If you spent any time watching the news networks in the last few months, you probably saw the output of New York State’s 270 million dollar effort to appeal to businesses, especially smaller businesses. Commercials, like this one, or this one tout the State’s supposed advantages for businesses considering a move.
What the commercials don’t tell you is that New York State once again put the screws to small business owners- this time with changes to health care law.
Prior to 2016, employers with 1-100 employees were divided into two groups. Employers with 2-49 employees bought health insurance through something called the Small Group Open Market and the rest of the employers worked in the Large Group Market.
Small Group Open Market employers had very few health plan choices and all paid the same premiums per employee. This was weird enough, because small, but fast growing companies had to find other ways to compete for top talent, even though benefits are often cited by job searchers as the second or third most important factor in their employer selection process.
So, if you were a talented person, let’s say a computer programmer, smaller companies were going to have to get creative to woo you away from a larger company choice.
Big business, and employers with 50-100 employees, were able to shop on the open market, choosing from more health insurance options and using better benefits to attract the best and brightest employees.
Smaller employers also faced radically higher premium increases than their larger competitors, creating a two-headed tactical disadvantage.
But, remember, this is in place while the Affordable Care Act (Obamacare) is taking effect. Under the ACA, smaller employers aren’t required to provide health insurance options to their employees at all. And, according to a Kaiser Family Foundation survey, quoted in a New York Times Business article, less than half (44%) of employers with 2-9 workers are still offering health coverage as an employee benefit. The article also noted that WellPoint, a huge health insurance provider, had seen 300,000 less people enrolled in health insurance via small group plans.
The summary of all of those statistics is that more small businesses are dropping their company-sponsored health insurance plans, so more small business employees are forced to buy individual plan insurance at a much higher cost AND those same smaller employers will find it increasingly difficult to attract the talent that they need to grow out of their small business designation.
But, New York State furthered the disaster. As of January, 2016, those companies with 51-100 employees no longer have the ability to purchase health insurance on the open market. They are now lumped together with the smaller employers.
And, to really kick smaller companies when they are down, these employers just got less buying power, but are still required to handle all of the reporting and compliance issues required of them under Obamacare.
Apparently, New York believes that the bright lights of Broadway will be enticement enough to attract growing companies from outside the state.
There’s little doubt that this change in the law was driven by the largest insurance carriers. Why wouldn’t you provide the same service for more revenue, if you could get away with it? And, the increase in profits is likely very notable, considering how many New York employers have 50-100 employees.
The bad news, as if there wasn’t already enough, is that the insurance companies aren’t touting any alternatives, for obvious reasons. The payroll companies may offer an alternative, on a limited basis and only if you ask.
But, the good news for New York SMBs and companies with other reasons to consider moving to New York is that there is a clear alternative. It’s been around since the 1970’s and was recently further ordained by the United States Congress.
The alternative is the Professional Employer Organization (PEO). PEOs were created decades ago because it was illegal for companies to form any type of cooperative to purchase health insurance for their employees (wanna guess which industry group made it illegal?).
In a PEO-company partnership, your employees become employees of the PEO, for the purposes of health insurance, human resources, worker’s compensation coverage and risk management. But, PEOs have no interest in managing the day-to-day operations of your company. That’s still your job.
Instead, PEOs focus on helping their clients write and implement policies that reduce risk, such as accident prevention, give guidance on recruiting best practices and offer letters and handle all things related to payroll, health insurance, Worker’s Comp and human resources.
And, this isn’t just a New York State opportunity. PEOs are available to all U.S. companies, regardless of location.
Congress, in 2015, further solidified the role of PEOs by enacting a law (The Small Business Efficiency Act), allowing PEOs to seek federal certification and formally adopting PEOs into Internal Revenue Service codes, in a sense insulating the PEO industry from any further federal or state insurance industry lobbying.
As it relates to fixing the train wreck created by the State of New York, PEOs have collective buying power, allowing them to negotiate with and offer the best health insurance options at much lower rates than a smaller employer could find in the Small Business Open Market.
PEO clients aren’t penalized for growth. Their PEO team works with them to attract that talented programmer and others, while reducing the multi-faceted HR staff needs of their clients. If a PEO client has HR staff, they can be utilized to bridge the partnership, or reassigned to other company departments where their talents can be used. No HR? No problem. The PEO team becomes your de facto human resources department.
PEOs also aren’t expensive. In fact, the vast majority of PEO clients find that the administrative costs associated with a PEO are washed out in the health insurance premium savings alone.
Many payroll companies offer a PEO, if you ask. The problem here is that you’ll be looking at one PEO option, even though there are over 400 currently available PEOs. You’re also likely to be paying profits to two entities- the payroll company and the PEO.
There’s also a payroll company PEO trap that you’ll definitely want to avoid. Most PEOs charge their administrative fees as a percentage of gross payroll. So, even if your staffing level stays the same, you’ll pay more for the same service every time you give your employees a pay raise.
Instead, you’ll most likely want to speak with a broker. Allow them, like our clients allow us, to match your company with a PEO that fits, now and as they grow. We don’t present PEOs who want to tether administrative costs to payroll. That’s bad business. And, as it should be with any broker, our service is free to our clients.
If you’re running a company in New York State, or anywhere else, for that matter, it makes sense to avoid the future whims of state legislators, to control your costs and to empower the options that allow you to grow.
At least that’s how we see it.