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As the ​leading publication dedicated solely to the PEO industry, PEO Insider is your best source for hard-hitting technical insight, timely updates, and practical perspective on all things PEO.
PEO Insider Issues


It’s October and that can mean only one thing: It’s time for the October PEO Marketing Push! (Silly you if you thought I was going to say pumpkins, fall leaves, or Halloween). It’s the industry-wide, all-hands-on-deck marketing effort to raise the profile of our industry and move the needle on industry awareness and visibility. 

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As business owners and operators who serve small businesses day in and day out, PEO executives know well that the state of the U.S. economy is dire and it is unlikely to bounce back rapidly. Nonetheless, the impact of the COVID-19 pandemic varies significantly by geography, industry, and occupation. With that in mind, this article explores the most up-to-date data and evidence available at press time on where there might be positive opportunities for PEOs in the current circumstances. 

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Crises are, by nature, horrible events. Oftentimes, they also bring out the best in people and companies. Living in Northwest Florida (aka Hurricane Alley), emergency preparedness is simply a way of life for most people here. While it is a very nice place to live, people understand that living on or near the water is truly a gamble in that their belongings may one day be destroyed by a storm. Past tragedies of hurricanes and the BP oil spill have well prepared LandrumHR for various crises going forward, including the recent COVID-19 crisis.

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The workforce is returning to the workplace. Public health questions loom large, generally speaking. For PEOs and their clients, there are major legal risk management issues. Employees will file workers’ compensation claims based on COVID-19 diagnoses. In some jurisdictions, COVID-19 is presumed to be a work-related illness. The Occupational Safety and Health Administration (OSHA) will scrutinize return-to-work safety due diligence and will issue citations. Employees may use such safety violations to pursue enhanced workers’ compensation penalties. Creative plaintiffs’ lawyers will search for loopholes to file civil lawsuits against employers for inadequate safety measures. It will be a feeding frenzy.

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When the COVID-19 pandemic began in mid-March, lawmakers in Washington, D.C., reacted by passing two significant pieces of legislation that have profound impact on PEOs. As PEOs continue working with clients to ensure compliance with the new leave requirements and help clients understand the Paycheck Protection Program (PPP), it’s worth taking a step back to look at the changes to federal law these two significant bills made.  

  • The Families First Coronavirus Response Act (FFCRA) temporarily expands paid sick, family, and medical leave requirements for the employees of small businesses. 
  • The Coronavirus Aid, Relief, and Economic Security (CARES) Act authorizes $350 billion worth of emergency loans to small businesses. 

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The state of small business is always of vital importance to PEOs, for whom small businesses represent a primary market. Small businesses can be assessed across a variety of dimensions, including the labor market(s) within which they operate (including both availability of workers and wage levels of employees), their states’ policy and tax environments, and the current strength or weakness of various industries.

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There is no easy approach to selling a business and no two transactions are ever the same. Buyer appetites, legal frameworks, industry cycles, and macroeconomic conditions are in constant flux, making the idea of selling a daunting one. The silver lining: Successful transactions happen all the time, provided sellers take the necessary steps to prepare early and prepare well. Preparing involves mental preparation as well as a functional preparedness. The functional preparedness is a form of seller due diligence, asking yourself the tough questions that a buyer might ask, and then being prepared to support your answers. Let’s explore the process.

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Enjoy the impact of the economic tailwinds of the current U.S. economy. However, as a warning, do not become complacent in good times. The fissures of structural, process, and management weaknesses can be invisible and hidden during times of prosperity, but can rear their ugly heads during more turbulent times and economic downturns.

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Gone are the days of the personnel manager, as the field of human resources has evolved and developed. HR executives have made their way into the boardrooms of large companies as HR directors, vice presidents, and even chief people officers. While small and mid-size companies don’t always have the luxury of internal HR expertise, they do have PEOs. A big part of the HR equation, though, is handling risk, which protects the client, the employees, and the PEO.  

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The workplace has changed. Open offices are now the norm. Employees in the field use mobile devices to track their work. Unlimited paid time off (PTO) has become a thing. These changes mirror the evolution of the workforce, which is now made up of a majority of Millennial and Gen Z employees. Perhaps the largest shift, however, has been the emphasis younger workers place on “meaningful work.” To attract and retain the best talent, top employers of today are also advocates on issues that impact their employees.

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If you attended PEO Marketing Day during NAPEO’s 2019 Annual Conference & Marketplace in Austin in September, you were a part of an exciting and energizing event that showcased the slick new marketing resources we’ve created to help us all promote and grow the industry, and introduced the “October Push,” the industry-wide, all-hands-on-deck marketing effort we’re launching this month. If you weren’t able to be there in Austin, you’ll still be able to take advantage of these great resources and be a part of the October Push.

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It has been a historic year for the PEO industry with the completion of the two largest transactions in the history of the industry. The two blockbuster transactions were the Paychex (NASDAQ: NYSE) acquisition of Oasis Outsourcing, Inc., which was announced in the fourth quarter of 2018, a deal purportedly valued at $1.2 billion, and the Aquiline Capital Partners acquisition of CoAdvantage from Morgan Stanley in a third quarter 2019 transaction, expected to be valued near $800 million, although that information was unavailable at the time of this writing.

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Technology, Infrastructure, and the PEO Platform

Despite PEOs being all about people, they still need a framework from which to operate. They couldn’t serve their clients and worksite employees without one. After all, the PEO needs a mechanism to store and process data, perform administrative and transactional tasks, and keep it all safe and secure. Meeting this basic need allows the PEO to serve its clients in many different ways, from payroll all the way to strategic HR and proactive personal service.

The point of the framework, then, is to support and enhance the relationship between the PEO and its clients and employees. This feature goes into depth in several areas that are vital to this purpose:

  • The X Factor: 10 Things PEOs Need to Know about EX and UX
  • Making Your Front End Run Seamlessly
  • The PEO IT Platform: Build from the Ground Up or Purchase Core System and Add On?
  • Can One Platform Fit All? Making Sure Your Technology Fits Your Business
  • Electronic Employee Onboarding: Isn’t it Time You Caught Up?

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Finance, Profitability, & Growth

The face of every PEO shows its unique approach to providing its own combination of services to clients and worksite employees: transactional and strategic human resources, benefits, payroll, tax administration, and regulatory compliance help, to name a few.

Behind that face is each PEO’s distinct way of providing those services through its infrastructure, technology, and processes.

And behind that is each PEO’s own strategy for achieving financial strength, profitability, and growth. This month’s feature walks through universal elements of such a strategy:

  • Having a Formal Budget: Supporting Your Financial Goals with Solid Methodologies
  • Factors That Most Affect PEO Profitability
  • Developing and Tracking Internal Metrics
  • Business and Economic Analysis: Providing Perspective and Context for Decision Making
  • Strategic Business Planning for PEOs
  • Growth Investment: Where to Invest in Your PEO and Why
  • Evaluating Growth Plans and Determining Investment Needs
  • Return on Investment: Organic Versus Acquisition Growth

We hope this is helpful in providing insight into developing the foundation that supports the PEO operation, which in turn supports the PEO’s ability to serve its clients and worksite employees.

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String Theory

If I were to state the obvious, that PEO compliance is complex, you would be justified in replying, “No kidding, Sherlock!”

Just as any sleuth worth his or her salt has to gather, piece together, and make connections between seemingly disparate clues to reveal the truth, so do PEO operators as they seek and compile information to keep their companies and those of their clients compliant with federal, state, and local laws and regulations.

In the PEO world, there is much information to collect, understand, connect, and translate into practice and policy, and it is constantly changing:

  • The complicated federal and state patchwork of laws and regulations governing HR and benefits:
    • Sexual harassment and pay equity;
    • Paid family and sick leave; and
    • Retirement benefits.
  • Business regulation:
    • Joint-employer status and independent contractor standards; and
    • Wage and hour litigation, overtime regulations, and exempt/non-exempt classifications.
  • Litigation and enforcement:
    • Litigation trends that foretell the direction of things to come; and
    • Immigration audits.
  • State trends:
    • Developing policy to address differing state laws and regulations; and
    • Tracking issues in the states to keep compliance efforts up to date.
  • Evolving areas of the law:
    • Marketplace contractors, i.e., companies in the gig economy.

We hope this feature provides what you need to strengthen your PEO’s compliance program.

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Prescription for a Robust Healthcare Program

What makes for a robust PEO healthcare program? Well, it would need to have qualities that make it strong, productive, and dynamic.

There are generally three things that contribute to this. First, strength. The plan needs to have a strong foundation that allows it to serve a broad array of participants. PEOs can achieve program strength by offering plan choice. If the range of plans provides options and benefit levels that cover a wide variety of jobs, pay ranges, and locations, enrollment will remain strong and keep the plan strong.

Productivity. When the PEO keeps healthcare costs in check, the program is productive, meaning that participants get the most bang for their buck. A variety of things can help with this, including new distribution channels, performance monitoring, and strategies such as using health savings accounts, health reimbursement arrangements, and flexible spending accounts. These tools also help the PEO enhance its healthcare value proposition.

Being dynamic. This means staying abreast of the marketplace, client concerns, and developments in the healthcare arena to implement plan design changes, make contribution changes, re-evaluate vendors, and update delivery systems.

All of these things will contribute to making your healthcare program robust: strong, productive, and dynamic.

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PEOs & Cybersecurity

PEOs depend on the data they maintain for their clients and worksite employees to provide their services. It is important to keep that data secure and private. Unfortunately, this data is also extremely valuable to hackers, thieves, and cybercriminals.

This is why NAPEO formed the Cybersecurity Task Force in late 2017. The task force surveyed all member PEOs in-depth, including questions about their preparedness; their internal resources dedicated to cybersecurity; their awareness about the threat, penalties, and exposure; and their response and recovery plans, training, and testing. After analyzing the survey results and conducting research, members of the task force created, “The Pillars of Cybersecurity for PEOs,” to guide NAPEO member companies through several steps to ensure data security, available to members at

This feature complements and expands upon this document:

  • Cybersecurity for PEOs: Seven Steps to Get Started
  • Cyber-Threat Prevention: The Risk Assessment Process
  • Bringing the Risk Assessment into Action in 10 Steps
  • Data Privacy and Security: Understanding the Complex Patchwork of Laws and Regulations
  • Cyber Insurance: Providing a Backstop for Your Cyber Risks
  • Data Breaches in the 21st Century: A Call to IRP Action
  • California’s New Sweeping Data Privacy Law: What PEOs Need to Know

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Protecting Your PEO From Payroll Fraud

While the PEO industry has experienced cases of payroll fraud sporadically for years, a pronounced uptick in member reports to NAPEO of payroll fraud incidents began about six months ago. Reports have come from across the country, with fraudulent client prospects reported in several industries, including transportation, car washes, dry cleaners, construction companies, hair salons, and gyms. In some cases, fraudulent prospects pose as legitimate companies whose identities they have stolen. Fraudsters have also perpetrated schemes through phishing and email scams to steal login credentials or impersonate company officers to request fund transfers.

When the uptick in fraud reports from members began, NAPEO not only started keeping track of them, but also:

  • Mobilized the Payroll Fraud Task Force under its Accounting Practices Committee;
  • Contacted the FBI about the problem;
  • Initiated regular email alerts to members;
  • Began developing educational resources for members such as webinars, magazine coverage, and sessions at upcoming conferences; and
  • Posted a regularly-updated, members-only resource related to payroll fraud on its website, This resource includes: a document outlining steps you can take to protect your PEO; an email to report fraud incidents to NAPEO (; a link to the FBI’s Internet Crimes Complaint Center (; and a listing of recently reported fraud schemes.

The task force is drafting a document, “Best Practices for Reducing the Risk Associated with PEO Payroll Fraud,” for release in the next few weeks. Early this month, NAPEO presented a webinar, “Payroll Fraud and Its Impact on PEOs,” discussing how to identify payroll fraud risk, how to proactively protect your organization, and how to respond to fraud incidents. The recording and PowerPoint presentation from this webinar will be added to webinar archive at for those who missed it or want to revisit it.

Even as members have been put at risk by the recent onslaught of payroll fraud attempts, they have come to NAPEO with information about their experiences and lent their expertise to produce educational materials to be shared with the entire membership. This feature presents a detailed picture of the many facets of the problem and a comprehensive approach to preventing fraud attempts and protecting the PEO.

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Trends & Innovations

The PEO industry has never been static. Things are always happening—some good, some bad, some indifferent.

When enough of the same type of things are happening at the same time, it’s a trend. Right now, a lot of consolidation is happening in the PEO space.

This recent consolidation trend began after the 2008-2009 recession, spurred by increasing regulatory burdens placed on small business, the extensive amount of capital available combined with the PEO revenue model’s appeal to investors, the passage of the Small Business Efficiency Act in late 2014, and NAPEO’s industry visibility initiatives, among other things.

This ripe capital market for PEOs is not limited to funding consolidation. The strong economy, robust business growth, and low interest rates are continuing to create an abundance of capital. With it comes new business models, new growth plans, and new ideas for how technology is used.

That brings us to the increasing role of technology in the industry, which is also driven by client expectations. PEOs have had client and employee portals for self-service for a while, but with the consumerism of IT, the widespread use of apps, and the advent of the “customer experience,” PEOs are working to meet these new expectations by developing integrated technology platforms and rethinking how they use technology.

As these trends continue, they contribute to stronger PEOs and a stronger industry, which leads to more robust operational capabilities, more freedom to try new things, and an influx of ideas, which in turn leads to innovation.

However, it’s not automatic. The current environment can engender innovation, but PEOs have to pursue and nurture that creative spark. This can come from your staff, your clients, your peers, your competition, and even disruption.

A foretelling of things to come may be the fact that the PEO industry is continuing to mature as the generations of the digital age are becoming part of the business landscape.

The best part is that trends, innovations, and what comes next are greater than the sum of their parts. They can build on one another exponentially, and that can lead to a transformation of the industry.

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So Tell Us What You Really Think

This year, NAPEO’s annual PEO Insider® discussion features 2018-2019 NAPEO Chair Barron Guss and five of NAPEO’s new Board of Directors members. This time, PEO Insider didn’t ask the questions. Barron—long-time and active NAPEO member, industry innovator, and raconteur extraordinaire—led this free-form discussion.

And free-form it was. With an industry insider prompting the discussion, the conversation flowed from one topic to another, all linked by the insight of passionate and active PEO industry leaders.

Beginning with each person’s story of getting into the PEO industry and what each hopes to bring to the NAPEO Board of Directors, the dialog went on to cover the subjects that are top-of-mind for most everyone in the PEO world:

  • The industry’s emerging opportunities and what is driving them;
  • Nurturing the growing groundswell of awareness and interest in PEO among those in the business world;
  • Causes and effects of PEO growth, including its impact on technology innovation;
  • The role of outsourcing, attracting customers in the era of online-only HR, and reaching new generations of business owners;
  • Thoughts on PEO scalability; and
  • How NAPEO can grow and adapt to the changing industry.

So, meet the parties to the discussion on the next page, and then read through their visions and perceptions of the PEO industry.

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Building Your Client Base Strategically

A PEO building its client base strategically may be compared to a stamp collector. Both select each addition carefully, knowing that it will make an impact on the value of the whole. Likewise, both the stamp collector and the PEO also evaluate additions based on their goals. Is the stamp collector looking to develop a valuable asset, or simply pursuing a field of interest by picking, say, stamps of each state flower? Is the PEO choosing verticals to capitalize on the expertise it has developed by serving these clients, or is it reaching out to new industries to grow its base and broaden its service capabilities?

Whatever the PEO’s goals, this feature provides insights into the areas to explore to help you build your client base strategically to meet them:

  • Aligning Operations and Client Support
  • The Ideal PEO Client: Does it Exist?
  • Expanding your PEO Client Base into New Industries: Focus on Profitability, Service, and Operations
  • A Holistic Look at Each Client: Client Base Maintenance
  • Keeping Up with Small Business Practices and Preferences
  • Nuggets About Potential PEO Clients Found in NAPEO’s PEO Market Research Report

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Processes • Infrastructure • Service Delivery

When an organization’s processes, infrastructure, and service delivery work together, things really buzz. Take it from bees. They perform a series of actions, within an organizational framework, in order to achieve their goal: The survival of the hive. The byproduct, of course, is sweet, sweet honey.

The same applies to PEOs: Repeatable, efficient processes supported by a robust infrastructure deliver valuable products and services to clients, sustaining the PEO and creating profit. This simple formula has variations as plentiful as there are PEOs. This feature provides some insights into this symbiotic nature of the PEO operation:

  • Improving Processes while Scaling PEO Service and Operations;
  • Product Development for PEOs;
  • So What is this API Thing? Automating Communication Between Different Computer Systems;
  • The Importance of Third-Party Providers in the PEO Model: Determining Provider Capabilities;
  • Coordinating Product Development, Management, and Service Delivery: Processes, Pitfalls, and Success;
  • With Growth Comes New Efficiencies, Despite New Complexities;
  • The Human Side of Operations; and
  • PEO Innovator: Innovation in PEO Operations.

We hope this insight will help you make your PEO operation buzz.

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It’s Always Something

In PEO sales, it’s always something. Sales are going along great, then suddenly you hit a certain size and hit the wall. You start hearing prospects say they don’t need a PEO because they can look everything up on the Internet. Or, you realize you need to reevaluate your value drivers to differentiate your PEO and recalibrate to your market.

If it’s not one thing, it’s another, so what’s a PEO to do? The good news is, as this feature illustrates, there’s always something:

  • When you hit one of those natural growth plateaus and want to get past it, do your research and invest in organic sales;
  • If you want to improve sales results, use the right metrics to develop better prospecting, appointments, and proposals;
  • When prospects suddenly “know it all” because they have the Internet, double down on your value sale and remind them that they get what they pay for;
  • If the sales process has become too complicated for younger business owners, meet them halfway by engaging them on your website and consider the online sale;
  • Has your sale become stale and your PEO just another PEO? Examine your value drivers and make sure they differentiate you and match your market;
  • Are sales disruptors hitting you from all directions? Track them down and apply imagination and persistence; and finally,
  • Is your marketing operation becoming so “robust” that it fails to engage its audience and has substituted quantity for quality marketing content? Step back, pause to listen, raise the bar on your content, and improve your connection.

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Bumpers, Bells, and Buzzers

Would you say a PEO working within the healthcare legal and regulatory framework feels more like a ping pong ball, a yo-yo, or the ball in a pinball machine? Most businesses would feel the constant bouncing back and forth like a ping pong ball, or perhaps the constant ups and downs like a yo-yo. PEOs, however, because of the added complexity of the co-employment relationship with their clients, would feel more like the ball in a pinball machine: They are propelled on what is hoped to be the right path, only to have the rules change and bounce off a bumper, then to ricochet wildly in an uncontrollable direction while madly working the flippers and hoping not to tilt.

There are always bumpers, direction changes, and obstacles in the healthcare arena. Here are the ones present at the moment, what the NAPEO experts have to say about them, and some ideas from this month’s PEO Innovator:

  • Short-Term, Limited-Duration Insurance: A New Rule Reinstating Not-So-New Requirements
  • IRS Begins Employer Mandate Enforcement: How to Defend Yourself and Your Clients
  • EEOC Wellness Program Incentive Limits Vacated Effective 2019
  • Healthcare Data Security for PEOs
  • Is Your PEO Ready for a Master Medical Plan? Here’s What Carriers Want
  • Affordable Care Act E-Filing
  • Managing Client-Sponsored Plans in a Co-Employment Environment
  • PEO Innovator: Leveraging Technology and New Ideas for Better Healthcare Benefits

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The Ever-Changing Legal and Regulatory Environment

What is constantly changing, always moving, and might give you a headache if you look at it too long? If you said a lava lamp, you would have been close. It’s the legal and regulatory environment for PEOs.

This month’s feature, our annual legal and regulatory roundup, starts with a description of the political climate in Washington, D.C., how it affects what comes out of Congress, and how PEOs can spread the industry’s message on both sides of the aisle.

The feature then moves to the latest developments in the federal arena:

  • The #MeToo movement: Amidst the spotlight being intensified on workplace harassment, articles in the feature cover mitigating risks, helping clients with claims, and educating and supporting clients;
  • The huge and expanding issue of data security and compliance; and
  • Joint employment, handbook policies, and other initiatives out of the National Labor Relations Board.

And in the states:

  • The role of PEOs under new state-run retirement plans;
  • The saga of the PEO Model Act in Missouri;
  • The torturous employment laws and cases coming out of California;
  • The distinction between selling insurance and providing PEO services as recently revisited in Georgia;
  • The near-toppling of exclusive remedy in Wisconsin, and similar actions in Michigan and Montana; and
  • The recently passed legislation in Ohio protecting the business income deduction for clients.

There you have it: the PEO legal and regulatory environment as it stands right now. It will change, but NAPEO will keep you informed.

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Get Hopping

Left to their own devices, PEOs don’t just grow. It takes deliberate and targeted effort, planning and executing growth strategies based on the individual PEO. This month’s feature provides insights into different ways of doing this:

  • Internal and external growth drivers. PEOs can optimize internal drivers, respond appropriately to external drivers, and focus on top-line and bottom-line profitability simultaneously to position themselves for growth.
  • Growth capital. Investors are ready with growth capital for PEOs with diverse client bases, high retention rates, and high-quality recurring revenue, among other things.
  • Acquisition. Asking and answering the right questions can help PEOs identify appropriate acquisition targets.
  • Expanding into new markets. One PEO accomplished this by finding markets with concentrations of prospects showing the qualities of its ideal client, combined with favorable economic conditions and demonstrated demand for PEO services.
  • The building blocks of growth. Educating internal employees, clients, and worksite employees, consistently providing top-notch service, and using referrals to help fuel the sales engine work together within the PEO’s organizational culture to form the foundation for organic growth.
  • Building leaders. This month’s PEO Innovator shows how it cultivates leaders to develop growth in new markets.

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Where Technology is Taking PEOs, and Vice Versa

The PEO industry and technology have both had amazing journeys of development and innovation over the last three and a half decades. Much PEO progress is directly tied to technological advancements. As the PEO industry matured and grew, technology became more and more a part of the PEO operation. Today, technology is not only essential for PEO internal workings, but has also become an important benefit for clients and worksite employees.

This feature provides a picture of where technology stands with the industry right now. The PEO’s technological framework is the foundation that serves as the company’s infrastructure, supporting all of the software and applications that allow the PEO to run. To make the most of their technology, PEOs should stay up-to-date with patches, software updates, and hardware refreshes and upgrades.

Technology roadmapping helps the PEO execute on its strategic goals. It creates a path from your human capital management system to the products and services needed to serve clients, as well as your “secret sauce,” which makes your PEO unique.

While Software as a Service (SaaS) has been around for a while, the technology continues to evolve and spinoffs frequently emerge. This complicates the questions of when to migrate from on-premises to SaaS, how it fits your organization, what investments are needed, how to make the transition, and how security is handled.

Nothing exemplifies the joint journey of the PEO industry and the technology industry like this month’s PEO innovator. This PEO started in the early 1980s and grew and developed along with technology. The company embraced the various iterations of “cutting-edge” technology, took novel approaches to problems, leveraged innovation, and came out in an unexpected, but good, place.

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PEO Profitability-A-Poppin’

The beautiful thing about popcorn is that you start with small kernels and, handled properly, they become big fluffy, yummy pieces of puff, which are about 20 to 50 times the size of the original kernels.

PEO profitability is much the same way. This month’s feature provides insight into this.

First, you must evaluate into your PEO’s performance. Define what you will measure to determine your profitability, examine the drivers behind your business, and interpret the results.

Avoiding margin erosion is key. Some of these eroding forces are commoditization, selling a product over a service, failing to recognize costs, and rising compliance costs. It’s important to address these before they become threats.

Because your PEO is like no other, metrics and key performance indicators give you specific knowledge about maximizing your profitability. Industry benchmarks provide the baseline; customizing them with your numbers provides a drill down for additional insights.

There has been a surge in acquisition activity among PEOs recently, and many companies are incorporating it as a strategy to reach profitable growth goals. Acquiring PEOs can achieve synergies and diversified product offerings. PEOs looking to be acquired can increase shareholder value and access technology. The key is a sound financial process and a strong integration strategy.

Many PEOs diversify their offerings, service lines, or products to enhance profitability. One PEO, however, has diversified in an innovative way: It accessed technology resources by being purchased by a large IT and connectivity company that wanted to partner with companies serving the small and mid-size business market. The PEO’s profit margins have increased by integrating these technologies for its clients, receiving more warm leads from other business units, and raising the bar on its insurance programs.

We hope this feature will help you get your PEO’s profitability-a-poppin’!

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Healthcare Certainty

Ah, long car trips: counting VW bugs, finding license plates from different states, and the constant chorus of, “Are we there yet?”

Since the Affordable Care Act (ACA) was passed in 2010 and the regulations to implement the massive law were rolled out over the better part of the last decade, PEOs have been counting noses, looking for healthcare solutions for clients all over the country, and wondering, “Are we there yet?”

In a word, no. We are not there yet. Even during the roll-out of the ACA—as Americans waited for definitive instructions—some portions of the law were removed, others delayed, and others implemented in ways other than expected.

Then came the 2016 presidential election, with promises to repeal and replace the ACA, or at least improve the healthcare landscape. Since President Trump was inaugurated in January, everyone has been anxiously awaiting the anticipated change in course. While all attempts to repeal the law have failed so far, some snippets of a different direction have come, as detailed in the first two articles in this feature.

Nonetheless, the ACA is still in effect, and PEOs must continue to comply with existing rules and regulations, as outlined in the third article.

Being the experts in healthcare coverage for their clients, there are best practices PEOs should follow whether the ACA is repealed or not, and whether a new program comes into play or not. These are covered in the last article in this feature.

The road has not been straight, the signs have been confusing, and we are still not there yet. However, the information you are about to read may help you on your journey.

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PEO Confab

The old adage, “The more things change, the more they remain the same,” seems paradoxical, but examples are all around us. Each day is different, but the sun still rises just the same. Old songs, movies, and TV shows are remade, but each new audience sees them as new. No two PEOs are the same, but they all face the same challenges.

Speaking of PEOs, one might reverse the old adage to read, “The more things remain the same, the more they change.” PEOs live in a paradox: Their success depends on them performing exacting tasks consistently and correctly as everything changes around them. PEOs have adapted to constant change since the beginning.

PEO Insider got together with four PEO executives in September during NAPEO’s 2017 Annual Conference & Marketplace, and their discussion shows this clearly. Three of the participants have been in the industry for decades, and one for only a few years. Today’s start-up PEO’s challenges are not that different from those experienced in the early days: setting up infrastructure, getting benefits programs in place, and hiring qualified staff. However, technology is vastly different, rules governing benefits plans are certainly different, and lessons have been learned about finding and developing PEO talent.

To read the transcript of their discussion presented in this feature is to observe the similarities and differences in each person’s story, to note the ways the industry has evolved with the changing climate in order to succeed in its mission, and to admire the people who live and work in this paradoxical business.

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End-of-Year Housekeeping Chores

PEO operators are used to thinking a few steps ahead, and the fourth quarter of any given year shows this clearly. While PEOs are performing their day-to-day operations, continuing to execute their strategic goals, and preparing for year-end, they are also planning for the first quarter of the next year, with their current tasks being geared towards having a successful start when the new year arrives.

This end-of-year housekeeping involves every functional area of the PEO.

Let’s start with the sales operation. Viewing your PEO’s sales function in context requires looking at your markets and your competition. This helps the PEO develop plans for the year to come. Make sure your sales department and other PEO departments are in sync, your sales process educates potential clients, and your sales decisions are informed.

The end of the year is a great time for assessing client needs and client profitability. This helps the PEO make adjustments as well as take a really good look at its relationships with individual clients.

The framework on which everything runs, of course, is IT. Closing out the old year in the system is the first step towards the next year. The IT department should perform a self-analysis, an analysis of its interaction with other PEO departments, and an analysis of how the PEO’s growth plans will affect IT.

The legal department plays a key role, as well: It must be aligned with the PEO’s operational and financial plan, perform day-to-day compliance, support the company’s governance, and keep up with changes in the law.

Renewals, assessments, and goals are on the agenda for the risk management department at the end of the year, including renewal meetings with carriers, client review and assessment, claims reviews, evaluation of the PEO’s overall risks, and setting goals for the next year with these things in mind.

The HR, benefits, payroll, and staffing areas have their end-of-year checklists, too. The evaluations, plans, and changes that come out of this annual review will enhance the experience for your clients.

Finally, none of this would work without the finance department. It must prepare for W-2 reporting, send year-end notices, develop the budget, close out the year in the accounting system, and prepare for the annual audit.

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The PEO Life Cycle

This month’s feature examines the PEO life cycle, and there’s no better way to do this than letting a variety of PEOs in different phases of their life cycles tell their stories.

We begin with three different start-ups:

  • One started by someone who spent his whole career in PEO, started one successful PEO, and then combined his corporate training and industry experience into a new model and new enterprise;
  • A start-up created by the CEO of a charter school management firm who considered hiring a PEO, but started his own PEO instead; and
  • A small family PEO started by someone with a background in insurance, investment strategies, and benefits who spent a decade in a family-owned PEO.

Now, on to the growth phase. We hear from:

  • A 10-year-old PEO whose strategy is following best practices, benchmarking, learning from growing pains, and delivering high value and transparency to achieve profitable growth;
  • A fairly young PEO that is gearing up for growth by building up its operation and developing services, maintaining company culture through selective hiring, and investing in a digital marketing platform; and
  • Another PEO with over a decade in the industry, which started up slowly and deliberately, planning with goals in mind, realizing that the only time it did not experience steady and significant growth was when it was not focused on re-investing and focusing on the sales operation.

This next one is a little different. Here we have a PEO with almost 20 years under its belt whose owners wanted to retire and bring in new management. This is the story about how the new exec approached and achieved the company’s transformation.

This feature would not be complete without taking a look at those who have been through the complete PEO life cycle, and then started all over again:

  • A PEO that bootstrapped in the mid-1990s, made it through the “dot-com” crash, but decided to sell after almost 20 years in business, only to start a new PEO with capital attracted by the owner’s two decades of PEO experience;
  • The never-say-never story of two PEO partners who sold their company in 1997, lived their lives, and then re-partnered in 2011 in a brand-new PEO; and
  • An industry icon who built one of the most successful PEOs in the industry and carried it through its entire life cycle, then built a new PEO from the ground up with a time-tested concept.

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Summer Sales Issue

Like PEOs, the shops and vendors on the boardwalk by the ocean offer a variety of yummy and fun things. How do you decide? Burgers or hotdogs? Popcorn or pretzels? A walk on the beach in your new flip flops or a bike ride?

Patrons on the boardwalk may be drawn in by the sound of burgers sizzling on the grill, the aroma of freshly popped popcorn, or the stacks of colorful flip flops. Small business owners may be drawn to your PEO through your online advertising, a call from one of your salespeople, or a search of the NAPEO online “Find a PEO” directory.

Like the beachgoer who wants to make sure the burger is juicy, the butter on the popcorn is real, and the flip flops are comfortable, your small business owner prospect will discern the value of using your PEO by what is on the inside.

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The PEO industry is relatively young, a mere 33 years. The oldest company in the world that is still operating is Kongo Gumi, a construction business in Japan established in 578. There is a restaurant in Austria, Stiftskeller St. Peter, that opened its doors in 803, and a pub in Ireland, Sean’s Bar, that started up in 900. Now those are old industries.

Still, the relative youth of the PEO industry does not diminish the accomplishment of long-lived PEOs. We’ve all seen PEOs come and PEOs go, but more important, we’ve seen companies that have endured the ups and downs of the economy, the hard and soft insurance markets, and the constantly changing regulatory environment.

Despite the industry’s challenges, we see PEOs reaching the 10-, 20-, and even 30-year marks. In an industry that pretty much invented itself, with no road map or play book, companies are achieving longevity. Read on to learn the principles behind how eight PEOs have done just that.

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The Legal and Regulatory Roller Coaster

Here we go: Up and down, around and around. Step right up and hop on the legal and regulatory roller coaster.

PEOs are no strangers to this wild ride, but in times like these, it’s not any less exhilarating, or nauseating, as the case may be.

On the federal level, these measures are currently in flux as the new administration comes in:

  • The Department of Labor’s (DOL’s) fiduciary rule;
  • Blacklisting rules and a minimum wage increase for federal contractors;
  • The new overtime regulations under the Fair Labor Standards Act (FLSA);
  • The applicability of joint employer status to PEOs; and
  • The allocation of client and PEO responsibility for Occupational Safety and Health Administration (OSHA) and state rules for recordkeeping obligations and worker safety.

One thing that is not in flux is the new EEO-1 form: The old form had 121 data points, while the new one has 3,360. PEOs should be ready for this new twist, however, because the Equal Employment Opportunity Commission (EEOC) for the first time will use analytics software to identify indicators of potential discrimination on the front end.

On the state level, the rules in the states and local jurisdictions remain a jumble. State licensing and registration laws offer a mix and match variety of provisions addressing everything from direction and control to hiring and firing and treatment of taxes to benefits payments. Human resources and employment laws, governing things such as “ban the box” rules and paid sick leave, can vary down to the local level. Proposals designed to raise revenue, which affect PEOs, are on the rise among the states.

Finally, two PEO execs offer their experience keeping up with and navigating issues in the states, which may make your journey a bit smoother.

So, hang on, and don’t be surprised if by the end of the ride things have changed again.

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Reinvesting for Growth

As PEOs progress, and by necessity, grow, various things happen, creating different possibilities. For example, your company might be topping out of its current capacity. Having trouble keeping up with client needs might be an indicator of this. You may feel like you don’t have the right internal numbers and skill sets to answer every call promptly and easily. Maybe you feel as if your PEO is not keeping up with its competition. You have come to a fork in the road: You could stay the same, or you could bump up to the next level. Bumping up to the next level, however, requires an investment.

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Developing Strategic Goals

“The PEO business is so easy and uncomplicated that it basically runs itself,” said no one ever. Everyone who has ever been in the PEO industry knows what a crock that statement is: Running a PEO is difficult and complicated, to say the least. What helps, however, is planning, setting goals, and figuring out how to achieve those goals.

This feature focuses on setting goals. There are many tools available to help in the process, tools that help each PEO determine its own formula for developing strategic goals. These tools, listed in the glossary below, are available to all businesses, but for PEOs, context is everything.

The first and last articles in this feature examine how two of the most applicable tools work in the PEO context. In between, several PEOs with different models from around the country talk about how they do it.

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New Frontiers

The landscape for PEOs is getting interesting. A brand-new type of business is emerging, HR industry disruptors are revealing lessons and opportunities for PEOs, the possibility of serving international clients is opening up, and changes in the workforce are leading to new ways to reach employees. All of these developments present new frontiers for PEOs.

The gig economy has gotten a lot of attention. This new business model has taken off, well ahead of the legal and regulatory framework’s ability to answer questions about the employee rights, data security and privacy, and independent contractor issues that have already arisen. A serious issue, worker misclassification, poses risks to the gig companies themselves and the PEOs that work with them. Flexibility, adaptability, and proper administration of gig workers, however, can mitigate these risks.

The initial apprehension felt when online-only HR providers—Software as a Service—came on the scene has subsided somewhat, at least for now. It’s clear now that PEOs have advantages over these companies—PEOs are strategic partners with customized, hands-on service, with the emphasis on service. Furthermore, the “disruption” allowed PEOs to reexamine the quality and effectiveness of their own marketing efforts and revitalize their service delivery and user experience.

Global opportunities are opening up for PEOs, too. One particular PEO has developed a global market strategy by working with a local economic development organization, which opened the door to international companies interested in expanding to the U.S.

Now that most everyone has a smart phone, Millennials populate the workforce, and people expect around-the-clock service and access, PEOs are shifting to mobile-first design. This allows access to employee self-service for people in industries that don’t necessarily use computers in their work, caters to the way Millennials work, and makes services and information available 24/7.

While technology has played a big part in these developments, PEOs will always be people-centric, setting them up for success in these new frontiers.

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A Year in the Life of PEO

PEO people are so engaged in the industry that they can discuss everything from the minute details of their PEO lives to broad issues of universal importance across the PEO operational spectrum. Each PEO does things it’s own way, yet each has a stake in the direction of the industry. Listening to them talk about their businesses and the operating environment, you will often hear them finish each other’s sentences. It’s like playing a game of “Mad Libs,” each person filling in the blanks with his or her unique ideas.

It’s not that they interrupt each other—it’s just that they “get” each other, despite coming into the PEO industry in different ways, being in different phases of their business life cycles, and finding their own ways to deal with the industry’s challenges.

On September 8, 2016, five PEO professionals got together in a meeting room in Austin, Texas, during NAPEO’s 2016 Annual Conference & Marketplace. PEO Insider® invited them there to talk about anything and everything having to do with their lives in the PEO world. This issue’s feature presents the transcript of this discussion.

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A Fresh Look at the Ever-Changing PEO Space

The PEO landscape is constantly changing. PEOs, however, are used to it—it’s been changing since day one, and PEOs are proficient at navigating the ups and downs of the space where they operate. What is certain is that these changes always conspire to make the PEO industry interesting.

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The Changing World of HR

You know when you haven’t slept well for a few nights in a row, and you feel tired, worn out, and walk around in kind of a daze? You feel, well, like a zombie.

This is a pretty common state for many small business owners these days, as the low unemployment rate, while good news, means that businesses have an even harder time finding workers to fill jobs. Finding and keeping skilled workers has always been a challenge, and now it is keeping small and mid-size business owners up at night.

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The Butterfly Effect

In the life of a PEO, anything and everything affects sales: The way the receptionist answers the phone, how a client’s payroll is processed, the way HR folks interact with worksite employees, and of course, the quality of the services and the effectiveness of the sales team.

The PEO operates under the concept that any little thing can have big implications for getting and keeping clients—its own butterfly effect.

The PEO carries a lot of responsibility for each client, each worksite employee, and itself. While only a few are tasked with representing the PEO during the sales process, everyone in the organization has a role as a brand ambassador in building business.

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The Key to PEO Profitability

There is an arch bridge in Greece from 1300 B.C., and it’s still standing. There are hundreds of arch bridges from the Roman era across Europe and the Middle East, many also still standing.

The arch is a very simple structure, yet it has great strength, stability, and endurance. Building it requires a frame to support the side stones until the keystone is placed, but then the arch is self-supporting and maintains its strength through the weight of each of its parts.

Although it is very complicated, the PEO can build a strong financial structure based on these principles. Each element—balancing costs and revenues, finding and keeping the right employees for your PEO, using the right technology and workflow processes, focusing on client fit, and matching your service profile to your client base—works together to support the PEO, held together by comprehensive and granular reporting, analysis, and decision-making.

This structure is the key to a strong, stable, and enduring PEO.

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The Journey to CPEO

Imagine embarking on a journey that was 17 years in the making, a journey that will expand business opportunities and provide certainty for the PEO business model.

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How to be a Compliance Superhero for Your Clients

Imagine your clients, slogging away, day after day, dealing with legal compliance, changing regulations, federal laws, state laws, new laws… all the while trying to run their businesses, into which they’ve invested their blood, sweat, and tears. Regular hours? Forget about it.


If only these small business clients had someone to help, a superhero of sorts, to save them from these burdens.


Actually, if you are reading this, you are likely one of those very superheroes. As a PEO, you help your clients with these problems every day. Because things change constantly, this feature is designed to provide the very latest about the legal and regulatory issues that affect you and your clients right now.

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The Beautiful PEO Operations & Technology Ecosystem

The PEO business is all about people. All of the PEO’s services are designed to benefit client companies and their employees. HR, benefits, payroll, and risk management are all done for people. Under the surface, each PEO has a rich operations and technology ecosystem that makes it all work.

All of the PEO’s functions require data, and this data must flow smoothly through the PEO. Like a coral reef, the PEO has a technology infrastructure that its operation depends on. The reef has hard coral, such as brain and elk horn coral, which serve as the framework. It has soft coral, such as mushroom coral and sea fans, which serve as a different kind of framework, much like the cloud does for PEOs. Like the coral reef, the PEO’s operations and technology work as an ecosystem that supports its life.

The coral reef is rich in life. An endless variety of life—fish, turtles, sharks, eels, crabs, shrimps, urchins, sponges, and algae—flows in and out of the reef, finding shelter and nourishment. An endless variety of PEO client and employee data flows through the PEO’s technological ecosystem in the same way, allowing the PEO to provide its services.

Technology, like the reef, can grow and adapt with changes in the PEO or its clients. Older coral may die, leaving its exoskeleton behind, but new coral builds upon it. There is always something new, just as in the PEO.

It’s a kind of beauty the PEO, its clients, and its co-employees can appreciate.

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The Complicated Machinery of the ACA

Rube Goldberg was an American inventor and cartoonist who lived from 1883 to 1970. His cartoons are easily recognizable. They depict complicated contraptions, completely over-engineered to perform straightforward tasks in ridiculously convoluted ways. They often involve a chain reaction, so they are not only overly complicated, but they take longer, too. The term “Rube Goldberg machine” has expanded to mean any complicated and confusing system.

The Affordable Care Act (ACA) is one such system. It has lots of pieces and parts, each part has its own unique complexity, and it continues to unfold in its labyrinthine manner as the law gradually becomes fully implemented. PEOs and other interested parties watch as it does so.

Right now, here are the things to watch:

  • Changes in store for healthcare consumers, providers, and PEOs;
  • Transitional relief, as it expires and employers are subject to new requirements;
  • A host of new affordability guidance on everything from employer flex contributions to counting hours of service;
  • The potential for state innovation waivers to affect health policy;
  • The affect the ACA’s changes to disability claims can have on administering employee benefits plans; and
  • The ins and outs of 1094-C and 1095-C reporting.

Keep your eye on the ball, or the gear, or the coin as it moves through the ACA, and you will be able to make it to the other end.

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The Evolving PEO Value Proposition

How would you describe the PEO value proposition? While it’s intangible, you may imagine it as something that flows. It’s constantly evolving as PEOs change to meet small business needs, keep up with developments in HR, benefits, and technology, and adapt to the changing workforce. You may envision the PEO value proposition as an ethereal thing, composed of many different colors that blend, change, and flow in different directions.

You may envision it this way because of the many different ways PEOs structure and promote their offerings, and the many different variations and combinations of the offerings themselves. However, it is possible to identify themes running through:

  • Pure-play PEOs, PEOs also offering some mix of non-co-employment such as ASO, specialized and niche PEOs, and PEOs appealing to a broad business base;

  • Disruptors to the PEO value proposition, such as the Affordable Care Act (ACA) and online-only HR technology entrants such as Zenefits; and

  • Indications of where the PEO value proposition is going, for example, PEOs taking advantage of the opportunities created by the ACA, adapting to compete with the latest market entrants determined to take market share, adding compliance assistance as a major focus, preparing for technology to become a bigger part of the value proposition, and recognizing the opportunities the Small Business Efficiency Act (SBEA) presents.

It’s always interesting to see what PEOs do. And the value proposition is a beautiful thing.



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PEO Snapshot

It’s hard to get a good snapshot of a moving target, and the PEO industry moves pretty fast. PEO Insider® was able to find out exactly how fast, and in what directions, when it sat down with five PEO professionals during NAPEO’s 2015 Annual Conference and Marketplace in Phoenix, Arizona, in September.

When you get PEO people together, you just know the conversation is going to be good. Members of the group, representing companies of different sizes, models, and geographies, talked about their experiences in different markets, their clients’ and their own challenges, the state of the industry, emerging issues, and their thoughts about what’s coming up in 2016.

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Outside Influences

And How They Affect the PEO World 

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.

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A Walk Down Main Street

What’s Really Happening in the Small Business World? 

For PEOs, it’s hard to know what is really happening within any given small business.

It’s possible to collect data from small businesses about their optimism, and conversely, pessimism, towards such things as new job creation or the ability to fill existing jobs, plans for capital outlays and increasing inventories, expansion, and the outlook for sales. Trends in these areas provide a broad context and can tell PEOs a lot about their clients and potential clients.

So too can data that aggregates information from small business owners about the challenges they face from industry and economic issues, product demand, tighter consumer credit, and laws and regulations. Such data provide insight into the environment in which clients and potential clients find themselves operating.

One of the most important statistics for PEOs is the state of small business employment. Tracking small business employment not only indicates how the economy is performing, but also takes the pulse of small business, because in a small company, employees are pretty much everything.

More telling than economic data and statistics, however, are narratives from real small business owners, revealing their every-day struggles and challenges, in their own words. This feature presents narratives from nine small businesses across the country, of different sizes and in different industries. These narratives can help PEOs interpret the economic data and statistics, and really see how it filters down to real life in the small business world.

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Gobbling Up Technology

Supporting Growth • Integrating Data • Improving the Client Experience

Do you remember those early video games that were so addictively fun, yet so frustrating when you failed a level or ran out of lives? Somehow, the fun always won out and you kept playing. PEO technology is like that, too. It can do so much for the PEO and its clients, yet getting to the next level or figuring out how to make it all work can be frustrating at times. Still, the excitement of finding new ways to support your PEO always wins out. With both vintage video games and PEO technology, the fun comes in developing a strategy to beat the game.

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The PEO Business Model

To be a PEO, you have to do certain things for your clients—human resources, employee benefits, payroll and taxes, and workers’ compensation—through the co-employment relationship.

That doesn’t sound very colorful. How much variety can you create with just these four elements? As it turns out, quite a lot.

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Healthcare Compliance, Operations, and Affordability

Wouldn't it be nice if everything you needed to comply with the Affordable Care Act (ACA), incorporate it's requirements into your operation, and keep healthcare coverage for your clients and worksite employees affordable were packaged up in a neat little box? All you would have to do is open it up, read the instructions, and boom—done!

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The Legal and Regulatory Issue

Have you seen the YouTube video1 about the most complicated board game ever? Well, here’s a sample of some of the game play

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Finding Your Groove

PEOs operate on thin margins. There is no mystery about that. Mix in the fact that PEOs need to grow to sustain themselves more so than most other businesses, and it’s obvious why maintaining those margins as other operational resources are adjusted to facilitate growth is so important. There are so many different levels, and so many elements to balance, for example: customer service capacity, growth plateaus, flexible technology, profit and loss, cost controls, overhead, staffing levels, service model adjustments, and cash flow, just to name a few. Adjusting something in one area affects the levels in other areas. It requires many micro and macro adjustments, constantly.

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