PEO Insider

Each of our new board members recently spoke with PEO Insider ® to share more about themselves and why they wanted to serve.

Arizona-based Vensure Employer Services emerged as a major presence in the PEO industry in just the last few years. Industry insiders know the company for its aggressive pursuit of merger and acquisition (M&A) deals with other PEOs, but few know the story behind the company and the man who leads it: Alex Campos.

Alex is a serial entrepreneur and trained computer programmer who has started and sold several businesses in the technology space. He’s an experienced and successful business leader who runs a company that processes nearly $20 billion in payroll annually. Yet, Alex’s journey to the C-suite may best be described simply as the pursuit of the American Dream.

Among the biggest landmines for PEOs is the misclassification of co-employees. This has become increasingly pressing as the Biden administration focuses heavily on the misclassification of exempt employees, as well as the misclassification of independent contractors. This article discusses common pitfalls of classification, best practices to minimize PEO liability when misclassification occurs, and how to navigate issues when they arise.

PEOs are in the business of offering robust human resources services to their customers and off-loading the responsibilities involved to a team of professionals who know how to manage employee information safely. Customers need help to make sure they keep sensitive information safe and secure. To address the legal obligations companies have when handling employee information, PEOs evaluate the information they handle and the legal obligations regarding data security imposed for handling such information, making sure they introduce cybersecurity measures early and reinforce them often.

NAPEO’s Regulatory Database (RDB) is at the very core of the NAPEO value proposition and is positioned to become even more so with the increased prevalence of remote work. Since the pandemic accelerated the disruption of traditional office life, NAPEO has begun receiving panicked questions from regional PEOs facing a common, recurring issue: a client employer has a remote-work employee in a state where the PEO is not licensed. If your PEO faces a similar issue, your first stop should likely be the RDB, followed closely by a frank conversation with your compliance advisor.

Prior to our workplace upheaval in 2020, work life had been a pretty predictable formula for many businesses. We did things the way we always had—the way society had taught us to look at work because there was simply no outside pressure to force us to change our perspective. As much negativity as is associated with the pandemic, I would suggest that it has had a positive, clarifying effect on the business mindset by challenging false assumptions about work productivity. My favorite business book, “businessThink” by Dave Marcum and Steve Smith, says “A solution is worthless unless and until it creates business value,” and I think we had allowed our focus to be locked in on business norms instead of business value. 

Buying another PEO is an expensive and time-consuming proposition. It can also be disruptive to both the buyer and the seller, and to their employees and clients. It’s imperative that both sides do their due diligence, make sure there is a fit beyond the economics of the deal, and that the post transaction integration is completed with minimal hiccups.

Nothing says “Autumn” like falling leaves, pumpkin spice, and the October PEO Marketing Push! 

This is the time when the industry bands together in an all-hands-on-deck marketing effort to raise the profile of our industry and move the needle on industry awareness and visibility. 

It’s our belief that if we all commit to marketing for the month, we will make a difference and we will grow the industry. The idea is for everyone to do somethingthis month. If you want to do a few somethings, all the better. 

In some respects, these are the best of times and the worst of times, as the economy transitions from total shutdown to hyperdrive in a matter of months. The dramatic closings from COVID threatened the economy not just here in the U.S., but essentially threw all traditional economic measures to their farthest historical extreme globally. Government, in an unprecedented way, stepped in to bring relief to what it perceived as a shuttered economy by introducing two extreme measures in the form of fiscal stimulus (government spending into the trillions of dollars) and monetary stimulus (0 percent interest rates). 

One of the things we have learned from this pandemic is how fast things can change. While many people want to return to normal overnight, we can’t be sure that society knows what post-COVID normal will look like. 

Many trends in our economy and society were accelerated during the pandemic; while COVID didn’t start e-commerce, it made everyone (including your great aunt) a lot more comfortable getting everything delivered to their doors, video chatting with the doctor, and partaking in virtual birthday parties. 

PEO Insider® published my article, “Key Data Privacy and Security Issues for PEOs,” in its May 2010 issue. That article discussed data security best practices such as risk assessments, vendor management protocols, and developing incident response plans, all of which were important then and continue to be critically important today. Since then, there have been many data privacy and cybersecurity developments and trends that are important to consider to continually inform a PEO’s policies, procedures, and practices. 

Employees and others around the country are filing legal claims related to COVID. It is a feeding frenzy. Insurance markets are stressed and PEO risk managers have full plates managing and mitigating claims. The future is uncertain; however, we have sufficient data to paint a decent picture of where we are today and attempt some predictions. 

2020 will forever be remembered as the year that defined a decade of progressive and innovative employer benefits strategies. This pandemic is one of the most significant global threats to financial stability that many will see in their lifetimes. In Mercer’s COVID Employer Response Survey, 85 percent of respondents estimated that the pandemic would have a moderate to high impact on overall financial performance for 2020. What 2021 holds is still not clear. The COVID pandemic greatly accelerated forces that were already pressuring employers to reinvent their health and benefits programs. 

Before starting Pacific HR, I was a systems analyst for a large defense contractor. In college, I studied computer science and added a minor in business administration. I was convinced that a successful career as a systems analyst was my calling. It didn’t take long to learn that programming was not my passion. Before long, I knew I needed to make a change—little did I know how big that change was going to be. 

With the continued threat of COVID and the introduction of the Biden administration into the White House, employers will face a new series of hurdles concerning workplace safety and labor relations in 2021. 

The early hours of COVID-19 were extremely challenging: the uncertainty was terrifying, the rhetoric was schizophrenic, and the legislation was half-baked. But our industry faced those challenges with banners raised and swords drawn. The good news is that, over the past few weeks, we are seeing fewer COVID-19-specific questions and more of the business-as-usual existential crises. Let’s take stock of what we accomplished, what we are currently facing, and what we are likely to face going forward.

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. 

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.

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.

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. 

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.

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.

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.  

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.

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.

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.

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?

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.

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.

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.

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 www.napeo.org/peo-resources/resources-by-topic/regulations-and-compliance.

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 21^st Century: A Call to IRP Action
• California’s New Sweeping Data Privacy Law: What PEOs Need to Know

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, www.napeo.org/fraudalert. This resource includes: a document outlining steps you can take to protect your PEO; an email to report fraud incidents to NAPEO (ffielder@napeo.org); a link to the FBI’s Internet Crimes Complaint Center (www.ic3.gov); 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 www.napeo.org/peo-resources/tools/webinars 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.

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.

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.

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

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.

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.

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

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.

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.

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.

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’!