Working with a Certified PEO is a gamechanger that helps small businesses grow
Business can be a lot like baseball at times. I don’t know a single business owner that would disagree. At times it feels like it is the bottom of the ninth, the score is tied, bases loaded, full count, and the other team is at bat. You only have one pitch left, which will determine whether you get to continue and have a chance to win.
Wes Brown knows that scenario all too well. Baseball is his summertime passion, and he is serious about coaching. Making the right decisions during high-stress situations on the field makes all the difference for his team. Wes brings that same intensity to the business world, where, as National Director of Sales for Lyons HR, he helps business owners make the right call when everything is on the line. His broader goal, however, is to provide a service that helps business owners stay out of those high-stress situations. That’s actually how we met.
Every small business owner I know faces the same problem regarding administrative duties, specifically those associated with what we call HR (human resources) and the back office. We, as owners, know that these functions are necessary to have a successful business, but they can often take 20, 30, or even 40 percent of our time. So instead of losing time with our customers and compromising our daytime work hours, we often find ourselves working evenings to make up for the difference. No small business owner wants to work constantly. Like everyone else, we want time off to enjoy our friends, family, and hobbies. We need balance.
So what’s the answer? For myself and Cityview, it was finding the right PEO. And for us, that was Lyons HR. I have used PEOs since 2006 but mainly for their payroll function. Knowing that many of my business colleagues are burdened with those responsibilities mentioned above, it seemed fitting to sit down with Wes, someone who has become a trusted business partner in the field, to explore the ins and outs of teaming up with a certified HR company that has a more extensive menu of products and services.
The Function of a PEO
There are a lot of things I want to cover. Still, I thought I would start with the basics to benefit those unfamiliar with a PEO or a Professional Employer Organization.
One of the primary functions of a PEO, which is familiar to most, is dealing with payroll. Passing this aspect of your business off to someone you can trust is a blessing all on its own. Honestly, this is a win-win for both the employer and the employee. “With a well-established PEO, the employer doesn’t have the burden of keeping records of the employees pay, sick time, accrued vacation time, etc. That’s all done by the PEO,” Wes says. “Each employee has a file accessible through the internet when they need things like copies of pay stubs or W-2s or just want to review their earnings.” To top it off, Wes says all the filings for payroll taxes, Social Security, unemployment, etc., are handled for the employer.
This, in and of itself, sounds like enough of a reason to sign on for some businesses, but everything has a cost, right? My question was simple, could I afford this expanded menu? Most will be pleasantly surprised to find that the increase, if any, would be minimal. The benefits a PEO brings generally offset a large portion of that.
“One area where a PEO can save employers money is workers’ compensation insurance,” Wes explains. “At Lyons, for example, we purchase our master workers’ compensation insurance in bulk and take a high deductible, allowing us to buy at a significantly lower rate than the standard market. We pass along a chunk of those savings to our customers, plus we have savings in other areas, which largely offsets our services’ cost.”
There’s an incredible savings in this regard. I’ve learned over the years that when a company buys workers’ compensation from a local insurance company, they’re most likely subject to state mandatory rates, and they can expect to spend at least a couple of days each year in a workers comp audit. A good PEO will give you much better rates and be able to handle the audits for you. When a company uses a PEO, workers are actually co-employed by the local business and the PEO, thereby sharing the cost and the time. To put it in our coach’s terms, this is a solid base hit.
Significant Impact in a Small Size
One of the things I was most intrigued by when I began diving into the idea of a full-service PEO were the opportunities that existed to offer benefits to my team that, traditionally, many small companies are not able to with any level of cost-effectiveness. These benefits would include health insurance and retirement plans. It always seemed like a pipe dream. But working with a full-service PEO has helped me realize that it is actually possible, just not in the traditional way.
As mentioned above, PEOs like Lyons typically employ tens of thousands of people as co-employers. This not only helps from a workers’ compensation perspective, but also from a health insurance perspective. Picture the most robust plans that might be typical for a Fortune 500 company or one with hundreds of employees. Those suddenly become within reach because the PEO can lump you into their pool of employees.
“PEOs can offer group health plans that go across such a large employee population that the traditional fears of the small employer are overcome,” Wes explains. “If one person on your team falls ill, you don’t see a drastic rate increase. Plus, PEOS can look at your existing plan if you have one—and if not, they can take a census of employees and get you a quote—and if your claims for the year are less than your premiums, they often can offer you a rebate of the unused portion of the premium, thus reducing your costs.”
Looking Ahead for Employees
Wes says that even if you have claims that are higher than the premiums, your rate does not go up; you are not responsible for the difference. “So it essentially rewards you for running a tight ship and having helped the employees,” he says. It feels like another base hit. I’m rounding second with a man on first. It’s starting to feel like we have the advantage.
I know most of us business owners either cringe or daydream when we hear the “R” word, but when it comes to retirement—there, I said it—for our employees, it’s a different ballgame. When you’re a small business, offering 401K programs feels out of reach. But we want that for our teams. And quite frankly, if the Secure 2.0 Act of 2022 stays in effect, we will all be required to do that shortly anyway. (The Act is a second iteration of the Secure Act and aims to improve retirement systems. The law is a bear though. Look for a future story dedicated to dissecting this legislation.)
It can be a real burden to the employer to figure out what all the requirements are to offer retirement and ensure that all of them are met. It would cost thousands of dollars and likely take several work days each year. And I feel that the amount of time and the knowledge required to fulfill the legal rules, not the cost is why so many employers, especially small businesses, simply don’t offer retirement programs.
Wes says right off the bat that at Lyons, they don’t charge to administrate your 401K as long as you have at least 4 people in the program. They set it up, we ensure all the filings are done correctly, and we ensure all the rules are diligently followed. “We often find employers paying unnecessary taxes by not taking advantage of the Qualified Automatic Contribution Arrangements,” Wes says. “In some cases, an employer can contribute as much as $30,000 to the plan in a year with pre-tax dollars.”
As for the new legislation, Wes theorizes that it will be revised before the end of the year, but if not, then every employer with even a small number of employees will have to provide a 401K or some type of retirement plan. And only 10 percent of the employees can opt-out, “meaning everyone has to be in. And the law calls for a minimum contribution by employers of 3 percent. But more so, it calls that the percentage has to increase by 1 percent a year until employers match up to 10 percent. That’s why we think this law might get revised. A 10 percent increase in payroll in an already rapidly rising labor market would be a burden that would put many businesses out for good.”
Knowing that we can take advantage of these benefits and not be burdened with another administrative responsibility feels like having the bases loaded with our power hitter at bat.
Finding Trust in a Questionable Market
For a lot of employers, it would require a considerable amount of trust to hand all this over. I’m walking proof of that. After years of working with a PEO for payroll, I was looking for a partnership with a certified full-service PEO, and for good reason.
This is my company, and these people are my team, after all. Employers should take the time and do their research, especially when not all PEOs are created equal. “It is not difficult to start a PEO, but it is very difficult to start a legit PEO,” Wes says. “At Lyons, we are ESAC (Employer Services Assurance Corporation) and IRS-certified company, and a $25 million bond backs that to insure our customers never have to worry. That’s the kind of trust and security you want backing up anyone with whom you plan to go into business.”
Ask about the nontraditional things too. All the documentation you encounter as a small business owner truly adds up, yes I9s and W4s, but also things like job descriptions, offer letters, and employee handbooks. It would behoove you to see if some of that time can be recouped with additional services from the PEO you’re considering. “It also helps if you have to terminate somebody for cause,” Wes says. “If they signed off on an offer letter with what their job description was going to be and they’re not performing the duties under their job description, it makes it much easier to fight unemployment or employee claims.”
It’s common for companies to see a dramatic increase in productivity and sales once you sign on with a PEO. For many this can be as great as 30 or 40 percent. And what a relief to just step onto the field of business, stroll on up to the plate, and knock the ball so far out of the park that even Fenway Park’s Green Monster wouldn’t stand in your way.
I could share so much more with you about working with a certified PEO like Lyons, and how effortless this has been, but I’ll leave that for another time. The bottom line is, if you are self-employed you owe it to yourself to get that balance back. You owe it to yourself to have a major league coaching staff to help you do that, and my work with Lyons has helped. If you have any thoughts or questions on my experiences, I’d love to hear from you. Email me at nathan@cityviewmag.com. Let’s talk.