John W. Allen, G&A Partners

The Benefits of Outsourcing HR

What do these companies all have in common?

•  ABB •  Bank of America •  Best Buy •  BP Amoco •  British Telecomm •  Cap Gemini •  Credit Suisse •  General Motors •  Goodyear

•  International Paper •  Levi Strauss •  Motorola •  Proctor & Gamble •  Prudential Financial •  Sony •  Sun Microsystems •  TXU

And what about these governmental entities?

•  U.S. Defense Finance & Accounting Service (DRAS)

•  U.S. Office of Personnel Management •  United States Postal Services •  Transportation Security Administration •  State of Florida •  State of Texas HHSC

They all outsource HR

Agenda

•  Who’s outsourcing? •  Why are they outsourcing? •  What are they outsourcing? •  How & when are they outsourcing? •  To whom are they outsourcing? •  Q&A

John W. Allen

•  President and COO of G&A Partners •  25 years of management consulting

experience •  Has been responsible for providing

support services to organizations valued up to $5 billion and with as many as 46,000 employees.

•  Specializes in providing administrative services to emerging growth companies.

Amazing Facts

•  In 2003 HRO transactions impacted an estimated 2.8 million employees, or 4% of the U.S. workforce

•  In 2004, the Top 22 HRO deals covered over 700,000 employees

•  HRO revenues grew to $61 billion in 2005 •  HRO Today reports continued growth in 2006

and 2007

Why are they outsourcing?

•  Reduce costs/Increase EBITDA •  Gain access to cutting edge technology •  Avoid additional investments •  Provide more self service tools to employees •  Focus HR on strategic vs. tactical

What are they outsourcing?

•  Payroll •  Health and welfare administration •  Recruitment •  Compensation planning •  Performance planning •  Learning management •  Relocation •  Records management

To whom are they outsourcing?

•  Accenture HR Services •  ACS •  ADP •  Aon Consulting •  ARINSO International •  Ceridian •  Convergys Employee Care •  ExcellerateHRO •  Fidelity Employer Services •  Hewitt Associates •  IBM Global Business Services

The trend is clear – the big boys are outsourcing HR, but

what about the rest of us?

The Million Dollar Employee

http://www.milliondollaremployee.com/

If growth in the PEO industry is any indication, small

businesses are outsourcing more and more of their HR

functions too.

•  Number of PEOs has grown from a handful in mid 1980s to more than 800 today.

•  Number of co-employees has grown from 10,000 in 1984 to over 3,600,000.

•  Gross revenues billed by PEO Industry grew from $5 billion in 1991 to over $51 billion today.

•  Wall Street estimates annual growth rate of 20%

What’s driving businesses, large & small, to outsource HR?

Why the Growth?

Using a PEO helps you focus on what you do best!

Growing Burden of Regulation

$1,152 per year

Average administrative cost per employee

($414 - $6,274 per year) Bureau of National Affairs

Average administrative cost per employee

•  6% - 12% of payroll (SBA & US Chamber of Commerce)

•  8.45% of payroll (UT-Austin) •  $600 to $750 per annum per employee (major

insurance company estimate)

So what is a PEO?

How does a PEO work?

1.  Service Contract 2.  Employment relationship

with/and responsibilities of the PEO

3.  Shared relationship and employer responsibilities

4.  Employment relationship with/and responsibilities of the client

What services does the PEO provide?

•  Payroll Administration –  Provides time & attendance solutions –  Issues paychecks and W-2s –  Accrues vacation, sick and other leave –  Withholds and deposits taxes –  Withholds and remits garnishments & premiums for

employee benefits –  Files all payroll tax returns

What services does the PEO provide?

•  Employee Benefits Administration –  Group Health Plans –  Group or Voluntary Dental, Vision, Life, AD&D, STD,

LTD & LTC –  Section 125 Cafeteria Plans –  401(k) Retirement Plans –  HRAs, HSAs, FSAs, & Gap Plans –  Prepaid Legal, Purchase discounts, Wellness, EAP

What services does the PEO provide?

•  Human Resource Management –  Compiles job descriptions & employee handbooks –  Provides recruitment assistance –  Conducts pre-hire background checks –  Advises clients on employee discipline or performance

problems –  Educates clients on regulatory compliance issues –  Handles unemployment claims & COBRA and HIPAA

administration –  Conducts exit interviews

What services does the PEO provide?

•  Risk Management –  Workers Compensation Coverage –  Master Safety Plans –  Site Inspections –  Safety Training –  Accident Investigation –  Workers Comp Claims Administration –  Drug Testing & Modified Work

What responsibilities do you retain?

•  Management of business operations •  Use of facilities and equipment •  Safeguarding assets & people •  Employee compensation •  On-the-job supervision •  Quality control

How would your company benefit?

•  Greater focus on your core business •  Broader range of affordable employee benefits •  Workers compensation insurance at competitive

rates, with no deposit or annual audit •  Fewer compliance issues & employee lawsuits •  More time and money

How would your employees benefit?

•  Better, more affordable benefits •  Higher “take home” pay •  Greater understanding of company policies and

procedures •  Improved safety awareness and fewer on-the-

job injuries •  Happier, more productive employees

So how much does it cost ?

•  The cost of PEO services is generally less than or equal to the cost to do everything in-house.

•  Additional savings come by redeploying talent, reducing turnover, reducing workplace injuries and avoiding employee lawsuits.

Service fee is a percentage of payroll & includes:

•  FICA/Medicare •  SUTA •  FUTA •  Workers compensation insurance •  Employee benefits costs •  Miscellaneous charges •  PEO’s fee

PEO in Action – Aluminum Frame Manufacturer

PEO in Action – Freight Forwarder

For more information, visit www.napeo.org

•  “PEOs take load off companies by filling human resource function”

•  “Human resource outsourcing can boost bottom line”

•  “PEOs can help small business grow” •  “PEO’s: help for small companies in good times and

bad”

•  “PEOs: the wave of the future” Source: NAPEO website

Guidelines for Selecting a PEO

•  Lists available thru NAPEO or TDL •  Verify that PEO is licensed & in good standing •  Ask for banking & credit references •  Ask for client & professional references •  Visit their offices •  Review customer service agreement

Licensing Requirements

•  Controlling person must be 18 years of age and of good moral character

•  Controlling person must have educational, managerial, or business experience relevant to the operation of a business entity offering staff leasing services

•  Must demonstrate net worth of $100,000

Q&A

•  Who controls the workplace? Will the PEO be telling me how to run my business?

•  What if the PEO fails to remit payroll taxes? What recourse does the IRS have?

•  Does the PEO’s workers comp policy protect my company against third party liability?

Who controls the workplace?

•  The client controls who performs the work and how and when they do it.

•  The client recruits and sets the compensation for all employees. The PEO screens new hires and has right to reject.

•  The client disciplines & terminates employees subject to PEO’s review to ensure compliance with appropriate statutes and regulations.

•  The client implements safety programs. The PEO helps them design, implement and train.

What if the PEO fails to remit payroll taxes?

Any protection against third party liability on WC claims?

•  Texas labor code section 91.042(c) states that for workers compensation insurance purposes, a PEO and its client are “co-employers.” As such, both entities are covered by the PEO’s policy. Alternate employer endorsement required.

•  Law Again Supports This Position: –  Regalado v. H.E. Butt Grocery Co. –  Esquivel v. Mapelli Meat Packing Co. –  Aquilar v. Wenglar Construction Co., Inc –  Gibson v. Grocery Supply Co., Inc. –  Marshall v. Toys-R-Us Nytex, Inc.

For More Information:

John W. Allen G&A Partners

4801 Woodway, Suite 210 Houston, Texas 77056

(800) 253-8562 www.gnapartners.com

jwallen@gnapartners.com