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 June 1, 1999

PEO now health insurance alternative

First there were HMOs, then PPOS, now there are PEOs, Professional Employer

Organizations.

PEOs aim to aid entrepreneurs by removing the onerous task of pushing paperwork and allowing them to spend more time enjoying their professions. The average small-business owner spends between 7 and 25 percent of his or her time handling employee-related paperwork, according to the U.S. Small Business Administration (SBA).

Gov. Bill Owens will likely get the credit for making PEOs so well known in Colorado, since he recently signed Colorado’s PEO health-care bill (Senate Bill 31) after it was approved by the Legislature.

“It’s kind of a growing trend in Colorado and around the country,´ said Tim Jackson, state director of the National Federation of Independent Business (NFIB), about states adopting PEO health-care legislation.

PEOs have been around a while (formerly known as ELCs — Employee Leasing Companies), they just haven’t been that visible in Colorado. So chances are not too many people are familiar with the term yet. However, now that PEOs in Colorado can offer small businesses health-care coverage for their employees and families, the demand for them is likely to increase.

“I’d say less than 1 percent of the general public knows what a PEO is,” Jackson said. “It’s a growing sector of the marketplace.”

PEOs will do more than just provide affordable health care to small businesses, they will provide an array of employer-related services.

For instance, PEOs can provide all or some of the administrative duties needed to make a small business operate, including human resources, payroll services, etc. According to 1995 findings published by the SBA, the average annual cost of regulation, paperwork and tax compliance for firms with fewer than 500 employees is about $5,000 per employee, compared with $3,400 per employee for firms with more than 500 employees.

Once a small business enlists a PEO’s services, the PEO becomes the employer of record and is able to pool all of its clients into one group. The PEO then solicits bids for workers’ compensation, unemployment and long- and short-term disability, group life insurance, as well as other services.

This larger “risk pool” allows PEOs to negotiate better rates for employers,´ said Rick Lang, president and chief executive of LMC Resources, which operates in 24 states and is Colorado’s oldest PEO.

Jackson said PEOs are able to shop around to find insurers with the best deals, thus creating substantial discounts on their packages. “Obviously the PEOs have to make money, too, but it comes out of the discounts,” he said.

PEO arrangements are probably just as welcomed for employees as they are for owners, since the employees get tangible results like better employer/employee communications, payroll arriving on time and accurately, professional assistance with employment-related problems, employee handbooks, extended statutory protection and awareness, up-to-date information on labor regulations and workers’ rights, efficient and responsive claims processing, and portable benefits (employees can move from one PEO client to another without loss of eligibility for benefits).

Another regional PEO, The Personnel Department located in Colorado Springs and originally from Indianapolis, acts as an outsource company that oversees payroll, benefits, human resources and checks to make sure companies are in compliance with government regulations.

Besides specializing in outsourcing, The Personnel Department is considered to be a “high-service PEO,´ said Bob Devens, general manager of The Personnel Department.

“Whereas, our competitors cater to the blue-collar (sector), we will take blue-collar companies only if they pass our liability test,” he said.

Some of the additional benefits of The Personnel Department’s PEO package includes child care, long and short-term disability, and a cafeteria plan, as well as health insurance.

“We pretax dependent care on the cafeteria plan,” he said. “And, we offer a 401K with match.”

Asked what was a good targeted number of employees a small business should have when considering whether to go with a PEO, Devens said, “It’s always debatable. But I’d say anyone who’s a sole proprietor should do it.”

However, Devens did say he’d draw a reasonable line at 200 employees probably being too many to fall under a PEO umbrella.

One indication that PEOs will probably have a lot of business in Colorado is seen in the results of a survey taken this year by the NFIB. The survey found that many Colorado small-business owners supported legislations to allow PEOs to offer health insurance by a margin of 3 to 1.

“Fifteen percent of the workforce in Florida is working as PEO,´ said Devens. “As the trend shifts to the West, the same will happen here.”

First there were HMOs, then PPOS, now there are PEOs, Professional Employer

Organizations.

PEOs aim to aid entrepreneurs by removing the onerous task of pushing paperwork and allowing them to spend more time enjoying their professions. The average small-business owner spends between 7 and 25 percent of his or her time handling employee-related paperwork, according to the U.S. Small Business Administration (SBA).

Gov. Bill Owens will likely get the credit for making PEOs so well known in Colorado, since he recently signed Colorado’s PEO health-care bill (Senate Bill 31) after…

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