Small Business Builder: Human Resource Headaches

Widget Warehouses Inc. has a few problems: 130 of them, in fact.

That's the number of employees on the Widget Warehouses payroll. They're great folks, says Web Wiggins, who knows all his employees and most of their spouses and children by name.

But along with employees come those pesky employer responsibilities: Government regulations — ERISA, COBRA, FLSA, HIPAA, OSHA and more. Recruiting, hiring and keeping good people. Offering and managing a competitive benefits package. Payroll taxes. Unemployment-insurance claims. The list seems endless.

Wiggins spends one day out of five solely on employee-related paperwork — not counting the time he and his managers devote to hiring, interviewing, training, learning about and complying with regulations and dealing with occasional spats and misunderstandings. The Widget executive team is well informed and vigilant, but the managers know their company could be paralyzed by a lawsuit or crippled by government fines — even those that are essentially unfounded.

It costs about $650,000 per year — $5,000 per employee — for Widget to comply with human-resources paperwork, tax and regulatory requirements (about one-and-a-half times the per-employee cost for businesses with more than 500 employees, according to the National Association of Professional Employer Organizations). Web Wiggins would much rather spend the money, and the time, operating a top-notch warehouse, pleasing customers, and ensuring stable and satisfying employment for the company's workers.

‘The Best of Both Worlds’

There is, as far as I know, no such company as Widget Warehouses. But if there were, it would be an excellent candidate for a PEO (professional employer organization) co-employment contract — an arrangement by which a company's workers become the PEO's employees, at least for HR purposes.

The practice of "employee leasing" has been around for decades, but the PEO industry picked up speed during the 1990s as employers struggled to keep pace with new employment regulations. The modern PEO functions like a full-service human-resources department, responsible for everything from hiring and training to payroll taxes and personnel management.