SMB’s options for payroll, employee benefits, workers’ compensation and HR compliance
I was discussing this very topic today with a lawyer, and we both agreed that most companies are genuinely unaware of what their options are. The reason is that you only ever really hear what keeps being put in front of you and that typically are the companies that have the largest marketing budgets.
When you look at each function separately, most people will call their friends or an advisor for a recommendation. That person will offer a recommendation of either who they use or someone they know. While there is nothing wrong with that scenario, it doesn’t even begin to uncover what options are available for Small-Medium size businesses.
The goal here is to highlight the options available, examine how each works and the best choice for finding the best provider for your needs. To ensure everyone understands each solution and what it means a PEO is a Professional Employer Organization, an ASO is an Administrative Services Organization and an HRO is Human Resource Outsourcing.
Every company that has employees must provide payroll. Otherwise, they will find themselves without employees rather fast. Here are the current and most widely used options for payroll.
In-house - small companies will do payroll themselves, handwriting the checks and handling all of the state and federal tax payments. While this is the cheapest option and also the most inefficient as you grow.
Payroll Company - most companies will use ADP, PayChex, Intuit or one of the other various payroll companies to process payroll, as well as collect and remit state and federal taxes. A Payroll company is a viable option but results in having multiple vendors.
PEO - businesses that employ a PEO by law are required to have their payroll done by the PEO. A PEO eliminates having multiple vendors but is an expensive option if the PEO is not handling your insurances as well.
ASO/HRO - ASOs and HROs operate similar to PEOs but don’t require co-employment. They are efficient because they eliminate multiple vendors and allow for customization of solutions bought.
Employee benefits have become the standard of every company now, especially with the passing of ObamaCare. It’s difficult to be competitive for SMBs, especially in New York because there are very few options of good plans on the open market.
Health Insurance Carriers - SMBs can always go to health insurance carriers and obtain insurance for their employees directly. The carriers directly though only offer their plans and offer no point of comparison to choose from concerning other carriers.
Health Insurance Brokers - Insurance brokers offer the ability to shop all of the health insurance carriers in one full swoop, giving SMBs options in carriers and plans to choose from. The brokers are all quoting the same carriers, offering the same rates, so there is no difference among the broker’s quotes.
PEO - PEOs offer their client’s access to Fortune 500 large group plans with affordable rates. PEOs must do their client’s payroll, and employee benefits are a part of the PEO package, you can’t pick and choose the services you want. They will offer administrative support of managing the plans and help with enrolling and COBRA as well.
ASO/HRO - ASOs and HROs will provide the same employee benefits programs that a broker does, so there are no cost savings. They will provide administrative support for managing the programs and help with enrolling and COBRA as well.
Workers' Compensation Insurance
Workers’ Compensation Insurance is a necessity of doing business in every state in the US. Workers compensation is a state-mandated insurance program that covers lost wages and medical treatment resulting from an employee’s work-related injury or illness. It also includes services needed to help an employee recover and return to work.
Insurance Carrier - Insurance carriers offer Worker’s Comp insurance and will provide a quote for their company. This option only allows for a quote with the company you contacted and offers no true point of comparison. Year end audits and additional costs are commonplace year over year.
Workers' Compensation State Insurance Fund - Most every state offers Workers’ Compensation Insurance through the State sponsored plan. While you are guaranteed immediate coverage, it’s not inexpensive, and it requires an upfront deposit to bind the coverage. It also carries a year-end audit and will result in additional costs if the audit determines underpayment or more employees are hired throughout the year.
Insurance Broker - This option allows for comparing multiple plans and carriers, giving SMBs flexibility in choosing a carrier. It also enables SMBs to bundle their other coverages with the broker to save on other business related insurances.
PEO - Workers’ Compensation insurance in PEOs are part of a large group plan and offer deep discounts to clients of the PEO. PEO Workers’ Comp plans eliminate down payments to bind coverage and offer pay as you go models. Pay as you go models allow for you to pay for the exact amount of employees on your payroll.
ASO/HRO - This option doesn’t offer savings, but allows management of the policy, administrative tasks associated with Workers’ Comp insurance. It also streamlines having multiple vendors.
Human Resource Compliance
Human Resources is vital to any company that has employees and sets the standard for policies and procedures. There are many moving parts to HR compliance, and it includes state and federal laws that vary from state to state.
In-house - Companies will often designate someone to handle HR compliance in their office. Often this person isn’t an HR professional and exercises a little more than common sense rather than actual knowledge and work experience in HR. If HR is handled by a professional in-house, then that can be rather costly, as HR professionals aren’t inexpensive.
Third-party HR provider - Many companies now offer HR compliance assistance for a monthly/annual fee. While not a bad option, it is often more of a question and answer solution, rather than an in-depth, built for your company solution.
PEO - Part of being in a PEO is having a solid HR infrastructure that is tailored to your business and is guaranteed to be state and federal compliant. PEOs legally are responsible to ensure you are HR compliant because of co-employment, so if you experience a fee or a fine, the PEO will have to pay that expense. PEO isn’t a standalone option though.
ASO/HRO - This option is an excellent solution that’s part of the offering of an ASO/HRO standard package. ASO/HROs will offer this as part of a comprehensive package that includes other services, so it doesn’t work as a standalone option.
Those are the most common and widely used solutions for Payroll, Employee Benefits, Worker’s Compensation insurance and HR Compliance. Each has its advantages and disadvantages; the best advice is that you should shop, price and compare at minimum five providers. Having multiple quotes will give you a fair estimate of pricing and the ability to have an accurate view of what is standard to get.
Knowing these options exist is the first step to seeking the proper solution for your organization, if you need help uncovering the right solution - let us know, we will be happy to help.