There’s an option for companies that want to ease their human-resources headaches: have their employees work for someone else.
In this setup, sometimes known as co-employment, your staffers still do their day-to-day jobs for you. But on paper they work for another company called a professional employer organization. These outfits function as the HR department for hundreds or thousands of small businesses, doling out paychecks, managing employee-related taxes and administering benefits.
They also make big promises about simplifying back-office operations and making small companies more competitive. But you’ll need to do some heavy lifting to get the most of out of the deal – from researching your potential partner to easing employees’ fears about the setup.
Shifting the burden
The big selling point of co-employment, obviously, is streamlining. Small companies can skip lots of the hassles involved in human resources, such as managing employee paperwork and staying current with employment laws.
Then there’s the matter of benefits. Professional employer organizations can pool together workers and get lower rates on health insurance than a small business could find on its own. These firms also “can offer your workers other perks you never see in a small organization,” such as extra training, a crisis or counseling hotline and easy online access to benefits information, says Frank J. Casale, chief executive of the Outsourcing Institute, a research and consulting firm in Syosset, N.Y.
What’s more, many professional employer organizations offer companies employment-practices liability insurance—often expensive for small businesses seeking it on their own—to pay damages and legal costs should a worker sue for, say, wrongful termination.
Be on guard
Still, using a professional employer organization carries risks. Consider what happens if it makes a mistake.
In general, if a professional employer organization goofs, such as missing a filing deadline, it’s responsible for fixing errors and paying late fees or other penalties. But certain kinds of errors can create headaches for you. If the firm, say, underpaid employee taxes, the Internal Revenue Service would likely come after you for the money, says Richard Raysman, an outsourcing attorney at Holland & Knight LLP in New York. Then you would in turn have to fight it out and settle the matter with the firm.
Meanwhile, if a professional employer organization is acquired or goes under, you could lose access to employee records, or some employee benefits might evaporate.
So, do homework about a potential partner. For starters, look to see if it’s accredited by the Employer Services Assurance Corp. Among other requirements, an organization must submit audited financial statements and evidence verified by a certified public accountant that it’s properly paying taxes and insurance premiums.
