NAPEO: National Association of Professional Employer Organizations

November 2015
The state of the economy, the insurance markets, and access to financing affect all businesses and industries. However, because PEOs serve small and mid-size businesses, and a multitude of industries, that extra layer magnifies the effect these forces have on PEOs. In the last year, the Small Business Efficiency Act (SBEA) has entered the picture.
   The PEO Index, discussed in our first feature, provides a 10-year history of how the PEO industry tracks with unemployment data and the gross domestic product (GDP). The index shows not only that PEO clients fare better than non-PEO clients, but it also shows that the same elements that drive GDP growth or contraction can be applied to the industry. Increasing government regulation dampens productivity, but again, PEOs have a positive effect on their clients in this area. While the future of the economy is uncertain, the time is ripe for PEOs to reach out to help businesses make progress in a challenging environment.
   The workers' compensation insurance market is definitely in a better place than it was three years ago, but PEOs continue to face structural challenges and increased regulatory interest. While the National Council on Compensation Insurance (NCCI) has filed rate decreases in 30 states, seven states had rate increases. Carriers are also facing dismal interest returns on their investments, leading to adjusted pricing for customers, including PEOs. Some carriers have left the market, and while other carriers have absorbed those customers, regulators are responding to the failures. However, market condition now are generally stable and PEOs have ways to manage their risks.
   Mergers and acquisitions among healthcare carriers, developments with the Affordable Care Act (ACA), and increased carrier interest have helped shape the current medical insurance market. Right now, the regulatory environment is creating the most change. Monitoring state and federal developments will help PEOs adapt to these changes.
   Emerging claims and the current litigious environment affect PEO employment practices liability insurance (EPLI) programs, another important line of insurance for PEOs. While the market is limited for PEO programs, staying engaged with your brokers and legal counsel will help.
   Regulation is definitely driving PEO growth, and while the business environment is unsettled, mergers and acquisition activity and PEO valuations have increased over the last few years, and higher valuations are attracting more investor capital. Valuations are projected to rise as industry growth, expansion, and consolidation continue; however, market uncertainty and the eventual slowing of consolidation may begin to drive valuations lower.
   With a potential client base of 2.6 million businesses, the PEO industry has significant growth opportunities. When SBEA certification officially begins, industry growth will likely increase. Another likely outcome, though, is increased consolidation as smaller PEOs feel pressure to merge with stronger partners to help them absorb related costs. The SBEA should also drive market growth as knowledge and acceptance of PEOs expand and more incentives for small businesses to use PEOs become apparent...

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The Cadillac Tax Shifts Up a Gear
Seth T. Perretta, Esq. and Malcolm C. Slee, Esq.
In the feature in the June/July 2015 issue of PEO Insider,® Sravya Boppana, Esq. and Malcolm Slee wrote about the impending arrival of the Cadillac tax—a nondeductible excise tax on high-cost employer-sponsored health coverage that will apply beginning in 2018. In particular, their article focused on Notice 2015-16 (issued in February 2015), which gave some valuable insight into how the Department of Treasury would administer the tax, and sought comments on certain open issues. Treasury had indicated that another notice would be forthcoming in 2015, and sure enough, on July 30, it came out with Notice 2015-52, which deals with additional procedural and administrative issues related to the tax. We do not believe that Treasury will release any additional notices discussing the tax, but its next move will likely be to issue proposed regulations. Notice 2015-52 does not set forth a specific timeline, but based on our discussions with Treasury officials, we believe they are targeting publishing the proposed regulations before...
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executive office
Defining Your Client Offerings
Helen Rand
In this article, I will focus on how PEO C-suite executives determine service offerings based on their clients' needs and what factors should be considered. I will also look at how PEOs adapt and grow with their clients' specific needs.
   As we all know...

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human resources
Movement as an Industry to Support Our Veterans
Nicole Sharp
I remember the final conversation and tears like it took place just last week. It had been something our family had been considering for some time as we reflected back on a humbling 13 years of active duty military service in the United States Marine Corps (USMC).
   Throughout their military careers, the men and women of our armed forces train extremely hard to be mission ready and to meet and exceed military goals. Yet, as they and their families face transition from active duty service to the civilian workforce, they are faced with a brand new set of challenges and defining moments...

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the inside word
'Alone we can do so little; together we can do so much.'—Helen Keller
Abram Finkelstein
2016 NAPEO Chairman

At numerous times during the PEO industry's development, regulators have called into question our authority or legal basis to provide services to our clients. Each time, the industry advocated its position and was generally successful at creating a regulatory environment in many states that defines our ability to provide co-employment services and showing regulators that our industry provides a valuable service to business owners and benefits employees, employers, and the state.
    However, we have been...

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napeo notebook
From California to Florida on NAPEO Business
Patrick J. Cleary
As I write this, I am fresh from Newport Beach, California (tough duty, I know) after a few NAPEO events there. We had a PEO Primer, a California legal update, and our California Leadership Council Forum (LCF). We had a good turnout at all of them, helped along by some good content. California State Senator Janet Nguyen (R-34th District) joined us to talk about her priorities and about what we can expect on the horizon in California. She's an American success story, having emigrated here from Saigon. She won what became the most expensive state senate race in history, with $10 million spent in total. She's a Republican in a swing district, and she had a good pro-business message for us...
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The Small Business Efficiency Act
Where Are We, and What's Next?

Thom Stohler
The IRS announcement that it will accept applications for certification on July 1, 2016, raises many questions about how the Small Business Efficiency Act (SBEA) will work when the statute becomes effective on January 1, 2016. NAPEO raised these questions in a letter to the agency sent on August 25, and offered a solution for how the IRS could make the benefits of the SBEA accessible to PEOs that certify in 2016. However, a subsequent meeting with officials from the IRS on September 25 raised doubts about whether the IRS will support the NAPEO proposal. Even though individuals from the IRS raised issues with the proposals made by NAPEO, it is clear from the additional information the IRS requested that the agency is working on SBEA implementation...
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napeo advisor
PACE Act, California Fair Pay Act and Pay Stub Violations
Farrah L. Fielder, Esq.
Q. What is the PACE Act?
    A. The PACE Act, also known as the Protecting Affordable Coverage for Employees Act, is a recent law that amends the definition of "small employer" for non-tax parts of the Affordable Care Act (ACA). Most notably, the PACE Act allows...

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peo community
The Power of Providing Programs that Help Develop Employee Skills
Maria Black
In just 10 years, 75 percent of the workforce will be made up of Millennials—workers born between 1982 and 2000. As this new generation redefines the workplace, employee expectations are undergoing rapid changes, including a shifting outlook on work/life balance and increased expectations for growth, development, and educational opportunities...
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peo spotlight
Quality Business Solutions, Inc.: Pamela and David Evette
A Relaxed Setting for a Dynamic Company

Stephanie Oetjen
Travelers Rest, South Carolina, is nestled near the North/South Carolina border at the foot of the Blue Ridge Mountains, not far from Greenville. The town got its name from the weary travelers and livestock drovers who in days past would stop in the town before making the difficult journey into the mountains, often spending the winter there while waiting for the snow to clear.
    Today, there is a 200-acre horse farm in this pastoral setting, which is home to Quality Business Solutions, Inc. (QBS). This 29-person PEO serves about 300 clients in 48 states. Its clients range in size from five to 40,000 worksite employees and come from a wide variety of industries, including hospitality, nursing homes, law firms, and manufacturing. However, QBS started out small, very small...

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global insights
Regulatory Overreach Requires Systemic Reform
Thomas J. Donohue
Three sprawling new rules by the Environmental Protection Agency (EPA) are symptomatic of a regulatory system in dire need of reform.
    On October 1, EPA finalized its rule to further tighten ground-level ozone standards, which would impact critical transportation projects nationwide and result in lost jobs. In August, the agency finalized the Clean Power Plan, a new rule requiring states to slash carbon dioxide levels by up to 30 percent by 2030, which would significantly drive up electricity costs for consumers. In June, EPA changed the definition of "navigable waters" under the Clean Water Act, dramatically expanding the federal government's jurisdiction over private lands and imposing massive new costs on U.S. farmers, ranchers, and businesses...

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NAPEO Medallion Partners
NAPEO Thanks its 2015 Medallion Partners
Black Diamond Partners

Diamond Partners

Artex Risk Solutions, Inc.         Compass Consulting Group, Inc.

Massachusetts Mutual Life Insurance         McHenry Consulting

Risk Transfer Insurance Agency, LLC
Platinum Partners

MetLife        Summit Software         ThinkWare Corporation

Transamerica Retirement Solutions
Gold Partners

AEU Holdings, LLC         EAP Consultants, LLC

PayPlus Software, Inc.         Pinnacle Financial Services, Inc.

Stonehenge Insurance Solutions
Silver Partners

Barrow Group, LLC         Eflexgroup, Inc.

Fisher & Phillips LLP         Kronos SaaShr, Inc.
Bronze Partners

Capital Alliance Corporation         Holland & Hart         Jackson Lewis P.C.

NetWise Technology         U.S. Risk, Inc.

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