What’s a PEO – and Who Needs to Know?
In the world of business, some changes get all the attention. A new law, a new technology, a fundamental change in the economy or in the marketplace will quickly command the attention of boardrooms and the business press alike – and understandably so. The ripple effects of such changes usually create significant effects that are still felt months or years later. Even more significant changes, though, often happen almost completely “under the radar,” even though they may upend whole industries or the entire business landscape.
One such example is the ascendance of the Professional Employer Organization or PEO.
In recent years, PEOs have staked out a claim to a growing portion of the HR field, supplementing or eclipsing in-house Human Resources departments in many small to mid-sized companies. Nonetheless, they remain dimly understood by many of the business owners best positioned to benefit from their services, even as they are fundamentally changing the way American business manages interactions between employers and employees.
In essence, a PEO exists as a separate, stand-alone organization focused exclusively on managing its’ clients’ human resource-related functions, including benefits administration, regulatory compliance, workers’ compensation, payroll, taxes and similar practice areas. A PEO will assume the role of “employer of record” for a company’s employees, taking on the responsibility of administering most or all of the administrative tasks – as well as a fair measure of the risk – associated with maintaining a workforce.
In doing so, client businesses gain a number of significant operational and competitive advantages:
- The ability to reallocate both attention and resources from HR functions to core areas of interest and expertise – the making and selling of the company’s product or service;
- A measure of insulation and/or indemnification;
- The streamlining of human resource functions placed under professional administration;
- The ability to leverage economies of scale in securing necessary benefit and insurance programs;
- Improved adoption of HR best practices under professional administration
The growing popularity of the PEO model is driven to a great degree by the increasing challenges and stressors facing small to medium-sized businesses. An increasingly technology-driven, global marketplace heightens competition and shrinks margins, even as increased regulatory and legal risks impose additional complexity and costs upon HR departments and practitioners. A PEO can deflect risk, contain costs, ensure consistency and predictability in practices, and effectively address complex taxation, insurance, and regulatory issues becomes increasingly valuable to companies operating within this challenging environment.
Few expect the business climate to become less complex or challenging in the years to come. As the burdens of regulation, competition, and costs continue to exert pressure on businesses, the ability of PEOs to buffer their clients from their effects will likely come to be perceived as a distinct competitive advantage – and not only knowing what a PEO is, but having one in hand, may make a critical difference in business success.
Dodging the Hazards of Out-Of-State Expansion
For many successful local businesses, it’s an idea that seems enormously appealing: Build your company by establishing a beachhead in neighboring states. It makes perfect sense on the face of it: If a product or service is a market success in Michigan, for example, it stands to reason that it will fare well in Indiana or Ohio. And there’s seldom a reason why a restaurant chain that’s popular in Florida would fail to gain traction in Georgia.
It makes perfect logical sense – but business is not always logical, particularly not when government regulation is involved. While market conditions may be nearly identical from one state to the next, regulatory and taxation environments usually are not – and those differences can go a long way towards torpedoing the success of an expansion effort, often almost as soon as it begins.
As is often the case when it comes to the hazards facing growing businesses, the biggest problems are caused by the issues you don’t know exist and the hazards you can’t see coming. Unless your company is already a major corporation with an established presence —and on-the-ground expertise—in other states, it is a virtual impossibility that you’ll be fully aware of all of the potentially problematic differences between your new place of business and your home base. That’s a problem.
Taxation and regulation are the first and most obvious pitfalls. Tax and regulatory codes naturally differ from one state to the next; each state has its own centuries-long index of whys and wherefores that have come to constitute its current-day regulatory and taxation environment. In virtually all cases, these are the cumulative end product of decades of capricious governance: Local and state officials, acting in self-interest or in the interest of special interests, enact a welter of tax and regulatory burdens that remain on the books for years and which usually multiply their reach and impact exponentially over time, creating an impenetrable tangle for businesses to wade through. Income tax, sales tax, property tax, workers’ comp, health and safety, environmental issues – the list of distinct areas potentially affecting a would-be new business are endless.
These are sizeable problems in and of themselves – but they are not the only consideration. Laws and regulations don’t exist in a vacuum; rather, they function within the unique local political, legal and social framework. In practical terms, Ohio doesn’t function identically to Michigan, nor Atlanta to Orlando. Each state, county and municipality is subject to its own localized customs, power structures, and idiosyncrasies. Even when a company operates fully within the letter of the law, capricious local officials and arcane provincial practices can draw new businesses into the regulatory quicksand.
Knowing both what and who you need to know to sidestep these pitfalls is essential – and that’s where Trion has proven its worth to many of our growing clients. As an established national PEO with a solid on-the-ground presence and a wealth of localized institutional expertise, we’re able to navigate the payroll tax and regulatory minefields wherever there’s business to be done – and we shield our clients from costly, time-consuming entanglements with local compliance authorities. Clients usually come to us to handle the routine daily hassles that they know and expect, but we often deliver much of our value in dealing with the ones they don’t expect. As many of them will tell you, that can make a big difference – often between success and failure where out-of-state expansions are concerned.
New Overtime Rules Spell Big Challenges For Business
Statistics show that the median salary increase in the US is a rather moderate 3.1% thus far in 2016, but that doesn’t mean that the cost of labor isn’t about to go up for many businesses—way up.
New regulations issued by the U.S. Department of Labor stand to make potentially millions of previously-exempt workers eligible for overtime pay. Personnel previously classed as exempt executive, administrative, and professional (EAP) employees now may qualify for overtime if the terms of their employment don’t meet increasingly stringent requirements.
Perhaps most notably, the salary level at which EAP employees may become exempt from overtime has effectively doubled, jumping from $455 to $913 per week (or from $23,660 to $47,476 annually). In practice, that means that, for example, a midlevel restaurant manager earning a salary in the mid-thirties and working a few hours above the statutory 40 per week just might be about to become quite a bit more costly.
The Department of Labor (DOL) has issued its Final Rule for new overtime exemptions, focusing on the “white collar” exemptions (executive, administrative, professional, and certain computer employees. These new rules will:
- Raise the minimum annual salary level required for “white collar” exemptions to $47,476 ($913 per week) from the current $23,660 ($455 per week). The salary level test does not apply to doctors, lawyers or teachers, and certain computer employees can be exempt if paid at least $27.63 per hour and meet applicable duties tests.
- Allow employers to use non discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standards salary level (up to $91 per week, or $4,732 total annually), provided that these payments are made on a quarterly or more frequent basis. The remaining 90% of the required new salary level is $822 per week, or $42,744 annually. Together, these total $47, 476.
- Raise the minimum salary for those covered under the “highly compensated employee” exemption from $100,000 to $134,000 in total compensation annually.
- Impose an escalator provision automatically “updating” the above salary levels every three years beginning on January 1, 2020 by tying the levels to certain economic measures.
- Impose no changes to the “duties tests.”
Misclassification of salaried-exempt employees is among the fastest growing civil actions in both federal and state courts. With the final rule, the incentive for employees (and/or the DOL) to claim misclassification has increased. We advise clients to begin assessing whether they wish to pay the higher salaries and/or take other measures. We also advise them to review the duties of their employees that are or may be classified as salaried-exempt to ensure that they meet the various duties tests for the white collar exemptions.
The rules’ applicability is extensive: The DOL estimates that 4.2 million currently exempt workers will become eligible for overtime. In addition, overtime protections will be extended for an additional 5.7 million white collar and 3.2 million blue collar workers.
The new regulations’ effect will be profound on many small- to medium-sized businesses, particularly in areas where prevailing compensation levels fall at or below national averages. Employers will have to wrestle with whether to cut hours, reassign work, increase wages, or simply pay overtime to eligible employees.
Despite the stated intention to simplify both the overtime eligibility rules, the newly-issued rules remain highly complex. The new DOL regulations take effect on December 1, 2016. In the meantime, Trion will assist its clients in adapting to a greatly changed overtime landscape – and implementing strategies to help ensure compliance within it.
It’s Not Just Tax Season – It’s Deadline Season
Tax season isn’t really anybody’s favorite time of year – not even the legions of accountants and preparers who earn their living by working inhuman hours for a month or more in the run up to April 18.
If anyone has a reason to complain about the Ides of April, though, it is small business owners. April 18 is the deadline for filing personal income taxes, which of course is a hassle enough on its own – but it also falls on, before, and after a succession of other tax and reporting deadlines. Taken together, they are enough to cause plenty of headaches, consume a lot of time and energy, and increase the likelihood of mistakes on the part of business owners.
Small businesses’ employees probably aren’t aware of it, but March 15 is actually the tax filing deadline for corporations and S corporations, a full month before personal taxes are due (sole proprietorships and single-member LLCs still file on April 18). The March 15 deadline falls just before two headaches facing almost every small business owner four times per year: Quarterly SUTA filings and payment and FUTA payments.
SUTA (State Unemployment Tax Act) and FUTA (Federal Unemployment Tax Act) reporting requirements and payments are no joke. By the end of April, businesses need to submit in-depth documentation along with an amount equivalent to a substantial percentage of every employee’s earnings to date. Federal rates come out to 0.60% to over 2% on each employee’s first $7,000 in earnings. SUTA rates are variable, based on employer experience from under 1% to over 12% depending on your location.
For most businesses, unemployment taxes are a lot to pay out in a single quarterly payment. As part of our services to our clients, Trion enables a more balance sheet-friendly “pay as you go” process, allowing payments to be evenly prorated throughout the year. Along with handling the onerous reporting requirements, this takes a significant strain off of companies who’ve got still more deadlines to worry about.
You’d be forgiven for thinking that this was enough to worry about – but these are tax issues we are talking about, so of course there’s much more. Somewhat helpfully, the IRS has published a tax calendar for employers. While not especially easy to understand or user-friendly, it does provide a reliable resource for many of the deadlines most smaller companies are likely to face throughout the course of a year.
Trion’s clients frequently find the range of deadlines, obligations, and due dates to be challenging under the best of circumstances – and in a changing regulatory environment, that effect is intensified. Successfully managing to meet IRS and state requirements demands constant vigilance, lots of planning – and a good deal of knowledge and experience doesn’t hurt, either. We do our best to put our knowledge to work for our clients in any way we can; we can’t take on all their tax issues, but handling SUTA, FUTA, local municipal income taxes, and other complex payroll task tasks, we can make the deadline relay race a lot easier.
Introducing Trion Advantage
In today’s fast moving, highly regulated, hypercompetitive business climate, it isn’t easy to survive – let alone succeed. Naturally, the challenges of the modern marketplace are magnified for small and medium-sized businesses. Emerging companies’ smaller headcounts, lower cash and credit reserves, and limited capacity increase the impact of any adverse events.
At Trion, we see this firsthand every single day. We work closely with small, medium and large businesses across a full range of industries. We’re there to see their struggles, triumphs and tragedies. Mostly, though, we’re there to help.
We’ve built our business by helping other businesses to succeed – by increasing efficiency, by cutting red tape, by streamlining operations, by driving down turnover. It’s our job to give our client companies every possible advantage when it comes to human resources, benefits administration, payroll management, government/ACA compliance, Worker’s Compensation, risk management and other essential non-core functions within their organizations—and to do so at fixed costs with no surprises. In doing so, we’ve picked up a fair bit of knowledge along the way – and we think it’s a good idea to share some of it.
Introducing Trion Advantage. Trion Advantage is the official blog of Trion Solutions, and we’re going to make it a valuable resource for business insights, suggestions, inspirations, and success stories for people who do the hard work of keeping companies going, day after day.
We want to empower businesses like yours by sharing some of the hard-earned knowledge we’ve gained over the years, and by offering some of the perspectives that only a company in our unique position can acquire. Hopefully, you’ll find the articles and insights we offer here to be not only inspiring, but genuinely helpful. As in our normal business practice, we’re striving to deliver tangible, dollars-and-cents business benefits.
Here’s some of what you can expect to see in the coming weeks and months:
- Knowledge-centered discussions of key HR, benefits, taxation, payroll, and regulatory issues intended to make complex subjects easy to understand – and issues arising from them easier to manage
- Professional tips intended to incrementally improve your company’s operations – or even just your personal day-to-day work routine
- Alerts to regulatory changes and other emerging events that may affect your business
- Explorations of best practices for SMEs (small and medium-sized enterprises)
In short, we’ll be looking to provide whatever knowledge we can that might help you and your business succeed. Hopefully, we’ll be able to provide answers to your questions, and insights that help you meet challenges head on.
We consider ourselves lucky to have achieved the success we have within our field. We know how hard it is to establish, grow, and manage a company within a competitive field – we’ve not only helped our clients do it, we’ve done it ourselves. We understand that as a CEO, as a CFO, as a manager, as an employer, as a strategist, as an HR or benefits professional, you’ve already got your work cut out for you. If we can make things even a little easier for you, that’s what we want to do.
So check back with Trion Advantage every week. We think you’ll like what you see in the coming weeks and months. And we can’t wait to share it with you.