Episode 26: Aspirin for Your HR Headaches: Understanding the PEO Model
Episode Summary
For business owners who say that running their business has become less fun, Human Resources often tops the list of things they wish they didn’t have to deal with. So…what if you didn’t? On today’s episode we talk with Naydu Brandenburg and Erik Wayton of TriNet about the PEO model and how it can be the aspirin for your HR headaches.
The white paper mentioned in the episode from the National Association of Professional Employer Organizations can be found here.
Episode Transcript
Stephanie Chambliss Gaffin: 0:00
Whenever I talk with business owners who say that running their business has become less, well, fun, human resources often tops the list of things they wish they didn't have to deal with. So, what if you didn't? On today's episode, we talked with Naydu Brandenburg and Eric Wheaton of TriNet, about the professional employer organization or PEO model, and how it can be the aspirin for your HR headaches. Welcome to Right in the Middle Market, a podcast about pragmatic perspectives on running, growing and selling your business. We talk about the challenges, decisions and most importantly, the actions business owners can take to create long term value in their companies. Welcome to Right in the Middle Market. I'm Stephanie Chambliss Gaffin and today I am so excited that I have not one but two guests with me from TriNet. We have Naydu Brandenburg, who is a Consultant with TriNet and Eric Wheaton, who is a Managing Director. Many of our listeners as middle market business owners struggle with human resources. It is, when I talk to business owners about the things that are so tough for them, that are confusing, that take up their time and that pull them away from what they really want to be focusing on. Very often, HR comes up near the top of the list. There is a really interesting entity out there called a PEO. And I'm so excited to be able to talk to Naydu and Eric today, to help us learn a little bit more about, what is a PEO? How do they work? And what are some of the benefits of being able to work with a PEO? So Naydu, I'd love for you to be able to kick us off. And first of all, welcome. We're delighted to have you here on the podcast.
Naydu Brandenburg: 1:47
Thank you so much for having me. This was something exciting that I was very much looking forward to. So here we are. Thank you.
Stephanie Chambliss Gaffin: 1:55
Yeah. And Eric, glad to have you as well.
Erik Wayton: 1:57
Yeah, my pleasure. Thank you again, Stephanie, for having us.
Stephanie Chambliss Gaffin: 2:00
So to kick us off today. Eric, I'd love for you to, can we just start by, we always like to say we want to level set with our listeners, who have varying degrees of expertise, help us understand. What does PEO stand for? What is a PEO and how did they even come about in the market?
Erik Wayton: 2:17
Yeah, you know, great question. Even though the concept of a PEO has been around for 30 years, there's a lot of people that just don't know what it is, you know, so it, it does stand for a professional employer organization. And what that really means is, is that it's has to do with co-employment, I think that's the best way to kind of describe it. We become a co-employer as a PEO with the clients that we work with. And this is actually something that the IRS actually recognizes as a legal construct. But by doing that, we are not going to disrupt the relationship that a client has with their employees. They're still what we call a worksite employer. They still decide who do I hire, who do I fire, how do I manage them, what's all this policies and things that I do there? But what TriNet does or a PEO does, is that we actually then become an administrative employer. And so that administrative employer brings things like big company benefits to the table. They take care of the responsibilities for payroll. They take on a lot of the risk issues, might it be with, you know, employment litigation issues, or workers comp or unemployment. But by doing that, their duties as a PEO are very regulated down to just that. We're not there to interfere with that culture and that relationship that's already set up. We're there to really kind of enhance what's already in place and allow that business to focus more on what they do within their business.
Stephanie Chambliss Gaffin: 3:47
Okay, so I've got to say that sounds really appealing. I'm a brass tacks kind of a girl. So Naydu, on a day to day basis, what does that look like to the employer and to the employee?
Naydu Brandenburg: 3:59
Fantastic question. I love that question because it impacts, you know, bottom line, people. And so the nuts and bolts of what a PEO does for small to midsize organizations, is essentially just being able to outsource HR functions, like Eric alluded to. With the payroll, with the benefits function. And also leveraging from a service standpoint, the resources again, from a human capital standpoint, so coming to us as your professional organization in being able to outsource the HR tasks, that otherwise you have either a VP of finance or a CFO or somebody else within a role and different capacities doing multiple tasks for the organization. And so in those instances, it's a good construct to have that partnership to leverage those HR resources and expertise that TriNet or PEO for that matter would be able to offer. And still be able to, you know, have the liberty to do business as usual, when it comes to hiring terminating, what salaries and anything else you want to do to create the culture that you're aiming for. Then leveraging us for your HR experts to help guide you.
Stephanie Chambliss Gaffin: 5:08
Okay, so it sounds like that manager/ employee relationship stays intact with, what I might call, the operating organization, but then a lot of kind of the behind the scenes is in what a PEO can take over.
Naydu Brandenburg: 5:21
Exactly.
Stephanie Chambliss Gaffin: 5:23
So, give me a sense, is this kind of a, is there a predominant model in the industry about this is how it works. Are there are a variety of options of the different kinds of services that may come in for a PEO? Eric, what does that usually look like?
Erik Wayton: 5:40
There are many choices that people can make on that, some of those different choices could be that maybe they want to keep, like their retirement intact of what they've already set up for that. So a lot of times, that could be an optional choice on that. There are some instances, Stephanie, where maybe the medical that they're using is specialized, or that they want to keep that type of operation in place. So we call that a "carve out" to where that type of thing could be carved out, and still allow the other constructs of risk mitigation, of HR expertise and support for their employees to still be in place. So, you know, the industry tries to be flexible in that sense. And, and really just try to focus on you know, what a PEO does good, which is obviously HR and really allow them to focus more on their business, and what's important to them. And so many times, I mean, we see that, the business has great smart people. Maybe they're scientists, maybe they're inventors, maybe they're, you know, coders or whatever, but they may not necessarily be HR experts. And a lot of times, like I said, that's that expertise, I think is missing. And they just need a good advisor, or somebody that's just giving them guidance, and helping them along that path to ensure that they can have that business continuity.
Stephanie Chambliss Gaffin: 6:59
So in a tactical sense, what are some of the specific services? I've heard you talk about health care. Naydu, what are some of the other services that a PEO can take over?
Naydu Brandenburg: 7:11
Yeah, great question. So some of those would entail economies of scale, leveraging that partnership to access economies of scale, or gain the benefit of economies of scale to purchase the benefits, as you mentioned, but more importantly, also, resources that are unique and specific, again, HR related, right? With the COVID situation, there's a lot of nuances that have happened and HR laws that have gone into effect, and tweaks that have happened within that HR world. So having a partner to help you navigate and guide you through all those nuances is exactly how you would leverage a relationship with a professional employer organization, to help you mitigate a lot of the risks that could come from not following or not being aware, simply, you know, of what those HR guidelines now are. So nuances like that, we have the ability to deploy, again, those resources in that construct in that relationship, to help our clients.
Stephanie Chambliss Gaffin: 8:06
Okay, so what you're saying is then, a resource around and I know, when I work with companies from a consulting perspective, and sometimes they're in the unfortunate situation of needing to eliminate positions, or dealing with a tough HR issue. And I know that I'm always the first one to say, you got to make sure you talk to your HR folks to make sure that you're abiding by all the appropriate rules and regulations. So it sounds like that that's another area where the PEO can be a resource.
Naydu Brandenburg: 8:33
Very much so. Very much so.
Stephanie Chambliss Gaffin: 8:37
Okay, so we've got the medical benefits, we've got, you know, kind of that resource around policies and procedures and legal aspect. Eric, what other pieces, when you think about the range of services available?
Erik Wayton: 8:50
Yeah, you know what, I tend to look at it and as what stage is a company in. Is it an early company that may be focused on, you know, attracting talent. So, as you know, Stephanie, it's a very competitive market out there and, you know, how do I look maybe as a new employer? And do I have the ability to attract the type of top talent that I need or retain that type of talent, so very important in the marketplace, because obviously, that's what gets things done. As I'm trying to grow my firm, though, you know, you get more focus on operations and margins and best practices. So that's another type of area with that type of expertise that a PEO has. They've been through that too, they've seen companies go from, start up to, established type of companies, and the growth of, you know, up to hundreds of employees, perhaps. It might be also for their businesses, they start expanding. They might expand into multiple states that they haven't been in to. So, you know, what are the nuances now of going into New York or California or other places like that, and what type of burden would have put upon them? Then lastly, I think, Stephanie is is that maybe as I'm looking at, you know, selling off my company and looking at how can this possibly help me for that? We find that it can be very attractive for companies who are underneath the confines of a PEO that that signifies to the bottom. I don't have to worry about any of that type of supposed typical litigation issues or wrongful termination type of things or things like that I might be inheriting. Because you know, that shared risk model is there. So it can tend to assist them when that due diligence process, when it comes to their exits, or maybe a potential merger.
Stephanie Chambliss Gaffin: 10:41
Eric, in that description. I love how you just tied into what we are all about here at Right in the Middle Market, that we are all about running, growing and selling your middle market company. And so that was perfect. I think that helped us understand how this can be helpful in each one of those phases. Okay, so I'm a middle market business owner, I'm listening, and I'm like, "Alright, I'm kind of intrigued." How do you see business owners think through? What are some of the different right models, or some of the different models that are out there for a PEO and what is the right model for their organization?
Erik Wayton: 11:14
Why don't we look at it from a standpoint of like, what are the main options out there? So, you know, if you remember the game show of like, what's behind door number one, two, or three? Door number one is really an internal type of model that we see where middle market companies will want to kind of build an infrastructure, not only do they want to hire the right type of people, maybe within HR, within benefits, within payroll, but there may be also want to just have internal expertise on software, and try to do everything themselves. Then there's the other door where we call it more of a multi vendor model. And I think this is probably the most common one that we see in this space here, where they go out to find a provider for payroll, a provider for their benefits through a broker. Another broker maybe for, you know, for their general liability, and workers comp. Another broker, maybe for their retirement options. Maybe a consultant here for HR or legal advice over here. And it just becomes like six or seven different type of vendors that they might be looking to try to bring together for the benefit of providing what's needed for their employees. And then of course, the third option is what we've been talking about, it would be, you know, a PEO, that tends to manage all those aspects together, it really be that one back to pad, or throat to choke, however you like to look at that, you know, that that a customer can actually hold somebody accountable to.
Stephanie Chambliss Gaffin: 12:45
Let me just ask a clarifying question around the multi vendor. So are you saying that a PEO or a company like TriNet or somebody else who does kind of the same thing that you do, are they helping to identify those different vendors, or they become one of those vendors.
Erik Wayton: 13:00
We really become one of those vendors for them. Because we want to take the complexity out of- every time you input a new vendor into the concept there, you can potentially have integration issues, you can potentially have visibility issues with reporting. What type of processes is also putting their employees through maybe that might have to have multiple systems or, or things to be able to go through? So, we're trying to take the complexity out of a multi vendor type of environment, and still be able to provide that with with the best practices that a PEO has in place, to be able to make it easier for that business to be able to run and grow.
Stephanie Chambliss Gaffin: 13:44
Naydu, I know when we were talking just a little bit before the call, you were sharing that you're seeing a lot of inbound interest right now in folks wanting to explore the PEO type model. And I think it'd be great if you could share just what are some of those reasons that you find somebody saying, "Okay, there's got to be a different way." What are some of the things that seem to motivate folks or drive folks to want to explore a PEO option?
Naydu Brandenburg: 14:09
Yeah, terrific question. And what we've been seeing lately, is change in personnel is one of the biggest things that is happening. Someone leaving and therefore also teams that are growing by way of acquisition, or organically for that matter. So while this whole COVID situation, it varies, you know, per firm. It's a combination of those two things. And then the third item that I have been noticing lately is also changes in their medical offering. So in having more open ability to hire outside of your own state and consider someone in a different state that you might be reciting, because now there's no boundaries being that most of us are working from home. The idea that you know, the benefit package that you had in place worked wonderfully, but now that you have a group of one, or two or 10, in another state, right? those complexities come into play where now you no longer can compete adequately for the talent in which you're trying to acquire that happens to be in New York, for example. So those are the things that we've been seeing recently with, you know, some of the changes in the appetite, if you will, to look at and consider what other options exists for my firm? And the way that we've done business has been this particular way, but is there a different way?
Stephanie Chambliss Gaffin: 15:36
Right. And I think that's one of the, I've got to think that part of it is when you start to look at, how much time are we spending? I know, one of the things that we work with companies a lot on is how do you build that infrastructure? Right? So you're getting ready to grow. I was actually just talking to somebody about this yesterday about, you're looking to grow, how do you make sure that you're building the infrastructure along with you? Because otherwise, you run the risk of collapsing under your own weight, it becomes a significant drain on the owners as they're trying to keep the energy up and be able to have that kind of infrastructure that they need for for growth. Eric, do you see that?
Erik Wayton: 16:17
You know what, we do see that and I think, as Naydu was saying something to kind of piggyback onto that, and to your comments about infrastructure. One of the things that we've seen throughout 2020, and the pandemic has produced, is that, you know what, this has really brought to light, some of the weaknesses that people might have in some of their current processes. We've all had to make shifts and adjustments to where and how we operate. So there's been an awareness of that. And I think, as Naydu was saying, this has brought on a lot of interest, because they know that I can't ignore the importance of my employees and my people. And if I'm not investing in my people, and I'm not making this easy for them, they're not going to be there to make my widgets, to serve my customers, or to allow me to continue to grow my business. So, you know, that has really sparked a lot of it. But having that platform, or that infrastructure that you talked about, really allows an infinite ability to scale. You know, we've had several clients that have come to us because maybe they brought two or three companies together to form a new co, kind of like a holding company, as a roll ups type of strategy. And they wanted to be able to have this to where it made each additional acquisition so much easier for them. And when you do have that HR infrastructure in place, that really does allow you to kind of almost accelerate that type of of acquisition approach that you can actually bring on.
Stephanie Chambliss Gaffin: 17:42
Very early in my career, I was part of a health system in the Midwest, and they were going through a series of mergers in relatively rapid succession. And I remember again, this was very early in my career, and I naively thought that the strategic questions would be the biggest stumbling blocks. And I'm not convinced that it wasn't actually trying to figure out how do we reconcile all of the different HR systems among these different hospitals that were now coming together into a single system. And you know, it's something that all these years later I remember very vividly, as just a painful set of negotiations. And so, I know exactly what you're talking about. And again, if you know, as we think about both organic and inorganic growth for organizations, the last thing that you want is to be diverting your focus and your attention to, you know, I need to figure out how to bring these systems together, or how do I make sure that we have the right kind of benefits to be able to attract folks? And I think that leads us to, you know, as we think about this, what is really the return on using a PEO, and I'm going to ask you that question right after we come back from this break. Right in the Middle Market is brought to you by SLS Capital Advisors. SLS Capital Advisors is a boutique financial advisory firm working directly with middle market leadership to tackle critical growth opportunities, including exits, mergers and acquisitions and access to capital. The principles of SLS Capital Advisors bring deep industry financial and consulting experience to firms seeking tailored, strategic opportunities, including capital for major growth initiatives and alternatives for those evaluating corporate transitions and exits. SLS Capital Advisors services include managing effective exits and sales processes, involving sophisticated buyers such as strategic purchasers, financial buyers and operator to operator transactions, and raising capital to fund our clients growth including debt and equity elements. They also assist companies and capture growth opportunities through focused and effective organic growth and M&A programs and unlocking profit potential through business portfolio, rationalization and divestiture. SLS Capital Advisors, focused on delivering consultative executions for clients seeking strategic growth and capital. Find us at SLScapitaladvisors.com to learn more about how we can help you. Welcome back. We are here today with two fantastic individuals from TriNet, Naydu Brandenburg and Eric Wheaton, and we were just talking about some of the benefits that are available of having something like a PEO to support the growth of the organization. Which obviously here at Right in the Middle Market, we are all about supporting growth of organizations. And so, how do you think about and, Eric or Naydu, let me know who wants to jump in on this first. How do you think about actually, is there an ROI [Return on Investment] to using a PEO? How do you think about the benefits in actually the the financial aspect?
Naydu Brandenburg: 20:48
Yeah, great. So a lot of the ways that we approach, you know, the conversation with some of our clients in this particular space is, planting the seed, the notion that you should leverage HR as a strategy, versus a reaction to something that happened or could happen. So in doing so, there's absolutely an ROI. And I would highly recommend that people that are listening to this, also do their due diligence, just like with anything else that they do. And there is a National Association of Professional Employer Organization that bets out, you know, the players in the industry, and more importantly, they provide you with really good resources that can further explain the construct that we were alluding to earlier in that co-employment relationship and what does that mean. More importantly, there's also studies that that group has done, the association has done, where talks about the ROI specifically, as you mentioned. There's something to be said about, not just from a financial standpoint, but also from again, going back to that strategy, and leveraging HR as a strategy, in being able to completely streamline the entire process, from the time that you put up a job opening, to the time that you bring an employee on board, and having all those functions in between those two time periods, completely integrated with one another. So the ROI there just in the time that it would take to post a job, go through the recruiting process, and then bring that individual on board, that in itself, could be very, very helpful in minimizing and reaping the benefits that go along with the ROI and the percentages that you see overall, in you know, eliminating the extra steps involved in having things, not communicating with one another. So that strategy, again, is helpful in assuming and realizing a true ROI.
Stephanie Chambliss Gaffin: 22:55
So two things that I want to pick up on what you just said and then Eric, I'd love to get your thoughts on this point as well. Number one, I love that concept about being intentional with strategic choices, I think that it's something we talk about a lot here, of if you don't know where you're going, if you don't know what you're trying to achieve, then it becomes very hard to make decisions, and to have the right criteria by which making decisions. The second thing is talking about the National Association, and we actually, just on a couple of episodes ago, when we were talking with Amanda Wood of Becker, we're talking about how valuable those associations that you belong to are. So we'll be sure to post a link to the association that you mentioned in the in the show notes so that folks can find that and can have access to that resource as well. Eric, how do you think about ROI? What would you add to this?
Erik Wayton: 23:47
You know, I think Stephanie, that you have to look at it that a lot of the thousands of these type of analysis is that our teams have done over the years, you know, what you don't know is what you don't know. So we encourage people to explore all of their cost and look at this really more from a holistic approach. What is it that I'm really spending on everything HR related that it takes to support all of my employees? And it's not just a matter of just a line item of maybe what am I spending for payroll or what am I spending for benefits or whatever, but as Naydu was saying, there's a lot of other aspects on that. So we always encourage people that, "Hey, if you're going to look at options, why not look at all your options?" Because it does one of two things. One, it allows, that one, this may be a model for you, and it may not be and we're okay either way if for something like that, but also secondarily, it also is a good validation, to really look at to say, ?What am I doing and is the value that I'm paying for this, am I actually getting that type of value." So, I almost look at it like as a as an HR benchmark or checkup. Because you know, HR sometimes is not one of those areas that you're always looking at, you know, you're looking at your sales strategy, you're looking at your operation strategy, your profitability strategy, but yet we need people to run our companies and sometimes this is an overlooked area.
Stephanie Chambliss Gaffin: 25:14
Go back to that point about that a PEO may not be the right model for you. Give me an example of a company that maybe this was not the right fit for them.
Erik Wayton: 25:24
Yeah, we see that sometimes where maybe based upon- one thing that the type of industry that they're in, so because a PEO has thousands of customers that they maintain that type of service for, they have to be cognizant to make sure that, is this the right type of client that we really want to be able to bring on, does this support, you know, our efforts to make sure that this is a good business for us. But also we want to protect all the clients that a PEO has, to ensure that we can provide that consistency when it comes to year over year types of costs, renewals and things like that, that they can budget for more accurately. So, you know, we tend to stay away from certain types of industries that might be, you know, dangerous or high risk, or maybe in questionable spaces of how would you say it, you know, ethics or whatever. But, yeah, so that would be the main type of thing, it also could just depend on maybe some of their strategy and where they're going on direction, or some of the choices that they may make about healthcare, or technology. It just really kind of depends on that. But again, a lot of times we see as this more of an education type of area, to really see if this makes sense for them or not.
Naydu Brandenburg: 26:48
And something else that I wanted to add to that note, Stephanie, is the fact that you know, a client that wouldn't be necessarily a good fit would be, in my opinion, the ones that would be at a disadvantage if they want a need and, you know, their vision is to have that flexibility. Like we were talking about earlier, with the multi-vendor approach, you have a lot more flexibility in being able to choose who you want to partner with for payroll, who do you want to partner with for your 401k benefit, and things of that nature. A lot of times, what we've seen is that there are partnerships that exists, whether it's a client or some other type of construct with the partnership, where those things are very tight to the client and saying, I have to work with this 401k provider due to this partnership and things of that nature, or we have to work with this medical provider, carrier rather, because of this particular relationship. So the flexibilities that you need in that, you know, stands is is where the PEO wouldn't be necessarily a good fit for a client that has those particular needs.
Stephanie Chambliss Gaffin: 27:54
Yeah, that's a great point. As we come here to the conclusion, you know, that we always at the end, ask for two pragmatic tips. So before we get to that, I'm gonna ask for one from each of you. But I think for anybody who's listening to this, and is starting to think about, "Gosh, maybe I should explore a PEO." What would be your top couple of things that they should look for, in terms of how you would evaluate a PEO? What are some of the most important questions to ask of a potential PEO? And Naydu, lets start with you and then Eric, I'd love to get your thoughts on this as well.
Naydu Brandenburg: 28:36
Hands down for me, I would always always always say do your due diligence, you know, look for references, make sure that the provider that you're looking into is absolutely in good standing, again, referring back to the National Association of PEO's. So in doing your due diligence, ensure that they are satisfactory in the licensing and everything that you need in order to be a qualified provider in this type of space.
Stephanie Chambliss Gaffin: 29:05
Eric, how about you?
Erik Wayton: 29:06
Yeah, I think it's going back to, does this complement my industry that I'm in, in my business? So does this PEO have relevant experience to understand, you know, technology or financial services or nonprofit? So, somebody that understands that type of language can bring them that level of experience with it. I think another big point on that, too, would be about just the type of benefits that you're looking at, because that becomes such a big part of the spend that you have right outside of salaries. And that's an important area. So looking at the quality of those type of plans, looking at how those plans are actually priced and what is the offering exactly to an employer to actually evaluate. I think that that becomes a big difference also on the type of a PEO options that are out there.
Stephanie Chambliss Gaffin: 29:58
Yeah, that's a great point. I don't That it would have really occurred to me that there would be PEO's that specialize in certain types of industries. And now that you say it, of course that makes sense. That's a great one to look at and you probably where you can also talk to others again and perhaps in your own professional associations or other collaborators or even friendly competitors that you know, to say, Who are they using? And who are they looking at? Alright, so as we come to the end of the episode, again, here, we are all about pragmatic, tangible tactical advice. And so we have a lot of folks here who are living in a brave new world when it comes to thinking about managing their employees and managing HR. So I'd love to conclude with just one tip from each of you. These are kind of a short pragmatic tip on the HR front for middle market business owners who are listening right now, Eric, let's start with you.
Erik Wayton: 30:56
Don't go at it alone. It's okay to ask questions and to seek new options and ideas, especially in an environment like today, that we're in. We have to look for new ways of doing business in 2021 and explore all options.
Stephanie Chambliss Gaffin: 31:12
Good one. Naydu, how about you?
Naydu Brandenburg: 31:14
I'll say it again, absolutely leverage HR as a strategy, and not as a band aid hair on fire situation.
Stephanie Chambliss Gaffin: 31:22
Great tips from both of you. And on that note, I'm Stephanie Chambliss Gaffin and you've been listening to Right in the Middle Market, a podcast about running, growing and selling your middle market business. We'd love to hear your comments about today's episode or ideas for topics you'd most like to hear in the future. Send me a message on LinkedIn or drop me a line at podcast@gaffingroup.com and don't forget to subscribe to make sure that you hear all of the great tips in upcoming episodes. Until next time, be well and be resourceful.