CEOs Choose PEOs.

• Author: MCKIMMIE, KATHY
• Position: Professional-employer organizations

Outsourcing lets you do what you do best. Many employers are outsourcing company payroll, benefit and human-resources functions to PEOs,

Professional-employer organizations work in a co-employment contractual arrangement, usually for a flat percent of payroll. Some PEOs are national in scope while others serve a local market. The National Association of Professional Employer Organizations says there are about 2,000 PEOs nationally, representing an estimated 2 million to 3 million employees.

"Ten years ago it wasn't a very understood product," says Harlan Schafir, president and CEO of Professional Staff Management in Richmond, a 10-year-old PEO. "But it's caught on very dramatically in Indiana." With a PEO, a small employer can operate as if it has the HR department of a Fortune 100 company, he says.

Schafir's company has offices in Richmond and Garmel, serving 180 clients with an average of 20 employees. His target market remains Indiana, but he now does business in 20 states, thanks to referrals from Indiana clients that have expanded elsewhere.

Although all PEOs handle the payroll and tax functions--areas that have been outsourced by employers for much longer than PEOs have been around--not all offer their own health plan. PrimeCor, in Indianapolis, doesn't sponsor its own health plan, but CEO Dale Jensen says it will help clients set tip their group health plans.

"We pool everything but health," says Jensen, and the bigger the pool, the better the buy. To make the PEO arrangement viable, "you have to take the whole package," says Jensen. Employers can't pick and choose the services they will buy. And all employees must be covered under PrimeCor's agreement, "or we're not interested," he says.

PrimeCor was created in 1999 when an Indianapolis payroll-processing firm, PrimePay, began losing customers to full-service PEOs. Jensen was approached to head a new and separate company, which focuses on firms with white-collar jobs and light manufacturing, averaging 10 to 20 employees.

Employer's Administrative Services of Indiana in Fort Wayne had a similar beginning. President Ken Lizer says one of his partners in the insurance business heard about offering one-stop shopping through a PEO at a seminar in 1997. The following year, the new company was founded. With their insurance background, the founders knew they would avoid one of the problems that plagued a PEO in another state that had self-funded its insurance, gone belly up, and left the...