Preparing for the Future: How Professional Employer Outsourcing Will Help Small and Mid-Sized...

Preparing for the Future:

How Professional Employer Outsourcing

Will Help Small and Mid-Sized Employers

Cope with an Uncertain 2013.

CPE HR, Inc. All Rights Reserved. 2013 2

Looking Back, Looking Forward

Last year was one of the most volatile economic periods in U.S. history. Reams of new

employment legislation were passed into law, the country endured a vicious presidential

campaign, the constitutionality of Health Care Reform was challenged and maintained,

and months of economic uncertainty lead up to the

New Year deadline of the fiscal cliff.

While the worst seems to have passed, business

confidence has dipped back to recession-level lows,

according to the National Federation of Independent

Business (NFIB). Their “Small Business Optimism

Index” for year-end 2012 was the second worst

reading since March 2010.

Consider some of these disconcerting statistics:

70 percent of owners say it is a bad time to hire or invest.

No employment changes were made by 76 percent of the owners surveyed.

Future hiring plans weakened, falling 4 points to 1 percent of employers.

Political uncertainty stopped one in four employers from expanding. They listed the

top business problems in the way of hiring as taxes (23 percent) and regulations (21

percent). Poor sales came in third at 19 percent.

30 percent of retailers reported lower sales during the holiday season.

52 percent of businesses are not looking for new loans


The Cost of Compliance

Beyond the economic uncertainty that is hampering business growth and expansion,

the cost of regulatory compliance impacts employers even more. And according to the

Small Business Administration (SBA), small businesses bear the largest burden of

complying with federal regulations. These regulations include tax and payroll,

occupational safety and health, labor and employment, insurance and other economic

restrictions and incentives. The SBA reports that on average,

a small business (under 20 employees) spends on average

close to $10,000 per employee annually managing

regulatory compliance, compared to large companies (over

500 employees) that only pay on average $6000 per

employee.

This cost differential is easy to understand, as many

expenses relating to compliance are ‘fixed’. That is, a firm of

20 employees incurs many of the same base expenses as a

firm with 200. In large firms, these fixed costs are spread

over a large employee base, which results in lower costs per

individual. This phenomenon is known as economies of scale

and it results in an obvious advantage to large firms over smaller ones.

Costs per employee

appear to be at least

36% higher in small

firms than in medium-

sized and large firms.

These results are

roughly consistent with

… other studies

completed during the

past 25 years. “The Impact of Regulatory Costs on Small

Firms,” SBA Office of Advocacy


Additional Employment Challenges in 2013

Beyond the fiscal uncertainty and cost of compliance, employers face some unique

employment challenges in 2013.

1. Health Care Reform

As the Affordable Care Act is rolled out in 2013, employers will be confronted with new

challenges. For the first time, W2s issued in January 2013 included the value of

employer-sponsored health care benefits. This almost certainly resulted in increased

costs and time of preparing W2s as a result of gathering and reporting this information.

Small businesses also have to prepare for open enrollment in health insurance

exchanges that begins on October 1. These exchanges will allow individuals and small

businesses with up to 100 employees to purchase qualified health insurance coverage

online. Employers will have to decide what their health care programs will look like

going forward, or whether they’re going to offer coverage at all. And looking towards

2014 when the Individual Mandate becomes effective, employers will be forced to

understand how this law will impact their business.

2. Wage and Hour Issues

In January of this year, former Labor Secretary Hilda Solis resigned following four years

of aggressive Department of Labor investigations and prosecutions of employers who

violated the Fair Labor and Standards Act (FLSA). Unfortunately, the departure of

Secretary Solis is not likely to change the Department’s aggressive enforcement policy.

Current issues range from the relatively simple, such as complying with the minimum

wage increases that went into effect on January 1, to the very complex, such as

ensuring employees are compensated properly for working through meal breaks,

guidelines involved with employees checking company email at home from a mobile

device, putting on (and taking off) uniforms, and booting up their computers in the

morning.


Additionally, employee classification issues, such as exempt versus non-exempt and the

distinction between an employee and an independent contractor, continue to trip up

even the most well-intentioned employers.

3. Discrimination and Equal Opportunities

On Dec. 17, 2012, the U.S. Equal Employment Opportunities

Commission (EEOC) approved a strategic enforcement plan,

beginning in 2013, with a requested budget of $373 million. The

plan outlines six enforcement priorities, such as eliminating

discriminatory hiring practices, protecting immigrant workers,

enforcing equal pay laws, and preventing sexual and religious

harassment. Additionally, the employment of individuals with

disabilities has received a lot of attention recently, and

compliance with the Americans with Disabilities Act (ADA) is also

likely to be a priority for regulatory agencies in the year to come.

The result of these changes is apparent, as the Equal

Employment Opportunity Commission (EEOC) reported that a full

70% of all 100,000 claims reported in 2012 were alleged violations of Title VII which

prohibits discrimination based on race, sex, national origin, religion and color.

So, with uncertain economic days ahead, growing financial burdens, and the never-

ending flow of employment regulations and compliance challenges, what hope is there

for small employers to succeed in the near future?

The Answer: Human Resources Outsourcing.

Regulation is likely to

pose a significant

challenge for employ-

ers in 2013. To meet

this challenge, it’s

important to stay on

top of what’s happen-

ing on the regulatory

front. Once you fall

behind, it can be hard

to catch up.

- Stephanie R. Thomas, Ph.D., CEO of Thomas Econometrics.

http://www.thomasecon.com/


Human Resources Outsourcing: More Than Just an Idea Whose Time Has Come In recent years, Human Resources Outsourcing has grown from merely an interesting

idea, to a way of doing business. Despite the current economic woes, HR Outsourcing

continues to grow as employers look to consolidate vendors, cut costs and improve

efficiencies.

Global Industry Analysts, an international business strategy and market intelligence firm,

conducted a comprehensive survey of 274 major-market human resources outsourcing

firms in mid-2012. They report that the global HRO market could reach $162 billion by

2015, up from $103 billion in 2007 and $61 billion in 2002.

In the United States, Everest Research Institute, an independent research and analysis

organization, states that North American HR outsourcing transactions reached $25.4

billion by the end of 2009, an increase of 19 percent over the previous year.

At a global growth rate of 300%+ over the past decade, HR outsourcing is now the fastest

growing sector in the broad “business process outsourcing” market.


Key Outsourcing Drivers

According to Global Industry Analysts and Hewitt Associations, a world-wide provider of

HR consulting services and research data, the most common reasons for engaging an HR

Outsourcing firm are to reduce overhead and improve efficiencies. Companies also

recognize the value of utilizing an outside resource to conduct various business-related

activities, as compared to maintaining these functions internally.

Other reasons to outsource include:

Provide cost effective healthcare benefits

Access to outside expertise

Ability to offer quality HR service to improve recruitment and retention

Need to focus on core business competencies

High cost of remaining up-to-date with rapidly changing environments

Eliminate high volume of low-value transactional activities

From the Experts

Experts from across the human resources and human capital spectrum have expressed

opinions on the growing popularity of the Human Resources Outsourcing industry. Here

are several selections:

“HRO started off as a cost reduction move for some companies. It has

expanded well beyond that to become a driving force for creating

business value. We expect even greater emphasis on business outcomes,

as companies explore HR Outsourcing as a way to meet business needs

and improve business performance.”

- Jill Goldstein, HR BPO offering lead at Accenture.


“The market for HR outsourcing may benefit from a weakened economy

as buyers look to lower costs and trim staff.”

- Lisa Rowan, program director, HR and Talent Management Services Research.

“HRO is providing more of a strategic support for clients, while still

providing line leaders with tools to improve day-to-day talent

management. This stands in contrast to the older notion of HRO as

simply a way to reduce the tactical burden on HR.”

-The Aberdeen Group, 2011 HR Outsourcing Survey.

“In many ways, this is the golden era of human resources outsourcing.”

-Josh Bersin, CEO and president, Bersin & Associates

“The report points out that while compliance and core HR programs

continue to be business-critical, they often do not add enough value in

today's global business environment. Chief HR officers (CHROs) and

their teams who have found a way to automate, streamline and

outsource such "non-strategic" parts of their operations and focus on

more strategic initiatives will likely outperform their peers.

- Deloitte, “Predictions for 2013: Corporate Talent, Leadership and HR”


Professional Employer Outsourcing Gains Strength

When considering whether or not to outsource human resources, employers should

review all aspects of their employee administration, compliance and strategic needs to

determine which elements should be outsourced, and which can be maintained in-house.

Some employers may be only looking to outsource a specific function or process, such as

payroll administration, recruitment or benefits administration, while others may find it

more productive to outsource the entire spectrum of their human resources function. For

those looking for the broadest and most comprehensive solution possible, Professional

Employer Outsourcing (PEO) is the answer.

The growing urgency among companies to lower costs,

enhance revenues, and stabilize operations is driving

companies to seek tools that offer support for HRO

requirements. A Professional Employer Organization

(PEO) is one such tool that facilitates access to HR

management solutions, and skilled HR professionals.

“Human Resource Outsourcing: A Global Strategic Business Report, 2012.” Global Industry Analysts, Inc.

PEOs, were established in the early 1980s, offering insurance and payroll services to small

and mid-sized employers. In the early days of the industry, PEOs were also known as

“Staff Leasing” or “Employee Leasing” firms.

However, as employment laws became more complex in 1990′s, the need arose for a

more comprehensive employment solution. The PEO industry expanded to include many

new elements relating to employee relations and human resources compliance.

“

”


How Does It Work?

In a Professional Employer Outsourcing relationship, the PEO shares many employment

responsibilities with their clients. While the client maintains complete control over all day

to day operations – such as hiring, directing the employees and setting wages – the PEO

assists with the management of complex administrative functions relating to the

employees. Examples of these back-office HR functions include:

Assistance with labor law compliance

Employee handbooks & policies

Health insurance plans & administration

401 (k) and Cafeteria 125 Plans

Payroll processing

Tax administration

Governmental form submissions

Safety consulting

Workers’ Compensation Insurance

Management Training

Recruiting services

Assistance with unemployment administration

With a PEO, the employer can turn to them for clear direction, guidance and support. A

team of experts are assigned to assist the client in complying with all relevant

employment laws and regulations, on both the state and federal level.

These experts also help businesses comply with the multitude of employment forms,

documents, and employee management. They begin by reviewing the client’s current

corporate policies and employee handbook, and update them as necessary. By taking a

hands-on, proactive approach, clients enjoy increased protection against unnecessary and

expensive employment litigation.

Companies that seek HRO services essen-tially require cost reductions, process improvements, external knowledge and skills and the ability to concentrate on strategic activities. - “HRO: A Global Strategic Business Report,

2012.” Global Industry Analysts, Inc.


“

”

Included in this team of experts are trained Benefits

Specialists who are familiar with Health Care Reform and

can provide accurate, timely information and education.

These specialists invest the time to review the legislation

with brokers and industry experts, and can focus on

relaying this information to clients when changes to the

law arise.

Economies of Scale

As mentioned previously, economies-of-scale offer large employers tangible advantages

over their smaller competitors. Businesses with low payrolls and less than 500 employees

are often limited when shopping for cost-effective workers’ compensation insurance,

have fewer employee health insurance options and typically have less flexibility in

negotiating better rates administering these plans.

The management of costs through outsourcing is achieved

not only through cost-cutting measures, but also by

enabling companies to shed fixed operating costs in favor

of vendor offered variable pricing.

“Outsourcing Services in the Face of an Economic Downturn,” Morrison and Foerster LLP.

In the PEO relationship, small employers gain access to the PEO’s pool of hundreds, or

even thousands, of businesses. By aggregating health benefits, workers’ compensation

insurance, retirement plans, and legal expertise, the PEO is able to offer these small

businesses systems and products at a much more competitive rate. Additionally, the PEO

has established relationships with large regional insurance companies and can provide

better plan selections with lower premiums.


Proven Systems and Robust Resources

Beyond negotiating rates and plans, PEOs maintain the internal resources to manage

routine employment tasks efficiently and cost effectively as the necessary talent and

infrastructure are already in place. When a small employer engages the services of a PEO,

they simply access these existing programs and can hit the ground running, thus reducing

start-up time and costs.

PEOs also offer programs that are very effective in keeping insurance premiums low in

the future. Many offer health and wellness programs, work/life balance incentives, and

discounts at local health clubs and gyms. Research consistently indicates that a healthy

and balanced lifestyle can have a significant, positive impact on the future cost of health

insurance premiums.

Similarly, in regards to safety and risk management, the PEO is able to implement

successful programs that results in fewer workplace injuries and more competitive

insurance premiums. Sample safety services include the creation of effective injury and

illness prevention plans, conducting on-site safety inspections, and offering employees

safety incentives to reduce the frequency of workplace injuries.


In Summary

The economy remains flat, fiscal uncertainty abounds, employment regulations continue

to grow, and small businesses are struggling to keep their head above water. Short of a

miracle turnaround in the immediate future, employers can expect much of the same for

the duration of 2013. As such, thousands of businesses currently outsource human

resources functions to Professional Employer Organizations. PEOs have the size, strength

and stability to weather these turbulent times, and enable small employers to ride along

with them.

PEOs assist small employers by:

1. Reducing employment risks through proactive HR support, compliance and training;

2. Providing economies-of-scale to reduce insurance premiums, cut employment

overhead and simplify administrative processes;

3. Guiding and directing business through Health Care Reform compliance;

4. Offering robust employee benefit and health care plans;

5. Helping create safe and productive work environments.

If you want to prepare your business for the future, it is time to take a long, serious look

at the PEO industry and uncover the benefits that await your company.


About CPEhr

Celebrating its 30th anniversary this year, CPEhr is one of California’s leading Human

Resources Outsourcing and PEO firms. With corporate headquarters in Los Angeles, CPEhr

provides human resources solutions to over 75,000 employees throughout California, and

in over 20 states nationwide.

CPEhr began as a small payroll and HR provider, with 10 corporate employees. Over the

past thirty years, CPEhr has grown to employ close to 100 corporate professionals in the

areas of:

Employment Administration

Labor Law Compliance

Management Training

Safety and Risk Management

Employee Benefits

Retirement Planning

Payroll and Accounting

Unlike many other firms, CPEhr offers a flexible HR Outsourcing solution, wherein clients

select the service model most appropriate for their organization:

The PEO Solution offers a consolidated solution providing payroll and tax administration,

access to large insurance products for benefits, workers’ compensation, EPLI, and a wide

range of human resources and employee relation services to meet your employment needs.

The HRP and HRO Solutions are a more flexible variation of the complete PEO solution.

These allow clients to pick a pick-and choose which services make the most sense to

outsource, and which they wish to keep in-house.


Contact CPEhr

We encourage you to contact us and schedule a complimentary HR consultation.

In this no-obligation consultation a senior consultant will analyze your current human

resources practices and offer a customized HR Outsourcing solution.

Call us: 877-842-4987

Email Us: [email protected]

On the web: www.cpehr.com

Corporate blog: www.cpehr.com/blog

Twitter: www.twitter.com/cpehr

Facebook: www.facebook.com/cpehr

Corporate Address:

9000 Sunset Blvd. Suite 900

West Hollywood, CA 90069

For more information:

http://www.facebook.com/cpehr

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