By
Tony Deblauwe
The economic recovery is starting to take shape. Companies are beginning to
expand and start mapping a new course for their operations. Employees remain a
key part of this transformation and maintaining the right internal operations
that keep employees connected and informed is critical.
When
companies consider the resources required to maintain employee needs, budget is
an important element. These days with remote global teams, placing back-office
focused individuals in several locations to handle employee administrative
needs is too costly. The model can be difficult to sustain long term as
specialists come and go, and regulations change. Small to mid-size companies
struggle with these issues and often consider outsourcing these functions to
maintain costs and expertise.
The Professional Employer Organization or PEO offers advantages to addressing a
company’s infrastructure needs by offering businesses cost-effective
outsourcing for areas like human
resources, employee benefits, payroll and workers’ compensation and other
strategic services, such as recruiting, risk/safety management, and training
and development. By partnering with the business, the PEO becomes an employer
of record to provide the required services to employees.
To
understand more about the PEO model and how important this solution has become
to business owners, I asked a few questions to Greg Hammond, Chief Legal
Officer for PEO company, TriNet. TriNet helps support companies at every point
in their lifecycle, including offerings like Talent Acquisition, Performance
Management, and Employee Development. Mr. Hammond was gracious enough to answer
a few questions regarding the impact of the PEO industry on Human Resources.
1. Q: Trends/challenges in PEO - what's changing and how is the industry
preparing for more change in the global economy and resulting ways of working?
A: Several key trends are
driving PEO changes. Of recent prominence in the news is the pressure of
health care reform, in addition to the driver of poor health plan performance
for most PEOs. Many PEOs have responded to these pressures in previous years by
abandoning or diluting their health plan sponsorship role, sometimes in the
case of the latter, abdicating the sponsorship of some or all benefit plans to
their customers. These are long-term mistakes.
A small number of PEOs, however, have remained steady in their sponsorship of
benefit plans, and continue to do so in the face of health care reform. The
struggle for the latter group will revolve primarily around whether they can
bring solid underwriting practices to bear on their business model without
impairing growth.
Other trends that are
affecting PEOs:
(1) continued development of sophisticated HRIS offerings that are increasingly
less expensive per WSE (Work Site Employee, i.e. our client companies’
employees) [putting competitive pressure on PEO infrastructure costs];
(2) increasing socialization of long-term and chronic unemployment and
under-employment costs [raising private industry cost pressures across the
board, but especially so on PEOs whose business models have a tendency to
concentrate and encapsulate such effects even more];
(3) demands for cross-border transaction support [most PEOs do not offer
international services, even though customers are increasingly finding
themselves being dragged into trans-national employment arrangements];
(4) severe increases in employment litigation [like unemployment, PEOs tend to
"containerize" certain toxic behavior like employment litigation, and
I suspect that PEO EPLI costs will begin to outpace general industry trends].
2. Q: Are we going too far with the
system side of HR outsource? How does PEO help put the "H" back in HR?
A: That depends on the PEO.
Some PEOs have never forgotten the "H" in HR. Those PEOs tend to have
geographic or industrial niches in which they specialize, bringing to
bear localized or specialized knowledge on behalf of their customers and
the WSEs they serve.
I don't think we can ever go
"too far" with systems in HR. Systems help to bring objectivity,
consistency, robustness, and real-time around-the-clock access to HR. Who
doesn't want that? But even the best of systems are not all that HR is. The
other side of HR is the human element indeed, but that human element is not
confined to the "HR Department" or to the PEO. The most important
individual in the HR hierarchy is the front line manager. He or she requires
robust HR systems in order to free them to do the important part of HR:
(1) getting and keeping the right talent; and (2) building the culture that
best suits the needs of the workplace and the goals of the business.
That human side is itself
supported by systems like on-line performance management and recruiting
processes. But it is also supported by high-level HR expertise in areas like
compensation planning, equity management, processes for selecting who to keep
and who must go, sophisticated policy development, leadership development, etc.
Every time we systematize some
element of HR, we create the opportunity for workflow cost reduction, which can
inure to the benefit of the entire workforce and its stakeholders. Not
systematizing HR processes means we lose opportunities to reduce those costs.
Every dime we fail to save in processes--whether outsourced or not--is a dime
that gets spent away from the important mission of HR within the company:
getting and keeping and developing the right talent.
Given that so many HR process
and compliance demands are created by big government and big business, with
little thought to the true impact on the SMB sector, it is almost inevitable
that satisfying those HR compliance and process demands will be better achieved
by HR outsourcing, where efficiencies of scale can come into play. How many
SMBs can afford to deploy a $40 million HRIS? Or even a $1.5mm HRIS? Not very
many. Yet, with sophisticated PEOs, such systems are almost routinely available
for the cost of a monthly admin fee.
So, I think that the systematizing
of HR must be pursued with ferocity precisely so that the "H" can be
pursued with equal enthusiasm at the customer level, supported by the PEO's
expertise and systems.
3. Q: How do
PEOs influence strategic business HR partnering?
A: Many PEOs do provide such a
service. Going back to the previous question, those PEOs that bring some level
of expertise--local, industrial, vertical, risk, etc.--that is especially
valuable to their customer base, are by definition going to have a better
chance of being a strategic partner to those customers than an ordinary vendor.
Vendors tend to be fungible; partners are not. Partners by definition bring
something "interlocking" and "interwoven" to the
relationship, something which together is more than the sum of its parts, and
without which, the relationship is less than its mere subtraction.
TriNet-land is full of such stories, the constant refrain
of customers being that "TriNet gets us." That is what makes a
successful HR Department, or collaborative law firm, or a PEO, a strategic
partner: the intuitive, intimate understanding of the business, its
underpinnings, its strengths, weaknesses, and competitive pressures. Building
and deploying a PEO that fulfills these elements requires dedication to systems
and people. On the people side, it requires highly skilled HR personnel who are
also sound business people. It also requires robust systems that can sustain
the growth necessary to survive in this industry, and onto which can be built
or bolted the services that customer’s desire.
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For more information about TriNet and the growing role of PEOs, visit www.trinet.com.
