Good news in today's economy is welcome in almost any form. Somedays, just maintaining the status quo is a reason to cheer. Reportson whether Professional Employer Organizations (PEOs) are “statusquo” are mixed. While some industry experts cite increases in PEOs'overall client base, along with a greater acceptance by businessesnot traditionally PEO-friendly, they caution that many PEOs aresigning up clients with far fewer employees than just a few yearsago.

On the positive side — for PEOs and the economy in general —self-employment is on the rise as the recession drives workers tobusiness innovations. Baby Boomer retirement problems arecontributing to an increased interest in small business, andexperts predict that Generation Y will continue to be moreentrepreneurial than youth in recent generations. These factors,along with the low market penetration of PEOs overall, are creatinga growth opportunity for PEOs throughout the country.

There are approximately 700 PEOs nationwide, with some $68billion in gross revenues, according to the National Association ofProfessional Employer Organizations (NAPEO). PEOs currently serveapproximately 300,000 businesses and 2 to 3 million workers acrossthe county in a diverse mix of businesses. The industry grew $5billion in 2008.

The Florida Marketplace

Florida has long been a strong PEO market. According to RobertA. “Bob” Beck, II, CLU, founder of Fort Lauderdale-basedAlphaStaff, Inc., Florida has the highest PEO market penetration ofany state. “In some Florida areas, PEOs have captured up to 15percent of the addressable market,” he said. “Florida provides forthe maximum amount of flexibility for PEOs and their clients in theareas of workers' compensation and health insurance, allowingclients to opt to use the PEO plan or to keep client-based plans ofinsurance.”

A recent survey commissioned by the Florida Association ofProfessional Employer Organizations (FAPEO) revealed that PEOs inFlorida employ more than 700,000 employees, serve more than 50,000companies, and pay $24 billion in payroll. As one of the largestemployers in the state, PEOs represent nine percent of thenon-governmental work force. Of the 33 current members of FAPEO, 23are based on Florida's West Coast, six on the East Coast or inbetween.

Given the Sunshine State's abundance of minimum-wage,service-industry and construction-related jobs, PEOs in Floridatraditionally have sought those types of employers. That appears tobe changing.

Midge Seltzer, chief operating officer of St. Petersburg'sModern Business Associates, Inc., said that new business has beencoming from “every possible sector of the Florida businesscommunity.” Seltzer also is the current chair of NAPEO's board ofdirectors, and can ably contrast the Florida market with what ishappening nationwide.

“Interestingly, here in Florida we have seen an increase inlarger companies with 50 to 100 employees seeking a strategicpartner to assist them in growing their companies. PEOs are theideal platform to assist them with growth,” Seltzer reported.

FAPEO Executive Director Robert Skrob noted that while many PEOclients have decreased their workforce or gone out of businessentirely, the economy has brought other employers to the PEOtable.

“Employers who may have not been interested in outsourcing theirhuman resources when the economy was stronger, today are lookingfor ways to handle a lot of functions more efficiently,” Skrobreported. “Tapping into the economies of scale that PEOs have is agreat way for employers to save time and free themselves up tofocus on revenue-producing tasks.

“While it's never good for a PEO to have its clients go throughlayoffs, the economy has made a lot more employers open to the ideaof outsourcing their human resources functions,” he said.

Although Florida remains mired in unemployment figures thathover at double digits, a job bump may not be far off. Presidentand CEO Milan P. Yager of FAPEO's national association, NAPEO, saidthat he is hearing that in Florida there is a “leveling off; theend of the tunnel may be in sight,” in the unemployment arena.

MBI's Seltzer also voiced optimism for the Sunshine State. “MostPEOs are seeing many of their existing clients starting to hireagain — clearly, a good sign for all. In fact, several PEOs areexpanding their offices in Florida due to the increased demand forour services,” she said.

Credentialing May Be Key To a PEO's Growth

To increase its appeal to large and small businesses, a PEO canobtain accreditation that attests to its credibility and ethicaland financial integrity — attributes that can reassure a sometimeshesitant business community.

Reinaldo Lopez, founder and chief executive of ResourceManagement, Inc. (RMI), earned such credentialing in January forhis firm through Employer Services Assurance Corporation (ESAC).The rigorous certification confirms independent verification ofregulatory compliance, financial assurance (backed by $11 millionin surety bonds through ESAC), and establishes operationalstandards for business owners seeking to outsource human resourcesfunctions.

Lopez founded RMI in 1995 in Fitchburg, Virginia, and today hasbranch offices in Jacksonville, Daytona, and Miami. He said, “At anunprecedented time when small business owners are struggling withthe economy and new laws from federal stimulus programs, we areable to lessen the burden by holding ourselves to the higheststandards of internal controls, integrity, and operationalexcellence. The value of ESAC accreditation is easy for businessowners to understand, just like the public feels more assured aboutbank deposits because of the FDIC.”

Jane McCoggins, ESAC's executive director, called thecertification an unprecedented level of value to small businessowners seeking assurance regarding their service provider'sperformance of its contractual obligations. She reported that morethan 75 percent of the PEO entities currently accredited by ESACprovide services in the Florida market.

The program is compared to banking's FDIC insurance program inthat it provides reimbursement to clients, worksite employees, andtaxing authorities in the event an accredited PEO does not performits service obligations. In addition, states with PEO licensing orregistration statutes increasingly are recognizing ESACaccreditation as an option for meeting compliance requirements.

Staying Ahead of Governmental Challenges inFlorida

Governmental intrusion in any business is a given, and PEOlobbyists such as Ron Villella work to keep the storms at bay.

One imminent task is to be part of the process as the FloridaDepartment of Business and Professional Regulation (DBPR) draftsrules regarding penalties for a PEO failing to file a quarterlyreport. The rule is a result of 2009 legislation that will requirethe state's Agency for Workforce Innovation to report a filingfailure to DBPR.

On Villella's perennial watch list are increases to unemploymentcompensation taxes. That issue dramatically came into play thisyear. After the federal government lengthened coverage timelines inresponse to the ongoing recession, businesses received their newincreased unemployment compensation rates. The phones quickly beganringing in legislators' offices, at Associated Industries, theRetail Federation, the Florida Chamber of Commerce, and elsewhereas business owners asked, “How did you allow this to happen to us?”Industry leaders made it clear that the increase would only lead togreater unemployment numbers in the future. Bills delaying anyincrease in unemployment compensation taxes for two years wereexpected to move swiftly through Florida's 2010 legislativesession.

FAPEO's Robert Skrob fine-tuned the association's position onthis issue, stating, “FAPEO does support reforming the unemploymentbenefits and rating system, [but] benefits are regularly providedto beneficiaries who do not meet the criteria. So, whileunemployment is driving up costs, another large cost factor is theway benefits are being awarded. The current claims modifier processpenalizes employers who manage their layoffs. Unfortunately, theseemployers' rates scale up faster than employers with morelayoffs.”

“In Florida, as in many other states, this year will see thecrisis in unemployment continue,” Beck said. “The state fund isbankrupt and the number of individuals out of work is stillclimbing, or at least remaining flat. The high unemployment ratewill result in high state unemployment taxes for years tocome.”

Beck noted another danger as well. “In this high-unemploymentenvironment, employees who are let go are much more likely to seekthe assistance of counsel when they cannot readily find anotherjob,” he said. “2009 saw a record high number of EEOC charges andemployment litigation — and Florida is a hotbed of employmentlitigation. By providing employment practice liability insurance totheir client companies, PEOs help with the risks/costs associatedwith charges of discrimination and lawsuits, and provide theassistance needed to head off these claims or dispose of themearly.”

NAPEO's Yager also pointed to PEOs' ability to help employersmitigate the problem. “We help companies work to manageunemployment,” he said. “In PEOs we have tools to better approachthe broader spectrum of employment. Except when the layoffs areclearly due to the economy and cannot be avoided, sometimes otherreductions can be postponed or worked around.”

Yager noted that a PEO will work with the client to determine ifan employee must be terminated. He said that sometimesunderperformance by a worker starts with a poor job description andunreasonable expectations. Counseling both parties can sometimesavoid a termination. Yager pointed out that part-time work,furloughs, leaves of absence, and other temporary adjustments canaffect the company's experience levels, save jobs, and soften apounding from higher rates and tax consequences. PEOs can helpemployers through those processes.

“From the inception of this industry, Florida's PEOs have shownthe ability to market and brand the industry as a strongalternative to in-house burdensome and costly administration.”Seltzer concluded. “This is clearly illustrated by the manysuccessful PEOs operating in Florida.”