| WHAT
DOES IT COST YOUR PRACTICE TO RUN ITS PERSONNEL DEPARTMENT?
Personnel
costs may represent as much as 2530% of overhead in a medical practice.
Often included in that financial responsibility are such tasks as
Payroll management
Employee benefit design and administration
Tax filing and administration
Compliance with state and federal workplace legislation
Provision and maintenance of competitive benefits, including health
insurance and pension plans
Is
your practice too small to have a personnel department? That may
be true, but those management functions still remain the practice’s
responsibility‹no matter what size practice you are running. Key
components of your practice’s financial management are assessing
these personnel costs and making ongoing business decisions on how
to provide these services cost effectively, in your role as human
resources manager.
What
Does an Employee Leasing Company Do?
A Professional Employer Organization (PEO) can take over the administration
of your current staff and, in some cases, provide new staff members
as needed. The practice retains primary responsibility for day-to-day
management of work assignments and on-site supervision.
As
you review the PEO services listed below, you’ll want to record
them in the chart provided. These are tasks you currently handle
well in the practice, tasks you perform but find burdensome, and
tasks you are not currently doing (but know you should do or would
like to do).
Specific
PEO services may include
-
Development and maintenance of employee job descriptions and policy
and procedure manuals
-
Employee recruitment
- Employee
record keeping
- Disciplinary
actions and employee discharging
- Unemployment,
disability, and workers' compensation claims and administration
-
Administering employee benefit programs including o retirement
plans o health care plans o life, disability, and accidental death
and dismemberment insurance o credit unions o cafeteria benefits,
such as fitness club memberships, child care, tuition reimbursement
programs, etc.
- Responsibility
for compliance with regulations o Equal Employment Opportunity
Commission (EEOC)
- Title
VII, the National Labor Relations Act (NLRA)
- Fair
Labor Standards Act
- COBRA
- ERISA
- Americans
with Disabilities Act (ADA)
- Family
Medical & Leave Act (FMLA)
- Immigration
Reform and Control Act (IRCA)
Cost/Benefit
Analysis
The attached graph is an example of a framework that can help you
in determining whether to use a PEO. The column headings are interpreted
as follows:
1. “Category” refers to each specific component of the
management of your staff‹that is, of the human resources department
of your practice.
2. “Practice Wants to/Required to Provide (Y/N)” is simply
a checklist of those HR components the practice desires or needs.
3. “Currently Provided Satisfactorily (Y/N)” is a checklist
of those items that the practice provides and provides at a level
of quality acceptable to the practice.
4. “Current or Projected In-House Administrative Cost”
is the cost of administering each item, separate from the cost
of the item. For example, there is a cost for administering the
health insurance plan, separate from the insurance premium. Other
items, such as the maintenance of employee records, have no significant
cost other than that of administering (maintaining) those records.
Estimate the administration time actually spent on those items
currently provided as well as the administration time for those
items that you are not currently providing but want to provide;
then multiply the time for each item by the employee cost (salary/wages
plus benefits) of a staff member providing each item.
5. “Cost of Service” is any cost in addition to the administrative
cost (e.g., for insurance premiums, subscriptions to regulatory
newsletters, etc.).
6. “Outsourced Cost” is the cost for the PEO to provide
the service. You may not be able to ascertain from the PEO the
cost for individual components of a service. In that case, simply
compare the PEO’s proposed total cost to your aggregate in-house
costs for the same set of components.
Current
or Projected In-House Administrative Cost
| Category |
Practice
Wants to/Required to Provide (Y/N) |
Currently
Provided Satisfactorily (Y/N) |
Current
or Projected In-House Administrative Cost |
Cost
of Service |
Outsourced
Cost |
| Job
descriptions |
|
|
|
|
|
| Policy/procedures
manuals |
|
|
|
|
|
| Recruitment
|
|
|
|
|
|
| Employee
record keeping |
|
|
|
|
|
| Disciplinary/discharge |
|
|
|
|
|
| Unemployment,
disability and workers' compensation claims and administration |
|
|
|
|
|
| Retirement
plan |
|
|
|
|
|
| Health
insurance |
|
|
|
|
|
| Disability
insurance |
|
|
|
|
|
| Life
insurance |
|
|
|
|
|
| Credit
union |
|
|
|
|
|
| Fitness
club |
|
|
|
|
|
| Child
care |
|
|
|
|
|
| Tuition
program |
|
|
|
|
|
| EEOC |
|
|
|
|
|
| NLRB
Title VII |
|
|
|
|
|
| Fair
Labor Standards Act |
|
|
|
|
|
| Administration
of COBRA regulations |
|
|
|
|
|
| Administration
of ERISA regulations |
|
|
|
|
|
| Americans
with Disabilities Act (ADA) |
|
|
|
|
|
| Family
Medical & Leave Act (FMLA) |
|
|
|
|
|
| Immigration
Reform and Control Act (IRCA) |
|
|
|
|
|
| OSHA
guidelines |
|
|
|
|
|
By
completing the matrix, you can begin to calculate the cost-comparisons
for retaining the HR functions in the practice as opposed to outsourcing
to a PEO. Many comparisons cannot be concretely measured. Some benefits
can only be obtained through a PEO because of its ability to purchase
services for a larger pool of employees. Don’t forget the cost of
time required to manage, and to stay educated in, the various benefit-package
offerings (retirement, investment, OSHA updates, etc.). Keep in
mind that if you outsource your HR to a PEO, the exposure to penalty
and interest charges for late-filed or late-paid payroll taxes and
sanctions for technical administrative or regulatory shortcomings
belongs to the PEO, not the practice.
Ideally,
the practice will be able to reduce the tasks required of its internal
administrative staff, saving enough money to compensate for the
fees the PEO charges. The time saved on non-revenue-producing activities
can contribute directly to the practice’s bottom line by allowing
you to concentrate on activities that enable the practice to grow
or that make it more efficient and effective.
Benefits
of Employee Leasing
The obligations and administrative burdens that a PEO assumes on
behalf of its clients provide a strong incentive for doing a cost/benefit
analysis. The cost advantages of outsourcing employee, tax, benefit,
and regulatory compliance responsibilities are just part of the
benefit that PEO client practices can realize.
An
attractive advantage that a practice gains when entering into a
PEO relationship is the ability to offer employees a much wider
selection of benefits, often at lower costs. Typically, practices
find it difficult or impossible to offer employees multiple options
in terms of health care plans, insurance (life, disability and accidental
death and dismemberment), savings and investment plans (401(k) and
pension plans), and other employee benefits. Because they have larger
employee pools, PEOs can offer employees of small practices the
same level and quality of benefits that much bigger companies provide.
The results are improved employee satisfaction, better employee
retention, and the ability to attract high-caliber employees to
smaller practices. Client practices also enjoy reduced volatility
in unemployment and workers' compensation insurance rates.
As
described above, PEOs assume responsibility for many of the human
resources tasks required of the practice, many of which most practices
are not currently carrying out. The benefits of having those responsibilities
executed by a PEO include
-
Relieving the practice administrator of the HR burden, allowing
the administrator to concentrate on practice operations
- Enabling
the practice to offer a wider range of benefits
-
Allowing the relationship between the practice’s management and
the employees to be concentrated on the operation of the practice
and leaving the unpleasant tasks of employee discipline and discharge
to be outsourced
-
Enabling compliance with employment regulations
- Accomplishing
these responsibilities at an acceptable cost Selecting the Right
PEO If outsourcing is a good business decision for your practice,
you’ll want to identify the PEOs in your area that can meet
your needs. The most common sources of information on candidate
vendors include advertisements in local medical publications,
direct recommendations from other practices or from hospital physician-relations
staff, and the website of the National Association of Professional
Employer Organizations (NAPEO). The website
(http://www.napeo.org/) has an online directory, by state, of
PEO companies. To make certain that your practice realizes the
maximum benefits from PEO relationships, you should identify organizations
that
- Can
offer all of the required core services (payroll, insurance and
benefits administration and regulatory compliance) as well as
value-added services, such as employee policies, procedures, and
communications, including employee manuals
-
Can offer evidence of strong infrastructure and administrative
staff
- Have
stable financial policies that assure fiscal integrity (annual
audited financial statements to verify that all taxes are paid
and that required filings are made on time)
- Have
experienced staff, including HR staff
-
Have advanced computer technology for administration
- Have
proven track records and sterling references from practices in
your area
NAPEO
recommends the following when considering a relationship with a
PEO:
1.
Evaluate your practice and determine your staff-management and
benefits-management needs (be sure to complete the matrix).
2. Evaluate each candidate PEO with reference to your practice’s
needs. Can the candidate PEO meet YOUR needs?
3. Ask for banking and credit references. You can also
check with the PEO’s sources for insurance and other benefits
to determine if there are problems with the PEO’s keeping up with
payments and record-keeping information.
4.
Ask for client and professional references.
5. Assess each candidate company’s administrative structure.
During the interview and site visit process, the candidate PEO
should be able to demonstrate to you that it can provide the needed
services as well as, or better, than you can provide them internally‹and
at a competitive price. Compare the responses of the various candidate
companies to your questions.
6. Determine which insurance carrier the PEO uses. Is it
licensed and reputable? Does it offer the benefit products you
require?
7. Review the service agreement carefully (and also have
your legal counsel review it). Determine the cancellation terms
and performance guarantees.
8. If your state requires a PEO to be licensed or registered,
make sure the company you are considering meets all such requirements.
The following states currently require licensing: Arkansas, Florida,
Illinois, Kentucky, Maine, Montana, New Hampshire, New Mexico,
Nevada, Oregon, South Carolina, Tennessee, Texas, Utah, and Vermont.
Rhode Island requires registration only (this information is from
the NAPEO website).
9. Check to see if the company is a member of NAPEO, the
national trade association of the PEO industry. Visit the NAPEO
website at www.napeo.org for the directory of PEO members.
Summary
Most ophthalmology practices, if examined in an administrative audit,
are found to be at least somewhat deficient in the administrative
management of their staff. With so much to be gained by having additional
management time to concentrate on the practice’s operations
and financial performance, and so much to be lost by not having
every “t” crossed and “i” dotted in employee
administration, it seems worthwhile to explore the option of outsourcing
human resources management.
Coauthors:
Ron Rosenberg, PA, MPH, Practice Management Resource Group, San
Rafael, California
Irene
Chriss Director, AAO Practice Management Dept.
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