and workflows to provide HR services, benefits, payroll, regulatory compliance, and much more to the client, all geared towards allowing the people at the company to do what they do best. In doing so, PEOs bear risk and liability.

PEO success depends on client success, and when it comes down to it, client success can be measured by what happens at the worksite. Problems at the worksite can mean problems with the company, and problems for the PEO. The PEO must keep a handle on employee relations and employment law compliance at the client worksite without always being there. Employee relations issues can easily develop into employment liability issues, ranging from workplace squabbles and hostile workplace claims to Fair Labor Standard Act (FLSA) violations and wrongful discharge claims. It can be very scary.

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Thrust • Lift • Stability

Making Sales Soar

When making a paper airplane, crisp, even folds in the right places will generally result in an airplane that will fly straight, even soar. It may be a simple, traditional paper airplane design or a more elaborate and complicated one, but following the plan and correctly executing the folds are key. When you finish your plane and fly it, the throw gives it thrust, the wing shape gives it lift, and the symmetry gives it stability.

Thrust, lift, and stability are vital in your PEO’s sales strategy as well. A predictable sales model will generate a consistent stream of qualified prospects, providing the thrust for your sales program. Each PEO should identify metrics that reveal its target client type, product offering value, and sales team effectiveness, and analyze them to arrive at its own model.


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Go with the Flow

Technology Takes PEOs from Communications and Management to Infrastructure and Data Protection

Many things PEOs do are intangible. Much of their value proposition depends on the flow of data in from clients and employees and the services delivered as a result of that data. If ever there were a type of business ideally suited to technology, PEO is it.

PEOs continue to advance in service, efficiency, and sophistication, and to a large extent, advancing technology helps fuel that. Social media’s growth into a part of everyday life brings business opportunities, as PEOs learn to apply marketing principles and strategies to this new communications channel. Because PEO services also involve the exchange of employment, HR, compliance, and business information, social media can be an effective tool there as well.


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Healthcare Reform & PEOs

It’s Time to Get Practical

After three-plus years of learning, digesting, studying, and attempting to adjust to the requirements of the Patient Protection and Affordable Care Act (PPACA), and seeking to guide and support clients along the way, there is still much work to be done.

The details of PPACA compliance are a lot to absorb, and there is a lot to convey to PEO client companies. However, therein lies the opportunity. Under the category of “What PEOs Do Best,” the most massive regulatory upheaval the country has ever seen also provides the most massive opportunity for PEOs. But, it sure is a lot of work: it requires constant vigilance to keep up with the evolving regulatory environment, intense attention to detail, and a thorough understanding of how everything applies in the PEO context.


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The Shifting Complexities of Regulatory Enforcement and Compliance

Complying with employment law has certainly gotten more complex in the last four years, as the Obama administration has increased its focus on investigations and enforcement. This shift will continue during the next four years as well. To the nation’s small businesses, this presents a complicated picture of rules and regulations, government agency initiatives, heightened enforcement, and increased penalties for violations.

In other words, PEOs have their work cut out for them.


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The Care and Feeding of Your Client Base

Nurture and Engage | Connect and Deliver | Thrive and Grow

Warmth, loyalty, and longevity are certainly three ideal qualities of the relationships PEOs would like to have with all of their clients. The complicated nature of PEO/client relationships requires the PEO to provide the proper care and feeding for each and every client. 

The good news is that a holistic strategy to client care can allow PEOs to provide the energy, nourishment, and vibrancy their clients need, beginning with the sales process and leading to a fulfilling long-term relationship for both client and PEO. This ongoing client nurturing and engagement makes the ground fertile for client retention.

 


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The PEO Risk Management Universe

The Macro to the Micro

Workers’ compensation management in the PEO context is a curious thing. PEOs have three fundamental policy structures available to them: the master policy, the multiple coordinated policy (MCP), and client-based policies.

While today’s brew of master policy, MCP, and hybrid states is not optimal, it has evolved into a  workable accommodation of the interests of PEOs, carriers, insurance commissioners, and ratemaking bodies. Carriers that will work with PEOs vary widely, and the market is limited because of the unique administrative burdens related to PEO coverage. This brew works now mainly because it still allows some flexibility for PEOs.


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The PEO Odyssey

Executing Strategy While Managing the Tactical

It seems every journey has its obstacles: flat tires, lost luggage, three-headed sea monsters… Just as Homer’s Odysseus had his trials and tribulations during the Odyssey, so do PEOs have theirs today. In both cases, these hindrances can take you off course, slow your progress, and take your focus away from the larger goal of getting from here to there.

While the biggest benefits PEOs provide to their small business clients are strategic (helping client owners focus on the core business, reducing labor costs, and offering big-company benefits), much of making that happen requires flawless tactical execution (payroll, client data access, and HR and benefits transactions). As every PEO knows, tactical glitches occur quite frequently for a variety of reasons, and when they do, the PEO needs to be hands-on and tactical right then and there. Even though much of the tactical is automated, every day brings new and different situations that require non-automated attention. This can get in the way of executing strategy, much the way the Sirens and the Cyclops got in the way of Odysseus on his journey.

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The Trend Issue

Over the last few years, the biggest trends for small businesses have included belt tightening due to the faltering economy, bracing for the still-unknown impact of healthcare reform, and struggling as the cost of unemployment insurance continues to rise.

Well, word on the street is that these trends are on the way out, in the PEO world at least. That’s because helping small businesses deal with these challenges is exactly what PEOs do:

  • Small businesses need to make do with less. PEOs are right there with the value delivered through the expertise businesses need now more than ever.
  • Small businesses are struggling—some even paralyzed by the vastness of the challenge—to comply with healthcare reform. PEOs can guide them through with their resources and leadership, and even help with affordability through plan design.
  • Unemployment costs continue to increase. PEOs are on top of this, offering clients UI best practices and education.
  • A difficult economy can affect both PEO UI and workers’ comp experience. When the economy is bad, employment law claims increase. Again, PEOs are there to identify and address these client needs.

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Healthcare Reform

The implementation of the ACA—the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, which amended it a week later, in March of 2010—has involved a constantly morphing set of interlocking issues. Legal challenges began almost immediately. Some provisions of the law have been dropped. Timelines for compliance with some provisions have changed. Enforcement of other provisions has been delayed. A major obstacle in implementation was removed in June, when the U.S. Supreme Court upheld the law, except for one penalty provision. States that postponed creating exchanges are now behind the curve and others have opted out altogether. Implementation will bring more changes as thousands of pages of new and final regulations are written and released. The outcome of the national election is also expected to bring changes, one way or another: technical corrections if Obama wins; a significant deconstruction if Romney wins.


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PEO Sales & Growth

It’s true that PEOs face competition from business service providers offering a la carte services to prospects in the PEO market. These services mimic PEO services and appear less expensive.

While these competitors do not offer true PEO services, PEOs have to compete with them. To do that, PEOs need to show prospects their roots, so to speak. These roots anchor the PEO to its true value: the co-employment relationship. Prospects have much to gain from choosing the PEO relationship over the services of other vendors. More than just selling businesses products and services, PEOs partner with their clients to improve business processes, advance employee well being, manage risk, and increase profitability. And, PEOs do this for clients efficiently.


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The PEO Operational Model

Down through the ages, many wise people have recognized change as a constant. These philosophers have managed to put their fingers right on the paradox of the PEO model: PEOs must perform payroll, benefits, and HR tasks for their clients according to standardized rules, with the utmost accuracy and security: the same every time.

However, at the same time, benefits programs change, worksite employees come and go, clients come and go, and the laws and regulations governing how PEOs must perform these tasks are constantly changing. It only radiates out from there:

  • The American workforce changes through HR trends and technology;
  • Local and regional economies, as well as the national economy, change;
  • Local, regional, and national market conditions change;
  • These changes bring uncertainty to the business world; and
  • PEO clients respond to these changes, their needs change, and so the PEO must change as well.

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PEO Risk Management: THE BIG PICTURE

There is a certain art to PEO risk management. It’s easy to immerse yourself in the details of your programs, looking in really close to see the minute brush strokes and subtleties of the composition. While it is absolutely necessary to do this, it often helps, however, to step back and take a look at the big picture, put everything in context.

And the big picture for PEOs is pretty big. Developing a long-term strategy for managing all the risks the PEO must manage requires context.

Putting PEOs in the context of the various insurance markets, there is now a limited but stable market of carriers who work with PEOs. Through, for example, the market challenges of the early 2000s in workers’ compensation, PEOs learned underwriting discipline, and are now better poised to respond to changes in the marketplace. PEOs can synchronize these advantages with their larger business strategies, for example, matching investment in loss control to the client base or leveraging the workers’ comp program in support of acquisitions.


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Creating a Seamless Customer Experience

Much of what PEOs do for their clients and worksite employees is invisible, behind the scenes. The better the PEO is at all of the complex services it needs to provide, the more invisible it is. 
Does the typical client really know what a rock star the PEO is?

A seamless customer experience certainly goes a long way towards enhancing the rock star image. This experience begins with the digital plumbing, databases, servers, applications, and network infrastructures behind it all. Smooth integration of databases and software applications—plus customization for each client—support a user-friendly interface for PEO clients and worksite employees. These technologies also weed out 
inefficiencies and redundancies within the PEO, enhancing the PEO’s profitability as well.


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Special PEO Legal and Regulatory Issue

If there ever were an industry that needs to stay on the straight and narrow, the PEO business is it. Even more challenging, PEOs need to keep their clients there as well. In a sense, that is the PEO’s business. Laws and regulations affect almost everything the PEO does: HR, benefits, workers’ comp, payroll, and taxes. Straying from the right path in the complex maze of federal government agency enforcement and the labyrinth of state laws has significant consequences, which can lead the PEO and its clients to substantial financial penalties and a figurative dead end. For guidance, please perusePEO Insider’s® annual update of the complicated, perpetually changing legal and regulatory framework in which PEOs must operate.

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Client Service Synergy

Yin and Yang represent the two complementary forces in the Universe that interact within a greater whole. Balance of these two forces is highly desirable.

The PEO, client, and employee are the same way. When a state of balance is achieved, all is right with the world.

This balance comes from the PEO’s ability to create and nurture client and employee relationships that transcend the limitations imposed by the outsourcing model. Because the PEO is not in the same physical location as its customers (clients and their employees), PEOs take on an enormous challenge when serving those customers.


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The PEO Profitability Model

Some profitability models are simple and straightforward, like your neighborhood lemonade stand. Others are a little more complicated—Pokémon for example. Pokémon started out as a video game. Then Nintendo created a trading card game with Pokémon characters, based on the Pokémon video game. Then came another video game, this time based on the Pokémon trading card game that was based on the Pokémon video game. There are approximately a bazillion permutations of Pokémon on all kinds of merchandise, and Nintendo sells these to new crops of kids every year, as well as selling more, more, more to those who already have some (and to collectors, who are no longer kids!). It’s truly ingenious.

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Make PEO Success a Part of the Plan

“Would you tell me which way I ought to go from here?” asked Alice.

“That depends a good deal on where you want to get,” said the Cat.

“I really don’t care where,” replied Alice.

“Then it doesn’t much matter which way you go,” said the Cat.

–Lewis Carroll, “Alice’s Adventures in Wonderland”

 

Needless to say, Alice probably would not make it in the PEO business very long. Who knows about Wonderland, but in the PEO world, getting where you want to be depends as much on a big-picture strategic plan for getting there as much as it does on managing and perfecting a complex operation.


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