Mark Pahmer, president of 22-employee Graphics for Industry, in New York City, is a big fan of employee leasing. That's because employee leasing results in less expensive health care premiums and a broader range of benefits choices for the employees of his company, which provides 3-D graphic services to ad agencies and film production companies.
What's employee leasing? An employee leasing company -- often known as a "professional employer organization" (PEO) -- takes over technical human resources administration for the company that hires it. In doing so, the PEO becomes a coemployer of the company's workers, charging a per-person fee based on the client's employee count.
The arrangement is a win-win situation. Often PEOs can offer a broad range of benefits at lower cost because they are the coemployers of so many workers -- and that means employees win. Graphics for Industry also wins, says Pahmer, because his accounting staff can focus on collecting receivables instead of, say, doing payroll and sorting out insurance claims. He explains that the PEO his company works with takes care of those tasks and nearly every other technical and legal human resource task as well.
Pahmer, who began using employee leasing in the early 1990s, has had a happy and profitable experience, but had he been dealing with a less reliable PEO, things might have turned out differently. The employee leasing industry has seen some spectacular flameouts, owing to everything from bad risks and poor management to outright fraud. When a PEO goes under, its client companies often discover that their payroll cash and insurance coverage also vanish. If you're considering a PEO, here are some criteria to help you decide if the one you're looking at -- or the one that's seeking your business -- is right for you.
Financial strength. Zero in on the company's economics. Demand to see audited financial statements, and have an accountant dissect them for you. Some PEOs, in rushing to lock up as many clients as possible, take on risky accounts that can undermine their financial stability. The soundest PEOs are selective in accepting new business.
Find out if your state licenses PEOs that meet certain standards. Also check with the Institute for the Accreditation of Professional Employer Organizations, in Little Rock, Ark. This self-regulating industry group has accredited only 21 or so PEOs to date, but it represents workers in 50 states. Find out more at the institute's Web site, www.iapeo.com.