How to cut costs with employee leasing

Folio: The Magazine for Magazine Management, March 15, 1996 by Alex Morton

The burden of managing employee-related affairs in the face of sharply increasing costs and the mounting tide of government regulation forced publisher Alex Morton to revisit 30-year-old International's approach to its human-resources responsibilities. The company, with a permanent staff of 15, publishes trade titles Airline, Ship & Catering Onboard Services, Healthcare Foodservice and Correctional Foodservice, as well as several directories and a regional magazine. By transferring human-resources management to a specialized agency in January 1995, Morton reduced administrative costs and provided better health and retirement benefits, without giving up operational control. Here is how he did it. --Suzanne Zelkowitz, contributing editor

Employee leasing has finally gotten me out of the insurance business and allowed me to concentrate on my core business: publishing.

For years, I was constantly shopping for affordable health insurance for myself and my small group of employees, as well as trying to operate and fund a pension program that was being swamped by more, and ever-changing, government regulations. Then I learned about a co-employment situation that would let me manage the day-to-day business while a professional employer agency would be the employer for benefits.

I agreed to transfer my in-house, permanent employees to Vincam Human Resources for the following reasons: Excluding healthcare and retirement, I had been paying 16.5 percent of every employee dollar for workers' compensation, unemployment comp and other payroll deductions. Vincam charges me only 13 percent, a saving of 3.5 percentage points. Of course, fees are on a company-by-company basis.

Next, they offered healthcare at about half of what I had been paying, saving me about $10,000. I made a commitment to pay $50 per employee for a cafeteria plan with options ranging from simple dental or vision care, to low-end HMOs, to traditional high-end indemnity health plans. (Staffers themselves make up premium differences.)

Another benefit is the 401(k) program. The mandatory minimum contribution I must make is 0.5 percent of payroll for each staffer. Each employee also has the option of contributing up to a maximum 15 percent of his or her annual salary. Under this program, employees become fully vested after six years; but if someone leaves the company earlier, funds that I have contributed that are not vested are used to offset my future contributions.

My staffers are no longer my employees, but I still control salaries and pay schedules. Time-wise, I've saved 30 bookkeeping hours per week. We have an automatic clearinghouse arrangement: My bank automatically transfers the payroll to Vincam's bank.

In addition, Vincam, like most professional employer organizations, does not operate like a temp agency with a free-floating pool, so I get to do my own hiring. In my state, Florida, Vincam is obliged to test my candidate for drugs; as a service, the company runs background checks for me. If I am dissatisfied with an employee, I can have Vincam remove the person, but It's up to them to decide whether to fire or outplace that person.

I see this as a trend for the future. But before you make a switch, it's important to meet with your employees so that they understand exactly why such a move would help them as well as the company.

You should also get bids from as many employee-leasing companies as possible, but don't necessarily pick the lowest: It's very important to research a company's reputation, as well as fees and services offered, because only 13 states currently require full licensing and accreditation, while three others have provisions that require only that firms register as employee-leasing agencies.

The Arlington, Virginia-based National Association of Professional Employer Organizations (703-524-3636) can provide you with information on agencies in your area. NAPEO has set up the Institution for the Accreditation of Professional Employer Organizations (IAPEO), an agency that submits quarterly audit statements proving that all payroll taxes are being paid.

But because employee leasing is still in the take-off stage, it's wise to be your own watchdog and check a variety of additional sources, such as the Better Business Bureau and states' consumer protection agencies, as well as to secure references from client companies so that you end up as satisfied with your employee-leasing company as my staff and I are.