John Allen takes an in-depth look at HR Outsourcing and discusses who should be outsourcing to a and why, how small and mid-size businesses can take advantage of HR outsourcing administrative functions and common questions and answers in regards to PEO services.

1. The Pros & Cons of HR
Outsourcing
Presented by John W. Allen, CPA, CMA

2. What do these companies
all have in common?
• ABB • International Paper
• Bank of America • Levi Strauss
• Best Buy • Motorola
• BP Amoco • Proctor & Gamble
• British Telecomm
• Prudential Financial
• Cap Gemini
• Sony
• Credit Suisse
• Sun Microsystems
• General Motors
• Goodyear • TXU

3. And what about these
governmental entities?
• U.S. Defense Finance & Accounting
Service (DRAS)
• U.S. Office of Personnel Management
• United States Postal Services
• Transportation Security Administration
• State of Florida
• State of Texas HHSC

4. They all outsource HR

5. Agenda
• Who’s outsourcing?
• Why are they outsourcing?
• What are they outsourcing?
• How & when are they outsourcing?
• To whom are they outsourcing?
• Q&A

6. John W. Allen
• President and COO of G&A
Partners
• 25 years of management
consulting experience
• Has been responsible for providing
support services to organizations valued
up to $5 billion and with as many as
46,000 employees.
• Specializes in providing administrative
services to emerging growth companies.

7. Amazing Facts
• In 2003 HRO transactions impacted an
estimated 2.8 million employees, or 4% of
the U.S. workforce
• In 2004, the Top 22 HRO deals covered
over 700,000 employees
• HRO revenues grew to $61 billion in 2005
• HRO Today reports continued growth in
2006 and 2007

8. Why are they outsourcing?
• Reduce costs/Increase EBITDA
• Gain access to cutting edge technology
• Avoid additional investments
• Provide more self service tools to
employees
• Focus HR on strategic vs. tactical

9. What are they outsourcing?
• Payroll
• Health and welfare administration
• Recruitment
• Compensation planning
• Performance planning
• Learning management
• Relocation
• Records management

10. To whom are they outsourcing?
• Accenture HR Services
• ACS
• ADP
• Aon Consulting
• ARINSO International
• Ceridian
• Convergys Employee Care
• ExcellerateHRO
• Fidelity Employer Services
• Hewitt Associates
• IBM Global Business Services

11. The trend is clear – the big boys
are outsourcing HR, but what
about the rest of us?

12. If growth in the PEO industry is
any indication, small businesses
are outsourcing more and more
of their HR functions too.

13. More Amazing Facts
• Number of PEOs has grown from a handful
in mid 1980s to more than 800 today.
• Number of co-employees has grown from
10,000 in 1984 to over 3,600,000 in 2006.
• Gross revenues billed by PEO Industry grew
from $5 billion in 1991 to over $51 billion
today.
• Wall Street estimates annual growth rate of
20%

14. Why the Growth?
What’s driving businesses, large &
small, to outsource HR?

15. How many hats do you wear?
Are you tired of the rat race?
Are you overwhelmed with paperwork?
Is this what you signed up for?

16. Using a PEO helps you focus
on what you do best !

17. Pop Quiz

19. Average administrative cost per
employee
$1,152 per year
($414 - $6,274 per year)
Bureau of National Affairs

20. Average administrative cost per
employee
• 6% - 12% of payroll (SBA & US Chamber of
Commerce)
• 8.45% of payroll (UT-Austin)
• $600 to $750 per annum per employee
(major insurance company estimate)

21. So what is a PEO?

22. How does a PEO work?

23. What services does the PEO
provide?
• Payroll Administration
– Provides time & attendance solutions
– Issues paychecks and W-2s
– Accrues vacation, sick and other leave
– Withholds and deposits taxes
– Withholds and remits garnishments &
premiums for employee benefits
– Files all payroll tax returns

24. What services does the PEO
provide?
• Employee Benefits Administration
– Group Health Plans
– Group or Voluntary Dental, Vision, Life,
AD&D, STD, LTD & LTC
– Section 125 Cafeteria Plans
– 401(k) Retirement Plans
– HRAs, HSAs, FSAs, & Gap Plans
– Prepaid Legal, Purchase discounts,
Wellness, EAP

25. What services does the PEO
provide?
• Human Resource Management
– Compiles job descriptions & employee handbooks
– Provides recruitment assistance
– Conducts pre-hire background checks
– Advises clients on employee discipline or
performance problems
– Educates clients on regulatory compliance issues
– Handles unemployment claims & COBRA and
HIPAA administration
– Conducts exit interviews

26. What services does the PEO
provide?
• Risk Management
– Workers Compensation Coverage
– Master Safety Plans
– Site Inspections
– Safety Training
– Accident Investigation
– Workers Comp Claims Administration
– Drug Testing & Modified Work

27. What responsibilities do you
retain?
• Management of business operations
• Use of facilities and equipment
• Safeguarding assets & people
• Employee compensation
• On-the-job supervision
• Quality control

28. How would your company benefit?
• Greater focus on your core business
• Broader range of affordable employee
benefits
• Workers compensation insurance at
competitive rates, with no deposit or annual
audit
• Fewer compliance issues & employee
lawsuits
• More time and money

29. How would your employees
benefit?
• Better, more affordable benefits
• Higher “take home” pay
• Greater understanding of company
policies and procedures
• Improved safety awareness and fewer on-
the-job injuries
• Happier, more productive employees

30. So how much does it cost ?
• The cost of PEO services is generally less
than or equal to the cost to do everything
in-house.
• Additional savings come by redeploying
talent, reducing turnover, reducing
workplace injuries and avoiding employee
lawsuits.

31. Service fee is a percentage of
payroll & includes:
includes
• FICA/Medicare
• SUTA
• FUTA
• Workers compensation insurance
• Employee benefits costs
• Miscellaneous charges
• PEO’s fee

32. PEO in Action –
Aluminum Frame Manufacturer
Cost Factors Before After Reasons
Payroll $522,000 $522,000 No change.
Payroll Taxes 49,564 43,231 Lower SUTA rate & Sec. 125 plan
Workers Comp 36,725 21,317 Higher rate tier discounts
Employee Benefits 31,200 31,200 Used client plan.
Payroll Administration 17,460 18,720 Expanded services.
Totals $656,949 $636,018
Savings $20,931

33. PEO in Action –
Freight Forwarder
Cost Factors Before After Reasons
Payroll $1,371,550 $1,353,550 Eliminated one position.
Payroll Taxes 141,467 115,255 Lower SUTA rate & Sec. 125 plan
Workers Comp 48,004 32,806 Replaced accident plan with true
workers comp.
Employee Benefits 0 34,884 Restored lost coverage.
Payroll Administration 18,000 41,147 Expanded services.
Totals $1,579,021 $1,577,642
Savings $1,379

34. For more information, visit
www.napeo.org
• “PEOs take load off companies by filling
human resource function”
• “Human resource outsourcing can boost
bottom line”
• “PEOs can help small business grow”
• “PEO’s: help for small companies in good
times and bad”
• “PEOs: the wave of the future”
Source: NAPEO website

35. Guidelines for Selecting a PEO
• Lists available thru NAPEO or TDL
• Verify that PEO is licensed & in good
standing
• Ask for banking & credit references
• Ask for client & professional references
• Visit their offices
• Review customer service agreement

36. Licensing Requirements
• Controlling person must be 18 years of age
and of good moral character
• Controlling person must have educational,
managerial, or business experience relevant
to the operation of a business entity offering
staff leasing services
• Must demonstrate net worth of $100,000

37. Questions & Answers
For More Information:
John W. Allen
G&A Partners
4801 Woodway, Suite 210
Houston, Texas 77056
(800) 253-8562
www.gnapartners.com
jwallen@gnapartners.com