Brokers working with PEOs

(AP Photo/Mark Lennihan, File) (AP Photo/Mark Lennihan, File)

Employee benefits and what they represent to a business today are far more complicated than in years past. Employers recognize that, now more than ever, attracting and retaining quality employees is as much about the quality of their benefit packages, human resources and corporate culture as it is about the salary and career advancement opportunities they offer.

This is particularly true for companies seeking out employees from within the Generation X, Y and Z pools. No one recognizes this more than the estimated 700-900 professional employer organizations operating across the nation. They are the quintessential resource for market-responsive, comprehensive employee benefits, payroll and tax administration, and related regulatory compliance services.

Along with this new workplace paradigm has been the growth of the PEO industry. According to the National Association of Professional Employer Organizations, the industry added another $8 billion to its gross revenues in 2012, bringing its total revenues to an estimated $92 billion. The rate of the PEO industry’s growth also has increased from 5 percent in 2010 to just over 10 percent in 2012.

There is another reason the industry is thriving besides the heightened perception regarding the need for its services: Brokers are recognizing that working with a PEO not only benefits their clients, but gives them a considerable competitive edge and an additional revenue stream. Understanding how and why this partnership works is a step all growth-oriented brokers should take.

Giving, and getting, more

While this might not be the year to say so given the added pressure the Patient Protection and Affordable Care Act has placed on America’s employers, the reality is most employers want to do what’s best for their employees. They also recognize that to be competitive they need to demonstrate an employee-centered corporate culture.

Front and center to achieving this goal is offering a robust employee benefits package, a strong HR program, and a team of professionals to make sure their employees’ needs in this area are met.

Based on a Prudential Group Insurance study, more than half (53 percent) of plan sponsors rated employee recruitment and retention as their second most important employee benefit objectives, just after controlling health care-related costs. These same plan sponsors also recognized the importance of effectively educating employees regarding their benefits in order to further build employer-employee relations. A PEO helps organizations on these critical fronts by providing access to robust benefits, certified HR professionals, and employee benefits information and education.

Brokers also recognize a paradigm shift has occurred. The Prudential study found that an average of 70 percent of brokers surveyed across the small, mid-sized and large markets believe the benefits decision-making process has changed in the past five years and as such, they must change, too.  

There is far more collaboration between brokers/benefit consultants and a company’s internal staff, in addition to the changing employee expectations.

Further, in addition to the growing number of PEOs and the fact that the large payroll companies are adding benefits as well, the insurance sector and others in the market, it’s become a very crowded field.

Brokers need to differentiate themselves, while also demonstrating resourcefulness in trying to help clients with a comprehensive, seamless solution for addressing employee benefit needs.

The PEO advantage

Working with a reputable PEO is a proven route to a broker’s enhanced market position. Practically speaking, the broker gains on multiple fronts:

  • A way to extend and strengthen broker client relationships by guiding clients  toward an improved way to meet their broader employee benefits/HR service needs and serving as a true, “value-add” business partner;
  • A strategy for reducing the risk of other brokers, payroll companies or benefit consultants edging into and potentially taking over existing client accounts;
  • A new source for additional leads (i.e., introduction to some of the PEO’s existing clients and others within its network); and
  • A means to achieve new, recurring revenue streams, including bonus fees paid directly from the PEO to whom the broker refers business, and directly through newly gained clients — often growing businesses with the potential of needing additional products and services as they continue developing. (Note: According to a NAPEO study by economists Laurie Bassi and Dan McMurrer, small businesses using PEOs have a 10 percent higher growth rate than businesses that don’t, and small businesses using PEOs save at least 21 percent on admin.)

Selecting a PEO partner

Brokers should look to form relationships with PEOs that adhere to the highest standards and offer a total HR outsourcing solution. Here is a checklist of what brokers should seek out in a PEO partner:

  • A PEO offering a full suite of products and services, including: employee benefits design and administration, payroll administration, tax administration, regulatory compliance, and value-added benefits such as: employee assistance program, adoption assistance and discounts for mass transportation, shopping, travel and entertainment.
  • A value-proposition that encompasses the PEO’s ability to assume the full administrative burden associated with the aforementioned areas and a company’s HR-related operations.
  • A PEO staffed by experienced HR professionals with such credentials as the Senior Professional in Human Resources designation provided by the HR Certification Institute (Alexandria, Virginia) and the Certified Payroll Professional designation provided by the American Payroll Association (San Antonio, Texas), as well as a risk management professional to assist with regulatory compliance.
  • A PEO that’s earned the Employers Services Assurance Corp. certification— the equivalent of what FDIC is to the banking industry for the PEO industry. To achieve certification, a PEO must meet stringent financial, professional and ethical standards. PEOs meeting these criteria join an elite group of PEOs nationwide whose clients are covered by a $21 million surety bond.
  • A PEO which also holds other important credentials such as certifications by the Certification Institute for such areas as: workers’ compensation best practices and timely payment of state and federal payroll taxes, contributions to employee retirement plans and payment of health insurance premiums – both critical elements in the PEO’s role as a total HR solution.
  • A PEO that can point to successful relationships with other insurance brokers.
  • A PEO that has a proven track record spanning over decades across diverse industries and market sectors (e.g., small, mid-size and larger businesses; nonprofits, medical offices, etc.) and whose management team has been on board for a long period of time conveying a strong commitment on the part of the firm’s top executives.

For insurance brokers who recognize the value in aligning, rather than competing with PEOs, this partnership formula can and will deliver significant benefits.

Louis Basso is president of Alcott HR, and Barry Shorten is executive vice president.

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