How a PEO Helps Business Owners Reduce HR, Payroll, and Compliance Risk

Eileen Dewar Costello: Once upon a time, right, we rewind 15, 20 plus years ago, is that uh, most of the government regulations didn't impact businesses until they had about 50 employees. And then, you know, it went down to like 25 and then it's down to 5. And in many cases, many of the regulations impact a business owner. The moment you have one employee, I mean the moment a business has one employee, they have to have workers compensation insurance. They, they can't not. And then they also, under California law, they have to have either some sort of retirement account for their employees, they either have to enroll them in CalSaver, or they have to get a simple IRA, a SEP or 401K in place with just one employee. So you need, today's world is that, uh, business owners need to help from the very beginning. Honestly, it's just a matter of how much help that they need. And as they grow into five employees, there's more issues.

Sara Vaziri: I find when businesses grow fast, managing employees can become a real headache. Today's guest help us explore one solution many growing companies use to simplify hr, payroll compliance and employee management. Welcome to Business beyond you, the one stop hub for insights, conversations and perspectives. Business owners need to build businesses that last years beyond them. Hi, I'm Sara Vaziri M and a advisor in the state of California. And my guest today is Eileen Dewar Costello, who is a representative from Engage po, a company that helps businesses manage hr, payroll, employee benefits compliance and other workforce challenges so owners can focus more on growing their businesses. Eileen, welcome to Business beyond you.

Eileen Dewar Costello: Sarah, thank you so much for having me. I'm excited to be here.

Sara Vaziri: Thank you. Let's start from here. Why does employee management become so difficult as businesses grow?

Eileen Dewar Costello: Well, that's a complicated question. On one front we have, um, all the government regulations, the federal regulations, and even our more restrictive state of California regulations. And then on the other front is that we're employing people, humans, right, that come with all sorts of backgrounds and issues into the workplace. Some of them are great, some of them not so much. So there's just a plethora of challenges that happen.

Sara Vaziri: Okay. And owner, um, is dealing with all of these problems that how they can sell, how they can get new customers, where to buy, where to sell. So if a business grows more than a specific size, it usually will be a lot of headache. What is that usual size that owners are starting to think that maybe there is a problem. They cannot handle everything. Based on your experience, where do you see that problem?

Eileen Dewar Costello: Well, it's changing more and more. I'll say, you know, I started in HR back like 25 years ago to date myself a little bit here.

Sara Vaziri: Okay.

Eileen Dewar Costello: Um, and in once upon a time, right, if we rewind 15, 20 plus years ago, is that most of the government regulations didn't impact businesses until they had about 50 employees. And then, you know, it went down to like 25 and then it's down to 5. And in many cases, many of the regulations impact a business owner the moment you have one employee. I mean the moment a business has one employee, they have to have workers compensation insurance. They, they can't not. And then they also, under California law, they have to have either some sort of retirement account for their employees, they either have to enroll them in CalSaver or they have to get a simple IRA, a SEP or 401k in with just one employee. So today's world is that business owners need to help from the very beginning, honestly. And it's just a matter of how much help that they need. And as they grow into five employees, there's more issues. I find that somewhere between 10 and 20 employees, business owners have to have medical insurance benefits. You know, they, you don't have to, by law, you don't have to have them until you have 50 full time equivalents. But if you want to keep employees, you have to offer benefits, you know, at that point. And then somewhere in that range also 10 to 20 employees is where, um, the threat of litigation becomes much more, um, eminent for businesses that employees have grievances and they might file with government agencies even as simple as the EDD for unemployment claims, but even more dire situations. And at that point it's so important to have good legal HR counsel and also have EPLI insurance in place at that point. The employer practices liability insurance that covers for things like wrongful termination, discrimination, sexual harassment, those types of issues.

Sara Vaziri: M. Uh, if I'm a business owner, which I am, you know, just hearing them from you make me scared. I want to focus on my own business. I don't want to deal with all of this crazy stuff. Your company is a peo. What is a pe Or a lot of people don't even know that.

Eileen Dewar Costello: Yeah, no, um, it's not new really. Peo. We actually, the peo industry goes back into the 70s, um, though it was only, um, I want to say it was 2015. But I could be wrong on the exact year that we were very much legitimized by the IRS and there were certain regulations put into place that uh, now peos can be a certified PEO with The irs. And so what does a PEO mean? The term stands for professional employer organization. But like, that kind of is a meaningless term. Like what does that mean? So basically what we do is when we enter into a service agreement with a client, we enter into something known as co employment. So the client's employees are still their employees, but at the same time, the payroll taxes are filed under the PEO's Fein. So to the IRS, the PEO is the administrative employer of record, and the client is the work site employer of record. And the client retains the rights to hire and fire and train and direct at will. But how this benefits the client is a few different ways. One, um, the payroll taxes, for instance, is that if it is a certified PEO, a, uh, CPEO through the IRS, then we are 100% liable for the payroll taxes on the wages that we issue. So if there's any audits, fines, penalties on those payroll taxes, we are responsible for that. We take over that liability. We also help to mitigate the HR problems. Right? So these people problems, the compliance side of making sure that, um, everything is compliant with the government, but also the performance problems and the employee relations problems. One thing that sets my firm apart engage peo is that all of our HR consultants that work with our clients are licensed employment attorneys. And that is an exception in the industry. I believe all the other peos, to my knowledge, we're the only one that does it that way. The rest, it's an HR generalist of some sort that is supporting the business. Um, so we really help to shore up those liabilities and then peos, nearly all of them. But you always want to verify, um, do include the EPLI insurance in the relationship so that if it does get filed in court, a claim of something like wrongful termination, discrimination, sexual harassment gets filed in court. The EPLI insurance will cover the business owner at that point. Um, so that's one big area that we help. The next is with the health and welfare benefits. So things like the medical, dental, vision, life, that kind of thing. Is that because the PEO has a large number of employees under their fein in their pool, and in our case it's over 110,000 employees. We buy a large group master plan from the carriers and then, um, we get obviously bulk rates that way, essentially reduced pricing, they're richer plans. And we're able to provide that to our clients. So we're able to take small businesses Here in California, if a company has under 100 employees, they're in what's known as ACA small group and essentially you can go on the brokered market and you'll see the rates are, the rates are the rates that are basically the same rates regardless of what broker you go to. And they're also age banded meaning for the same plan. Let's just theorize it's like a Kaiser 1000 deductible plan. And we'll theorize because you know, I don't know the rates off the top of my head but they'll theorize that the rates for a 30 year old is like $400. Well if you're 31 it might be 402 and if you're 32 it might be 405 and so forth. And as the employees are older that same plan is more expensive. Whereas in the peo the plans that we offer are known as composite rates. So if the rate for that Kaiser 1000, let's theorize, was $400, every employee regardless of their age would get that same rate. So that's a huge business ah, benefit to the business owner that um, it's more predictable what the premiums are going to be for each employee as they hire in the course of the plan year. But also they don't have to feel like they're discriminating. They're not like well I'm going to have to hire that 30 year old as opposed to that 50 year old because the premium is going to be so high on the 50 year old I can't afford my contribution. Right. It's the same amount regardless of the age of the employees. And then you know we offer peos typically offer the full suite of ancillary benefits. So it's a bigger lineup than what most small business owners are able to offer. Things like critical illness and hospital and FSA and HSA and you know, there's more um, and so, and then another significant area is the workers comp insurance is each PEO does this a little bit different. So um, in the case of Engage and what a lot of them do, so it's, it's very common is that we run what's known as a high excess policy. So it's a big pooled policy again. And um, we have a deductible of a million dollars on each claim and so we pay the first million out of our pockets on each claim and then everything after that is handled by the carrier. So we have our own claims management teams and we are very diligent about closing claims. We're also very diligent about investigating claims if there is the belief that a claim is fraud, then we will investigate it. We do not want to accept that claim because part of our value proposition is that we typically are able on good risk. You know, that has few um, claims in their history. We're usually able to be less expensive than the market is, you know, um, and so everybody wants less expensive workers comp insurance. So we're very aggressive about that. Um, and then the other benefit with our workers comp policy is there's no audit at the end of the year. So the employer doesn't have to do that. Instead it's a true pay as you go policy that the exact amount of premium that's due um, on every payroll is paid that payroll. And there's no true up at the end of the year, which is awesome for the business owner and their predictability with their budgeting. Um, and then the last piece that we offer is a 401K. Our 401K is a multiple employer plan. So essentially it's a cookie cutter that there's a certain set of funds that are in the lineup. They can't be changed what the funds are. The employees can pick and choose which ones they're going to contribute to, but those funds are there. But the great thing for business owners is that the um, the. We're the fiduciary and we sign the 5500 so we take all the liability off of the business owner. So um, most um, peos do have um, a multiple employer plan, but some of them do the single employer plans also. So that's essentially like in a nutshell, we pair that with great technology. Right? That's the whole people management software with time and attendance, running payroll, employee record keeping, um, paperless onboarding is very standard for the industry as well as benefits enrollment being electronic also those are. So it's kind of a turnkey solution for a business owner to you know, solve all of these different human resources challenges, challenges, issues, um, products and have one invoice, one renewal as opposed to multiple vendors.

Sara Vaziri: M. So these are really important. I mean if I have a business, I have like 25 employees, um, then I need a lot of different people to take care of all of what you said. But this way I just deal with one entity and they take care of everything. I can have my own like uh, work procedures and all of those stuff, but everything related to compliance and all of the things that I need to follow for um, as far as the HR and related regulations, you guys take care of it completely. For me as a business owner Yeah,

Eileen Dewar Costello: I mean, within reason. I mean, we don't work on site in your business. Right. We're a remote service. Predominantly. There are cases where our HR consultants will go on site and do things like the mandatory sexual harassment prevention training that's required, you know, um, but, um, for the most part, you know, it's a virtual experience. And that we coach the business owners on how to handle issues and as well as their managers, by the way, as we will definitely train and interface with the managers as well.

Sara Vaziri: Okay. And if I have an internal HR person, you work with that person. And so all of the questions they have, everything they need, right.

Eileen Dewar Costello: Is that we really make that, ah, HR person a superstar. We provide them with all the resources. And again, in the case of Engage pef, the HR consultant that they're working with when they have questions about compliance or they're having problems with employees is an attorney that they get to consult with one on one. And there's no additional cost for that. We have a per employee per month charge that, you know, it's a fixed rate and um, there's no billable hour. So the HR can, the HR person in house, um, or the business owner or manager has no fears of picking up the phone. There's no giant bill that's going to all of a sudden appear because they spent a half an hour talking to the attorney.

Sara Vaziri: Okay, so give me an idea of the cost. All of these things that you said is amazing, but will I be bankrupt using you guys?

Eileen Dewar Costello: No, no, not at all. See, the reality is that, um, most of my clients save money. Is that, um, because, you know, the magic of the pooled buying, we typically save money on the medical insurance. You know, it depends. Every group is different. Each group has to be underwritten. Um, but you know, sometimes we say 5%, 10%, 20%, 30%. I've even, I've seen higher. You know, it depends upon the group. Um, that's a huge offset. The EPLI insurance is included in the relationship and business owners that have EPLI in today's market are very aware, depending upon the number of employees. I mean, um, I've never seen a policy for less than 5,000, but most of them are in the 15 to 25,000. I've even seen 45,000 range. And that's just an offset with Engage because it's included with the relationship. Um, the workers comp. Again, you know, sometimes we're a break even. Sometimes I can save 10% on that. On a white collar business, I have a, um, situation. An RFP that's going through underwriting right now that, you know, their workers comp is $150,000 a year. If we're able to save 10% on 150,000 DOL workers comp premium, that's $15,000 a year towards the service. Right. That we're providing. And the same with the 401k. I mean, I know you can't get a 401k for less than like 4500 a year. You know, that's just kind of how it is. And, and I've seen them as expensive as 45,000 a year in fees. So, you know, when we look at all this together, most of the clients save money. Those that do have to invest. I mean, if you didn't already have medical insurance, obviously it's a brand new cost for you. You know what I mean? Like, yeah, you have to, you know, suck it up. Know the 50% plus of premium for your employees. But those that don't, um, you know, that it is, uh, an investment is, it's usually pretty small, like 10 or $15,000 a year that they're paying beyond the way that they've been doing it. Um, but yeah, that's, that's a small fraction. That's maybe like 25% of the accounts. The rest of the accounts save money.

Sara Vaziri: Nice. So not only I don't need to pay more, but sometimes I can even save money. So tell me at what size, what size of the company? Let's say I start from one employee. I grew my business. Where does it make sense that they come to you and use your service?

Eileen Dewar Costello: Um, well, we start as, as small as five employees. Um, and, um, though most of the clients, you know, um, come in around 10 to 20 and then upwards of that, you know, once anybody has over 20 employees, is that this is the way you should go. Honestly, until you have at least 100 employees. And then many of our clients, because the HR consultants are attorneys, they stay on in the few hundred ranges. Um, but yeah, definitely by the time 20. But a lot of people are feeling a lot of employee growing pains between 10 and 20, you know, so it's different for every business.

Sara Vaziri: Um, Eileen, just because we are getting to the end of our conversation, um, tell our audience if they have a business, how they can reach out to you. And what would be that initial conversation? How do you, um, find out if you can be a good match for their service? What does that initial conversation look like?

Eileen Dewar Costello: Um, okay, well, how you can reach out to me first is, uh, it's Kind of weird to give my email address in a verbal, um, sort of way. But my email is a D E W A R at Engagement. My cell phone is also 714-393-2297. So you can reach out to me either way. Um, and then what, uh, was the second part of the question is that,

Sara Vaziri: uh, what would be the initial discussion? What kind of information you want from them to see if you are a good match?

Eileen Dewar Costello: Oh, yeah. So the first, you know, conversation that I have with most business owners or CFOs C suite people is um, a big needs ass assessment. Understanding how you're doing HR right now and all the different pieces of hr. Ah, what are the problems and challenges you're having so that I'm able to pair up the right solutions, you know, for you. Um, and then also I need to gather to be able to generate a proposal. I mean, everybody wants to know, so how much is this going to cost? Right?

Sara Vaziri: Yes.

Eileen Dewar Costello: To, to generate a proposal, there's a number of different documents that I have to collect from the business. I need some payroll information, basic information on the business, the ein addresses of locations, that kind of thing, um, as well as a copy of your workers comp deck page. Three years of loss runs if the business already has medical insurance. I need the medical invoice, the census of the employees, as well as the plan summaries, um, to be able to submit to underwriting to have a proposal generated.

Sara Vaziri: Okay, awesome. And we add your information under the video, so if anybody you needs, uh, your help, they can reach out to you. But I would like to thank you for joining us in this episode of Business beyond you. And I look forward to talking to you more in the future.

Eileen Dewar Costello: Great. Thanks so much for having me, Sarah.

Sara Vaziri: Sure. Have a great day.

Eileen Dewar Costello: You too.