How to Provide Great Employee Benefits with Less Burden

Employee benefits are a critical component of operating infrastructure for businesses of all sizes. While critical, benefits can be a distraction, a source of disgruntlement and strife, or even the bane of existence for businesses of all sizes, especially for small and mid-size businesses (SMBs) without the personnel and bandwidth to handle the administrative burdens. While 96% of firms with 50+ employees offer health insurance (and are obligated to do so under current law), only 30% of firms under 50 employees do. Yet even for the smallest businesses, benefits such as healthcare and retirement plans can be valuable tools for attracting top talent, retaining existing talent, and maintaining goodwill. How can SMBs offer compelling employee benefits without being swamped by the administrative burden?

The first choice to make is whether or not to use a PEO (Professional Employer Organization). PEOs create a co-employment relationship, in which the PEO is the employer of record for tax purposes. Through co-employment, PEOs create larger employee pools with the goal of negotiating lower rates on health insurance, workers’ compensation, and other benefits than smaller companies could attain on their own. NAPEO estimates that 156,000 to 180,000 SMBs employing 2.7 – 3.4 million people use PEOs.

A PEO quote typically has two cost components: benefits and administration. Since the PEO is the employer of record, the PEO is responsible for administrative aspects such as filings and regulatory compliance. Depending on the PEO, all will be involved to varying degrees in employee matters such as grievances and terminations. For SMBs lacking someone with HR background on staff, allowing the PEO to handle such matters is a relief, while other SMBs may find the PEO intrusive and restrictive in telling SMBs how to run their business.

SMBs considering PEOs have between 780-980 to choose from — far too many to list here, so we’ll highlight some top choices:

  • Insperity: one of the two largest PEOs, Insperity has the largest number of lives in the UnitedHealthcare (UHC) network.
  • TriNet: one of the two largest PEOs, TriNet offers medical plans from Aetna, United HealthCare, BlueCross, and/or Kaiser, depending upon headquarters and employee residence locations.
  • JustWorks: Launched in 2012, Justworks is a fast-growing PEO with a modern technology platform offering Aetna medical plans.
  • Oasis Advantage: one of the largest PEOs, Oasis has no minimum company size — a significant factor for micro-businesses as many PEOs require a minimum of 5 employees — and allows businesses to create a customized menu of benefits.

Payroll giants ADP & Paychex also offer PEO options, and while every business has a unique set of needs and preferences, you should explore your options and not make a decision simply because you’ve heard one name more than others. Applying the “nobody ever got fired for buying IBM” mindset to HR and benefit solutions may saddle you with a costly or antiquated solution.

While some companies in the 100-1,000 employee range use PEOs, in many cases PEO costs outweigh the benefits by the time a company reaches 50 employees, and in most cases by the time headcount reaches 100.

While some companies in the 100-1,000 employee range use PEOs, in many cases PEO costs outweigh the benefits by the time a company reaches 50 employees, and in most cases by the time headcount reaches 100.

HR administration platforms provide modern technology tools to manage payroll, benefits, and compliance in-house. The platforms will match you with benefits brokers and consultants to get quotes on health insurance and other benefits like FSAs, 401k, etc, then consolidate, streamline, and automate the process and compliance tasks to simplify payroll and benefits administration. Some of the top options are:

  • Gusto: starting as payroll only in 2011 but quickly evolving into a broader benefits admin platform, Gusto is one of Silicon Valley’s $1B unicorns.
  • Zenefits: perhaps you’ve heard of this Icarus of the benefits admin space, either for its spectacular growth or its scandals; the company has rebooted with new management and still is a strong contender in the space.
  • Namely: founded in 2012, Namely is another fast-growing Silicon Valley startup with a data science focus that declined an acquisition offer from Google in late 2016.
  • Maxwell Health: founded in 2012 in Boston, Maxwell Health is a B Corporation providing a platform benefits advisors use to provide a benefits marketplace for SMBs.
  • Decisely: founded in 2015 in Atlanta, Decisely is another B Corporation aiming to provide SMBs with benefits brokerage and paper-free HR management and automation.
  • GoCo: founded in 2015 in Houston, GoCo earns commissions from insurance carriers and is 100% free to employers.

As you can see, the HR benefits administration space is evolving rapidly with modern tools and platforms, providing compelling alternatives to established players like ADP and Paychex that have legacy technology, systems, and processes.

SMBs could also benefit from engaging a benefits consulting firm before implementing a new benefits admin platform. Lumity provides data-driven health plan recommendations based on the company’s profile. Allay aims to reduce healthcare costs through pay-per-use plans with reimbursements of unused premiums.

What questions and criteria should you consider before implementing a new solution?

  1. Cost: how do the bottom-line costs of various PEOs compare with each other and with the costs of in-house administration? When comparing to in-house costs, be certain to value the time someone on the team will need to spend on administrative duties.
  2. Technology: get a demo company you can drive to see how easy or difficult it is to do routine tasks such as onboarding and termination, benefits selection, and payroll.
  3. Licensing: not all PEOs are licensed in all 50 states, so be certain to ask about both current and future states where you may have employees.
  4. Contracts: some PEOs allow you to cancel anytime, while others try to lock companies into terms of 1 year or longer.
  5. Medical plan networks: verify not only that the particular carrier, but the specific plans and networks, have broad acceptance in the geographic areas where your employees live. Not every doctor will accept every insurance plan, so some employees may need to switch doctors.
  6. Service and expertise: how much assistance do you anticipate needing for legal and regulatory matters, and what services does the PEO or technology platform provide?

HR technology is evolving rapidly, bringing SMBs hope for lower costs and easier administration. With a little research and comparison, you can please both the bean-counters and the entire team.

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Derek Chapin

Derek Chapin provides growth strategies & solutions for small & mid-size companies. Previous successes include CxO at Woot! (sold to Amazon in 2010), meh, and Vinli.