Use Employee Leasing to Boost Profits

by WOHe

Most kitchen and bath dealers are salespeople first and business
people second. They’re typically driven to increase sales as the
sole means to improve net profit.

Yet, with increased sales comes an increased cost of sales which
is a dealer’s largest variable expense, by far. The more you sell,
the greater the risk of error in cabinet estimate oversights,
underestimated installation labor and related items that add up to
higher job costs. In addition, a greater sales volume produces
other variable expenses such as commissions, payroll taxes and
workers’ compensation insurance which conspire to delay or
diminish
net profit.

The best business people always look for ways to decrease
expenses without sacrificing sales or quality of services. The rise
of Professional Employer Organizations (PEOs) over the last decade
offers kitchen and bath dealers (as well as manufacturers and
distributors) an excellent opportunity to improve their net profit
by streamlining operations through “employee leasing.”

PEOs are the fastest-growing business service in this country.
They primarily work with small- and medium-sized companies, ranging
from one to 500 employees. The one I know best focuses nationally
on firms with just one to 15 employees, and acts as a “co-employer”
with dealers. As such, it takes on the responsibility of payroll
administration, maintenance of all employee records including W-2s,
handling of tax calculations, tax filing, governmental reporting
and strict adherence to federal and state laws.

You may think that with just a few people on staff, it’s
relatively easy to do your payroll internally. However, it takes
only one investigation from the Wage and Hour Division of the U.S.
Dept. of Labor for firms to realize that payrolling should not be
left to novices or part-time practitioners. Fines, penalties and
back payroll taxes often result from poor or improper payroll
administration, and this can have a devastating effect on a
dealer’s cash flow and net profit. Wage and Hour fines can result
from failure to pay overtime, keep records of hours worked and
maintain proper I-9 forms, as well as from the misclassification of
employees.
HOW PEOS WORK

To start with a PEO, small businesses enter into a service
agreement. You maintain control of your employees and the workplace
(hiring, firing, promoting, managing, etc., just as before) while
shifting these payroll responsibilities to the PEO. As part of the
basic service package, workers’ compensation insurance is also
included. The administrative service fee paid to the PEO is usually
3-5%, depending on the size of your annual payroll.

Under this business arrangement, dealers and their employees now
technically work for the PEO. And because the PEO will have tens of
thousands of “employees,” it can leverage insurance carriers for
the lowest workers’ compensation rates. Dealers who use in-house
installers instead of subcontractors, or who have countertop
fabricators on their payroll, will enjoy substantially reduced
insurance premiums that average about 15%.

As part of their standard contract, the best PEOs function like
your very own Human Resource Department. They’ll consult with you
on employee issues and write a customized employee handbook to be
distributed to your staff. This manual can be instrumental in
attracting and training good-quality people; it also assists in
effectively managing them because it communicates your management
policies and procedures while simultaneously protecting the
management team from illegal employment practices.

In addition, these PEOs provide training that ensures compliance
and increases productivity in four areas: (1) interviewing and
hiring skills, (2) conducting performance evaluations, (3) creating
job descriptions, and (4) discipline and termination guidelines.
You’ll also be extended $1 million of insurance to protect against
employee lawsuits, as well as free legal advice.

PROVIDING BENEFITS
Most small business owners in the kitchen and bath industry
recognize that better benefits help attract and retain better
employees. However, the benefits that employees generally value the
most health, dental, prescription drugs, life, disability, vision,
retirement plans and the like are generally not affordable. Acting
on behalf of a 50,000-70,000 person “workforce,” PEOs make it
possible to offer these “Fortune 500” benefits.

Dealers enrolled in the basic service program can add a
comprehensive health insurance plan through nationally known
carriers when their annual budget allows. There’s great flexibility
so you can generally choose to pay for all, some or none of the
costs. The balance is offered to your employees at their expense
through voluntary payroll deductions.

Similarly, you can add a first-class 401(k) retirement plan for
your employees at no additional service charge when the right time
comes along. Both Roth and traditional IRAs can also be funded
through payroll deductions. PEO staffers serve as liaisons for the
delivery of such services, including coordinating annual
orientation meetings, benefits enrollments and inquiries to work
site employees.

One of the greatest benefits from a PEO co-employment
arrangement is the administrative relief and resources that enable
you to focus on your original business goals. You’ll have more time
to spend on building your business and less time consumed with the
employer-related obligations of running it. Consider the California
dealer who credits his PEO for freeing up enough time and resources
to fuel his considerable growth. Eight years ago, this dealer had
one store and seven employees. Today, he has four stores and 29
employees.

Subcontracting the payroll and workers’ compensation
administration enables small business owners to achieve economies
of scale normally associated with very large corporations. It’s a
proven method of streamlining operations that has experts
predicting 40 million workers will be “leased” by 2007.

The best business people in the kitchen and bath industry
should, at the very least, investigate a PEO affiliation for
2003.

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