Defending Against the PEO Threat

Transcription

Defending Against the PEO Threat
Defending your
business against the
PEO challenge
A broker’s roadmap to success, presented by expert John Kelly
This webinar is to be viewed only by the webinar invitees and may not be distributed or furnished to any third parties.
This presentation is for discussion purposes only.
© Ceridian Corporation. All rights reserved.
John Kelly
Director of Channels and Alliances
Ceridian U.S.
• More than 30 years of experience as a benefits consultant
• Served as a vice president at a national PEO
• Professional actuary
• Adjunct professor
• Author of articles and textbook chapters on benefits administration
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• Who is Ceridian?
• Are PEOs really a Threat?
• The PEO value proposition
– What services do PEOs offer?
– Why do employers choose PEOs?
– How do PEOs compete with brokers?
• What PEOs deliver
• Forming a strong defense against the PEO challenge
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Who is Ceridian?
Ceridian is an industry-leading provider of business
services ranging from HR/payroll to workforce
management.
Stored Value
Solutions:
Custom Gift Card
Services
• Payroll administrator since 1932
• Benefits administrator since 1986
• Nation’s largest COBRA administrator
• Partnering rather than competing with brokers for
more than 20 years
Our solutions help employers control costs, save time, optimize their
workforce, minimize risk and grow their business.
HR/Payroll &
Tax Services
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Workforce
Management
Benefits
Administration
Health &
Productivity
Solutions
Talent Acquisition
& Performance
Management
Comdata:
Transportation
& Payment
Processing
PEO overview and value proposition
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First, let’s take a poll…
Have you lost any clients to PEOs in the last
24 months?
 No
 I’ve lost one client to a PEO
 I’ve lost more than one client to PEOs
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What is a PEO?
• Professional Employer Organization
• Similar to “employee leasing” but uses a
“co-employment” model
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PEOs have recently been gaining traction
• PEOs have been in business for 30 years, but have been
growing recently as a result of increasingly complex human
resources and benefits laws.
• In 2010, the PEO industry grew a very robust 14% or $10
billion in a difficult economy, reporting $81 billion in gross
revenues.
• Today, approximately 700 PEOs are operating in all 50 states,
providing access to employee benefits for 2 million to 3 million
employees.
Source: NAPEO – National Association of PEOs
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PEO target: Small- to mid-sized companies
• The traditional sweet spot is the small market (10 to 100 EEs)
– Average client size: 40 employees
– 23% of businesses with less than 250 EEs currently use a PEO
– Nearly 80% of businesses using PEOs have less than one full-time
HR resource
• PEOs are moving into the mid-market (500 to 500 EEs)
– Common industries include: hotel chains, lawn care, restaurant chains,
retail, medical service providers (nursing homes, etc.)
– In situations with low employee density per location, lack of HR support
– Major PEOs now have a strategy to win larger engagements in the midmarket
Source: Aberdeen Study July 2011
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Popular PEO services: HR/Payroll
• Because of limited HR internal resources, small- and mediumsized businesses seek a single-source vendor for common
HR/payroll tasks:
– Payroll administration and tax services
– Risk management
– Recruiting
– Benefits administration
– Workers' compensation
• PEOs offer all of these services together as a “bundle”
• Average employer cost: $118 per employee per month (PEPM)
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• Some offer benefits directly as part of their solution
– ADP TotalSource, TriNet, Paychex, Insperity, etc.
• Others work with brokers
• Some focus on benefits as a core component of their value
proposition
• Others offer services for employers that do not offer benefits
• Why not work with a PEO that works through brokers?
– “Once you client moves to a PEO it is often hard to leave…except to
another PEO that may not be as broker-friendly!”
– You give up PRIMARY client relation to the PEO!
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• The largest PEOs provide benefits via direct relationships with carriers
– ADP TotalSource via Aetna, UHC, etc.
– Paychex Business Solutions via Aetna
– TriNet (purchased Gevity) via Aetna
– Insperity (formally known as Administaff)
via UHC
• Paychex is leveraging these relationships to move directly into the brokerage
area. If your customer is also a Paychex client, your business is at risk
– “A Paychex Inc. subsidiary has been named on Business Insurance magazine’s
2011 list of the Top 100 Brokers of U.S. Business.”*
– Paychex provides P&C as well as benefits insurance coverage inside or outside
PEOs. They have licensed agents and 94,000 clients.**
*Rochester Business Journal, July 20, 2011
**Paychex 2011 investor conference
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• “I think Administrative Services Outsourcing, particularly in the middle and
the low end of the market, is going to continue to explode. And I think we're
going to do a bang-up job selling health care insurance and Workers' Comp
into our base.”*
– Gary Butler, CEO ADP - January 26, 2011 (in response to a question from David
Grossman - Stifel, Nicolaus & Co., Inc)
• Percent Penetration of ADP Small Business Client Base**
– Workers’ Comp increased from 11.7% FY’08 to 18% FY’11 (YTD)
– Health Benefits increased from 0.5% FY’08 to 1.6% FY’11 (YTD)
– Penetration in health benefits has more than tripled in 3 years!
• “… the PEO benefits from about half of its sales coming from up-selling our
PEO solution to our existing payroll clients. We are able to create substantial
lead flow by leveraging the Small Business Services salesforce in addition to
the direct PEO sales organization.”***
*Automatic Data Processing's CEO Discusses Q2 2011 Results - Earnings Call Transcript
** ADP Financial Analyst Conference May 5, 2011
*** ADP Letter to shareholders September 26, 2008
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Solutions
Typical Broker
Health insurance
x
x
Worker’s compensation
Benefits enrollment and administration
Payroll and tax administration
HR technology/employee self-service
Termination processing
Retirement benefits – 401(k)
Employee training
(safety, sexual harassment, etc.)
PEO
Limited
plans & service
x
x
x
x
x
x
x
x
Compliance/legal services
Poll: The employer attraction to PEOs
Which is the most common reason
employers switch to a PEO?
 Control HR costs (eliminate need to
hire HR resource)
 Lower cost of health care benefits
 Offer quality HR service to aid
recruiting and retention
 Need to focus on core business
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Poll: The employer attraction to PEOs
Which is the most common reason
employers switch to a PEO?
 Control HR costs (eliminate need to
hire HR resource)
 Lower cost of health care benefits
 Offer quality HR service to aid
 Need to focus on core business
Source: Aberdeen Study, July 2011
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Why employers choose PEOs
Companies who currently work with a PEO cite the
following reasons for this decision (asked to select top 2)
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Client pain
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Gain promised by PEO
High cost of providing health care
benefits to employees
Lower insurance costs if bundled with
additional services
Need to focus on core business
Offer integration between multiple
systems to reduce administrative
burden
Need quality HR services to aid
Offer benefits typically found at big
companies (401k, EAPs, etc.)
Control HR costs
Take over HR duties to relieve staff of
administrative tasks
PEO sales strategy
• Use their vast network of current
payroll clients to “up-sell” PEO
services
• Attract strong sales professionals
with broad HR and benefits
knowledge and experience
• Actively seek companies that are
looking to enhance their HR and
payroll administration
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What PEOs deliver
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PEO agreements may contain hidden costs
• High administrative fees of $500 to
$1,800 per employee per year, in addition
to pass-through costs*
• Loss of tax breaks normally provided to
small employers**
– Become subject to laws that apply to large
employers
• Potential volatile insurance premiums
due to other high-risk clients in their
portfolio
• In some cases, significant annual price
increases or renewals above trend
* Average employer cost: $118 per employee per month (PEPM), Aberdeen Study, July 2011
** PEO are seeking clarification, Senate bill1908
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• “One size fits all” approach is inflexible and forces
clients to pay for services they may not need or use
• Often limited benefits options compared to the wide
variety available from a broker in the marketplace
• Loss of underwriting history, making it difficult to
procure separate group insurance later
• Potential loss of control of when and how to change
benefit plans, if the PEO change their benefit
offerings employers need to change plans offered to
their employees
• We will send all participants a “Defending
against PEOs” fact sheet that summarizes these
key points
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The PEO trap
PEOs create “stickiness,” or difficulty in leaving (Even if
service suffers or the cost increases)
• PEOs can charge steep termination fees
• Shopping for comparable services is complex, difficult and timeconsuming.
• All services must be replaced at the same time!
• Some benefits and services employees come to expect are
difficult to obtain outside a PEO (employee self-service, etc.)
• Loss of underwriting history makes it difficult to obtain insurance
outside a PEO
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Defending your business against the PEO challenge
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Recognize which clients are most vulnerable
A client is at a higher risk to switch to a PEO if:
• ADP or Paychex provides you client payroll or
HR/benefit services
• Your client is based in a PEO “hotspot state”
– CA, FL, OH, NY, MA, CO, GA, TX, MI, IL, MO, WI
• Your client has a high average salary
• Your client is a professional service firm (accountants,
doctors, lawyers)
• Your client wants to change insurance carriers
(especially to Aetna, UHC, Humana) or payroll vendor
• Your client is under new leadership (especially in
finance or HR)
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• PEOs can’t save money in medical insurance by
increasing their pool size; they reduce rates by
lowering or eliminating commissions or by
providing administrative efficiencies for carriers.
• They also have higher administration fees and
less flexibility
– PEOs must provide benefits via a fully insured insurance
arrangement (self-funding is not a option)
– Most PEOs providing benefits do not allow for medical
carve-outs
• As employers grow and evolve, a broker can offer
the flexibility, stability and quality service
they need
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Neutralize the threat
The best defense is a good offense.
• PEOs bundle a variety of services
– Clients pay for services regardless of
whether they actually use them
– May not provide itemized invoices,
placing burden on the client to figure
out how much they pay for each
service
• Partner with an HR/Payroll company that enables you to offer
similar services as a PEO, but allows you and your clients to
maintain control and flexibility
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• Two of the top three payroll providers compete against you!
• If ADP or Paychex is you client’s payroll vendor, you already
have a “fox in the henhouse”
• If a client is looking for a new payroll vendor your relationship
could be in jeopardy
• Proactively work with you clients to understand their HR,
Payroll and benefits administration concerns
• Loss of HR leader or spike in HR activity could pre a prelude to
a PEO entry
• You need to be more strategic! Expand your benefits
knowledge to also include HR
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• Small employers approached by a PEO can discover that the
initial benefits cost savings soon disappear due to fees and
aggressive price increases
• PEOs cannot offer the same level of choice and personalized
service available through benefits brokers
• Your clients are increasingly interested in a single-source
vendor for HR/payroll services
• You need a proactive partnership with a company that offers
your clients and prospects many of the PEO advantages,
without the one-size-fits-all and co-employment drawbacks
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Questions?
Contact Information
John G. Kelly, CEBS
Director, Strategic Partnerships
Email: [email protected]
Office: (786) 463-4644
Fax: (305) 675-2763
Mobile: (305) 710-3742
LInkedIn Profile:
http://www.linkedin.com/profile/view?id=1
891544&locale=en_US&trk=tab_pro
Connect with me on LinkedIn!
Connect with us:
@Ceridian_us
www.facebook.com/CeridianCorp
www.linkedin.com/company/ceridian

Defending Against the PEO Threat

Transcription

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