The Collaborative: What Is A PEO?
We’re going to be talking today with Mike Kollath. He is a CPA and entrepreneur, and if I have to put it this way, in business just in general. We’re going to be talking about PEOs and how that they can benefit business owners. So why don’t you just tell me a little bit about what a PEO is and who can benefit from it?
A PEO stands for professional employer organization, and I like to think of it as a collaborative for benefits, HR, and payroll for small to mid-sized companies.
In fact, I’ll give you an example from my company. As we grew, we started out as one person and as we grew, we had people who wanted health insurance. Well, of course you understand that some people have their spouses with health insurance and some people don’t and to get group insurance for a business you have to have more than one person. It’s tough to get health insurance for less than five people. We’re lucky in the Dane County area that we have a lot of availability for health insurance, but for smaller employers, it is difficult to get insurance. So my idea spawned at that point. There are only a couple of PEOs or professional employer organizations in the Dane County and surrounding County area.
I thought since we deal with small businesses as a CPA firm and we do payroll, and then we added the provision of HR services, why not combine all that stuff into what a professional employer organization does?
What a professional employer organization does is we provide compliance on the payroll side, we provide compliance on the HR human resources side. We provide access to benefits administration. We provide access to an HR system, which is gobbledygook for a human resources information system. So we have a system that will help cradle to grave, take care of an employee from the application stage to the hiring stage, to the applying for benefits stage, to the management of the employee stage, and to the onboarding stage. Those are things that you get access to with a professional employer organization that typically you’re not going to be able to get if you’re a small to midsize company.
So it was kind of like pooling benefits really.
Correct. So we have access to the benefits side, health insurance, life insurance, disability, 401k plan, we actually have pet insurance and on a voluntary basis, dental vision. We’re always looking at unique benefits that can be provided to employers that they may not be able to procure themselves or even think of. I hadn’t thought of pet insurance as a group benefit before. So that’s something that we can provide as a PEO.
I think that that not only can you then pool the benefits for employers, but a lot of these small to mid-sized business owners make a hundred into business to run their bit, like do whatever it is that they are passionate about doing it.
Then the more employees you get, it becomes very administrative and all of a sudden they find that they’re spending all the time running their business and they’re not enjoying what they originally did. PEO kind of allows them to offload some of that. Is that kind of accurate or how you would think about it too?
I would completely agree with that. I’ll go back to myself as an example. When I hired my first employee, I didn’t know that you needed workers’ compensation as soon as you hired an employee. So you start to learn little things like that. I never knew what an I-9 was. I never knew those types of things. Apparently, with an I-9, which is proof that you’re a citizen, you can get a fine if you don’t have the I-9 properly filled out.
As my firm progressed and we started learning these lessons, we got to a size where I decided I have to have an HR person internally because I didn’t want to do it as a business owner. It was taking me a lot of time and effort.
We could also have that person go out and do some consulting for our small business clients. So it’s worked out very well for us because we did get that internal support that we needed. Now we have the ability to start the PEO, so we actually went live on our HRI system this past December. We signed up for our benefits for the first time. It was a really smooth process. I was surprised.
I would assume you’re just kind of thinking about this and all of a sudden it takes all this time and energy. Then when you do get employers it becomes not just the cost of having the employees, but paying for the benefits, taking your time away from what you’re good at, making money to try to manage all these things.
I think a lot of small and mid-size business owners find this like the balancing act, right? I need more help, but I can’t justify what I have to pay out to get the help or to get the good help I need. So the PEO kind of alleviates some of that for some of the small business owners where they’re not actually paying more, they’re actually reducing some of their costs internally.
Correct. One of the things I thought of is not only are you getting access to benefits, but you’re also getting to share an HR person who’s good. To hire one would normally cost you $60, $80, $100K a year. So you get to fractionally own and use a part of a HR person, which is a great advantage.
Then you also get the payroll compliance aspect of it as well as a CPA. I see a lot of business owners run into trouble with payroll taxes and not knowing how to file them properly, when to file them, when to pay them, and do they have the cash flow to pay them?
So the payroll compliance aspect of it really does help business owners understand the cash flow. They’re going to need to do the payroll because sometimes your taxes aren’t due for a couple of weeks after you’re actually paying the payroll and you don’t anticipate that cashflow coming out. The payroll compliance aspect of it, not only compliance with state laws, you’re also incomplete, or you’re also paying when you need to pay your payroll taxes and you have the cashflow bill.
I think it makes sense because there’s a lot of things we all want to do. Even as a business owner, hiring employees was always the most dreaded thing. I don’t mean that it’s not about the people. I’ve had some great people that work for us, but it’s just all the other additional work that comes with it to manage it.
We’ve done a lot of collaboration now instead of having people work internally. But when you have to have somebody you want I think the PEO is a great way to go.
I know another EOS implementer on the huddle, Jim, was talking about it the other day. He goes, I mean, I’ve always used a PEO because I don’t want to have to deal with this myself. It takes time away from what you’re good at and what you’re making money out, even you as a CPA. And some of these things you might think are, well, the CPA’s are supposed to do that. Right? Like payroll and things like that, but it’s taking you away from what you’re really good at doing. If you have to manage all these other little things.
The other thing I think it does is at the beginning you have someone doing payroll, or you have someone doing HR, and you have someone helping you out with benefits, and it’s usually an agent of some sort.
This kind of brings them all together. You work with one person so if your payroll is out of compliance or your HR is not in compliance with your benefits, you have to make decisions on those. So with a PEO you have that all combined into one place and have one point of contact, which is probably a better term than I used before.
Well, yeah, but that makes sense. Having one place to go to, and I think that more, we can kind of consolidate and combine and, and it in collaboration, it makes our lives easier.
If you’re a small business owner, mid-sized business owner watching, you know, what would you say for them to maybe find out more to see whether it’s a good fit or even if they should, you know, what are some of the trigger points where they should be at least asking about it or talking more about it?
If you are doing payroll internally and hiring out HR or not using HR, which you probably should be, that’s definitely a spot to think about if you’re just starting to look at benefits. For example, we have one client, a potential client right now that they are starting to jump into the world of benefits. They’d like to get them to people that are interested, out of the other people that aren’t, and they want to be able to get benefits, have them administered and not have to worry about the rest of it.
Another example is we have a client with under a little under 10 people that has a health insurance plan that has a huge deductible, and their employees aren’t real fond of that. So they’re coming to us to see if our solution can work for them.
Some of the larger PEOs can offer national health plans and a large variety of different types of plans. That’s something that attracts people to it. But I think, you know, from our standpoint, our sweet spot is that kind of company that’s under 10 people under 20 people that starting to look for benefits wants to offer, maybe life insurance wants to offer. We haven’t even talked about 401ks yet, but that’s another thing where if you’re in a simple IRA or you don’t have a retirement plan at all, PEO actually offers you a pretty cost-effective way to obtain a 401k for much cheaper than you normally would have
Again, kind of cause you’re sharing, you know, with a 401k on the employer, um, stamp means you’re, you’re paying for these and you’re taking on some liability to have this 401k and your, you got to pay all the costs for the record-keeper, the custodian, all these different things where now we’re pooling it against. So you’re only paying a portion of the cost, not the whole cost. And you’re really offloading a lot of that liability, to the PEO. So you don’t have to
Correct. As you well know, as a wealth manager if you have a higher number of dollars of assets within the plan, your costs go down. Right? And so that’s another advantage that is provided by having a PEO. We’ll just naturally have more assets than you as an individual company. Would we have 10 companies or 20 companies that are pooling all their assets and bringing those costs down.
Right. And I think what works for the 401k is for health insurance for all of it. Right. And so another thing that I really like, as we’ve talked, is that we’re both part of this collaborative. You have a great fit for some of yours, but if someone comes to you and maybe they’re not the best fit for your PEO, we have some great national resources. We’re not only are, Oh, this is the one person that you go to, but some cool resources to really find out what is the best, you know, PEO for them and give them some ideas and quotes that way.
That is correct. Yes.
So even if you’re maybe on the little larger side and but you’re still like, man, is there a way to, and I think this year everyone’s like, I don’t know about it, but I’m thinking a lot of people have on their mind, how can I cut costs and be more efficient? Right. It’s just been the thing here. And a PEO might be an option, you know, even for the midsize companies to be able to, by pooling it and benefits, and you’re actually then reducing costs too. It’s another way to be a little bit more efficient and keep more money in your pocket.
Well, if you are listening or you’re a business owner or you are, you know, working for a small business and you wish they had more benefits pass this on to them.
The other thing I think is really important to you as far as these, especially with small and mid-sized businesses, employee retention is a big thing, right? It’s trying to keep when you’re a good employee, you want to keep them and in order to keep them, sometimes you really have to have benefits. I know we’ve come into that before. I’m sure you did Mike, right? When you were younger that you lose somebody good because you just don’t have the benefits to give them and you don’t have the ability. This is another way to be able to get them and keep those good employees and have higher employee retention. Is that something you saw?
Oh, definitely. The biggest reason why we’re doing this is for people to help retain employees. As I told you before, one of the potential clients we have right now, that’s their thing is that they don’t have health insurance. They’re going to lose people if they don’t.
So I think employee retention is high, right? And it’s a good way to be able to come alongside and show your employees that you care about them by offering some of these benefits while not breaking the bank.
I think that’s something that’s hard for business owners is that everybody looks and thinks, “Oh, you’re great. You own this business. Everything’s perfect.” They don’t understand sometimes unless you have been in business or you are a business owner, the flip side on everything that that business owner has to do and deal with. So this is a way as a business owner to at least provide that an offload something because I think all too often, it’s more about adding. You’re going to add benefits, add employees, it’s adding to the business owner’s plate versus taking it off.
I would agree.
PEO is a great way to take some of that off your plate, right? Thanks to Mike for joining today and to those reading or listening, make sure that you send us a message.
If you have a question or you at least want to have a conversation, please feel free to get in touch with me or with Mike Kollath. If you can find some way to reduce your cost and add some benefits, it’s always good to know that too and know what’s available.
Well, thanks for joining and we will talk again soon. Thank you.
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