The 4 P's of HRO and PEO Evaluation

By Bruce Silver
May 4, 2008

All too often companies spend hours analyzing, assessing, and comparing the cost or savings that one HRO or PEO service provider offers versus another. While a detailed spreadsheet of costs may help to determine "hard dollar" expenditures, it very rarely accounts for the intrinsic value of the competing service models you are trying to compare.

Usually, items such as the co-pays of a health plan, workers compensation rates and administrative fees take precedence over far more important questions. Are you teaming up with a HRO or PEO partner who offers complimentary strengths or merely duplicative expertise and services? Is your corporate philosophy compatible?

Focusing on our 4 P's will help you to make the "right" choice.

People – Meet with the management and team you will be working with in person, by phone or tele-conference. What are their backgrounds, functions, qualifications, and responsibilities? What are the scope of services each will deliver, how, and how often?

Process – What is the plan for a smooth transition? Map steps for employee notification, orientation, and enrollment. Identify the who, what, where, and when of plan implementation. Set goals, time-lines, reviews and evaluations.

Platform – Human Resource Information Systems (HRIS) provide a robust set of tools for employee administration, benefits, compliance, payroll, and risk management. Identify levels of employee and management access, orientation, and training. How will you coordinate IT staff for system integration with automated attendance and Point Of Sale systems, 3rd party software and hardware?

Programs – Employee Benefit programs provide a competitive edge in attracting and retaining a highly motivated and productive workforce. Evaluate the quality, value, and choices of health, life, dental, disability and retirement plans. What employee communication, mediation, recognition, rewards, and relocation services are available?

Bruce Silver is the founder and managing member of Employers Rx LLC.
The author can be reached at 561.843.4333 or bruce@employers-Rx.com.
Your comments are welcome. For additional information visit our websites:
http://employers-Rx.com
http://peo-quote.com

Ask Questions to Avoid Hiring a Shaky PEO

newsobserver.com

David Ranii, Staff Writer

The Castleton Group, which shut down last month, was operating as a professional employer organization -- even accepting new clients -- though it wasn't licensed. The Raleigh company was able to do that because it had operated as a PEO before the enactment of a 2005 law that required PEOs to be licensed. Under that state law, Castleton was permitted to continue operating as long as it was pursuing a license. That pursuit included its legal appeal of the Insurance Department's decision to deny Castleton a license.

Some former Castleton clients insist that the Department of Insurance fell down on the job for failing to notify Castleton clients about the company's problems. The Insurance Department position is that it went public as soon as it could -- when it denied Castleton's license in early December. Insurance Department spokeswoman Chrissy Pearson said no other PEOs are in the situation Castleton was: operating as a PEO in North Carolina without being approved by regulators.

But it's still important to do your homework before hiring one. PEOs provide vital services such as payroll and health insurance to small and midsize businesses, so businesses must make sure the company they hire is financially sound and a good fit for their organization.

Here are some questions to ask and things to check.

* Is the PEO accredited by the Employer Services Assurance Corp.? This nonprofit group, better known as ESAC, has tough financial standards, one reason only 25 of the nation's more than 700 PEOs are accredited. Nine in North Carolina are.

Accredited companies must meet operational and ethical standards and are backed by $6 million in performance bonds. That money is available to reimburse clients, their employees and tax authorities if the PEO defaults on obligations.

* Is it licensed by the state?

Companies can be denied licenses for failing to meeting the state's financial standards.

The Insurance Department's Web site lists the 90 companies licensed to do business in the state. Its "listing of active PEOs" is accessible at www.ncdoi.com/FED/SE/ fed_se_home.asp.

If a company isn't on the list, it can't accept new clients. However, more than 40 companies that don't have an office in North Carolina and aren't on the list are authorized by the state to work with existing clients. If your PEO isn't on the state's list of licensed companies and you want to check whether it falls into this category, you can contact the Insurance Department at (800) 546-5664.

* Ask to see an audit.

To get a state license, a PEO must provide the Insurance Department with an independent audit of its finances. You should be able to get an audit from the company, or you can request it from the Insurance Department.

* Find out whether a PEO's health insurance plan is self-funded or if it's providing insurance underwritten by a licensed insurer. The distinction is important.

Licensed insurance companies are required by the state to pay into a fund that can be used to pay claims if the insurer becomes insolvent; self-insured companies face no such requirement.

The vast majority of PEOs don't have self-funded health insurance plans, said Ron Ennis, an Insurance Department manager.

Strategic Sourcing: From Periphery to the Core

Key ideas from the Harvard Business Review article by Mark Gottfredson, Rudy Puryear, Stephen Phillips.

The Idea in Brief

Almost nothing a company does can't be outsourced anymore--even functions as critical as engineering, marketing, and manufacturing. Yet only 6% of the companies that outsource are satisfied with the practice. Why? Too many managers make outsourcing decisions piecemeal. They focus on incremental cost improvements rather than taking a strategic view of capability sourcing.

With strategic capability sourcing, you don't assume that your company's most vital capabilities must remain in-house. Credit-card giant American Express, for example, outsourced its crucial transaction processing function when it no longer provided proprietary advantage.

To source capabilities strategically, you must also decide which partners can best perform which capabilities. Rather than selecting suppliers based only on cost, for example, Chrysler consolidated component purchases with several suppliers it believed could sustain competitive costs, high quality, and efficient delivery.

And if your company's the best at a particular capability, consider making it an entirely new business--as UPS does by providing logistics management to other companies.

The right capability sourcing strategy can translate into industry dominance: Strategic outsourcer 7-Eleven consistently beats other retailers in same-store merchandise growth, revenue per employee, and inventory turn rate.

The Idea in Practice

To develop your capability sourcing strategy, apply these steps:

Identify your business's "core of the core". These are activities your company does better and cheaper than rivals. For 7-Eleven, they are product ordering and in-store merchandising--the pricing, positioning, and promotion of ready-to-eat food, gasoline, and sundries for car-driving consumers.

Decide what to outsource. Consider two factors:

Proprietary value: A capability has high proprietary value if your company executes it in a way that generates measurably more value than competitors could, and if your company would suffer major strategic damage if rivals imitated the capability.

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Commonality: A capability has high commonality if outside suppliers can achieve scale or other advantages by providing it to many others in your industry.

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Your strongest candidates for outsourcing? Capabilities that have low proprietary value and high commonality.

7-Eleven decided to outsource human resources, finance, IT management, logistics, distribution, product development, and packaging to outside partners with greater expertise and scale in these capabilities.

Decide what to insource. For capabilities your company excels at, consider "insourcing"--turning them into new businesses by performing this function for other companies. FedEx positioned itself at the leading edge of the $225 billion logistics-outsourcing industry by planning and managing inbound transportation for more than 1,500 product suppliers into 26 General Motors power train facilities.

Decide how to outsource. Compare each of your outsource-worthy capabilities' cost and quality to those of top-performing rivals or suppliers. Use these comparisons to define outsourcing relationships:

• Outsource high-cost and unnecessarily high-quality capabilities to low-cost providers--even if that means some reduction in quality.
• Outsource high-cost, low-quality capabilities to partners who can reduce costs and boost quality.
• 
  

Also structure each outsourcing partnership differently, depending on each capability's importance to your company's competitive distinctiveness.

7-Eleven has outsourced all routine capabilities (such as benefits administration and accounts payable) to providers that can consistently fulfill cost and quality requirements. For more strategic capabilities, it makes more complex arrangements. For instance, the firm outsources gasoline distribution to Citgo but maintains proprietary control over gas pricing and promotion--activities that could differentiate its stores if done well.

Workplace Accidents on the Decline

Tougher regulatory enforcement is curbing on-the-job fatalities and injuries, the government says.

Despite a rise in violations, tougher enforcement of workplace regulations has reduced the number of on-the-job accidents in recent years, according to the Occupational Safety and Health Administration.

Last year, the agency conducted 39,324 workplace inspections, citing 88,846 violations of standards and regulations, a six percent increase from 2006, the agency reported. These included 67,176 serious violations, up nine percent from the previous year, and 2,551 repeat violations.

"The significant increase in citations for serious and repeat violations documents OSHA's focus on identifying and eliminating severe hazards in the workplace," Edwin Foulke, the assistant secretary of labor for OSHA, said in a statement.

Despite the increase in citations, fatality and injury rates continued to decline, the agency said. For 2006, the agency reported a record-low workplace fatality rate of 3.9 per 100,000 employees. Injury and illness rates also dropped to an all-time low of 4.4 per 100,000 employees.

Among other factors, the agency credits a "strong, fair and effective enforcement program" on reducing workplace risks.

By Angus Loten

From Inc.com

Employment-based Health Coverage Could be Near "Tipping Point"

The end of employment-based health insurance isn’t in sight yet, but a study released Thursday raised the possibility of a “tipping point” that will cause employers to consider alternatives. The Employee Benefit Research Institute said: “If one larger employer actually did drop its health benefits, others might follow for competitive reasons.”

The report published on www. ebri.org said work-based health insurance benefits, which are held by the majority of Americans who have health insurance, are still a competitive tool to attract employees. But between 2000 and 2007, the cost of providing health benefits has doubled, and the percentage of employers that provide health benefits — especially small businesses with fewer than 200 employees — has declined slightly.

Over that time, in which the Consumer Price Index rose 17 percent, premium costs for employee-only coverage rose 86 percent, and family-coverage premium costs rose 80 percent. Copayments for nonformulary brand-name drugs jumped 124 percent. Also, the percentage of employees with employment-based insurance has fallen slightly since 2000, with 71 percent of workers now covered. Between 1994 and 2000, the percentage of workers holding health benefits through an employer had held steady at between 73 and 75 percent, the report said. “While a 4 percentage point drop in the number of workers with health benefits may be significant, it does not imply that these benefits are vanishing”.

Employers interviewed by the nonpartisan, nonprofit research institute expressed divergent opinions about employment-based health insurance, ranging from “it’s the best system available” to “inefficient” and “not intelligent.” One of the main drawbacks of an employment-based system, the report said, is the lack of insurance portability from job to job. Most workers, unless they have pre-existing conditions as specified by the Health Insurance Portability and Accountability Act, can’t stay in the same health plan if they change jobs. Furthermore, between-job coverage through COBRA, the Consolidated Omnibus Budget Reconciliation Act, is often not affordable for people in job transitions.

The institute’s research indicated that the steady erosion of employer-based health-care benefits for retirees shows that a tipping point has already been reached in regard to that coverage. And “most active workers will never be eligible for health insurance in retirement through a former employer,” the report said. While the majority of employers interviewed for the study said they want to offer health insurance as a work force benefit, they think there should be “greater shared responsibility and accountability on the part of workers and their families.” The report noted the trend toward consumer-driven health benefit plans, with high-deductible plans such as health savings accounts or health reimbursement arrangements.

The study also noted significant concern about what would happen if there was “erosion or elimination of ERISA pre-emption of state insurance regulation (which) could result in the complete elimination of employer support for a voluntary employment-based health benefits system.” ERISA is the federal Employment Retirement Income Security Act, which regulates employee benefit and pension plans. What should reverberate through national health-care discussions was this finding:

“(Employers) all agree that if one major employer were to drop health benefits, others would immediately begin to assess whether or not they should follow, on the one hand, or take advantage of others dropping the benefits to enhance talent acquisition.”

One employer interviewed said it would be “insane” to be the first large employer to drop health-care benefits. But many of those interviewed said they would consider following suit under such circumstances as the elimination of the employer tax deduction, movement to a universal health-care system or the erosion of ERISA in favor of state regulatory authority.

Meet Rebecca. She's Here to Fire You

Inc.com has an interesting article by Max Chafkin on HR Outsourcing and how it is changing the face of business.

Meet Rebecca. She's Here to Fire You

HR Outsourcing Website peo-quote.com Offers Guide to Selecting a PEO

For Immediate Release

HR Outsourcing Website peo-quote.com Offers Guide to Selecting a PEO

Free Guide Helps Business Owners Learn about “The ABC’s of PEOs”

Lake Worth, FL, November 2, 2007 – Employers Rx LLC announced a new guide designed to help business owners and executives gain a better understanding of the HR Outsourcing and Professional Employer industry. Entitled The ABC’s of PEO: How to Evaluate Professional Employer Organizations, this informative handbook is available on their website at peo-quote.com. The guide covers the brief history of the industry starting with employee leasing and the evolution leading up to the development of today’s Human Resource Outsourcing and Professional Employer Organization’s.

Professional Employer Organizations help growing companies operate more effectively, efficiently, and compete against larger, more established, companies for talented employees. Many leading PEOs offer their clients comprehensive payroll and administrative systems, affordable “Fortune 500” employee benefit plans, and (HRIS) Human Resource compliance and information systems that are either unavailable or too expensive for most small and midsized firms.

There are almost 800 HRO and PEO companies operating throughout the United States. Many business owners find it difficult to navigate the different levels of services, benefit plans, contracts and proposals from the various companies. “The reason we are making our guide available to the public is because understanding the differences when comparing Professional Employer Organizations can be extremely confusing.” said Bruce Silver, founder of Employers Rx LLC, and author of the guide,.“I believe that one of the most important decisions a business owner can make, is selecting the right PEO partner for his or her company and employees.”

Employers Rx LLC launched peo-quote.com a national B-2-B website that will showcase leading HR Outsourcing and Professional Employer Organizations nationwide. The site’s simple interface allows busy executives and business owners to easily find a HR Outsourcing or Professional Employer Organization that is “right” for their company.

Employers Rx LLC is a national HR Outsourcing consulting firm. Our focus is helping businesses find the right HR outsourcing solution for their needs. We assist companies with 5 to 500 employees to be more profitable by outsourcing their non-productive employee management functions, saving business owners time and money.

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Contact Bruce Silver
Managing Member
Employers Rx LLC
http://www.peo-quote.com
bruce@employers-Rx.com
(877) PEO-CURE