Companies save time and money
by leasing their employees
By Pat Curry • Bankrate.com

Cherrie Stunkard's parents started the Tulsa Grass and Sod Farm in 1953. Today, Cherrie and her husband, brother and sister-in-law run the company and its subsidiary trucking business, supplying grass and sod for "everything from golf courses on down to residential."

The sign out front, the invoices, the telephone listing and the business cards say Tulsa Grass and Sod Farm. But the paychecks and all the paperwork that goes to the IRS, Social Security and state agencies say MORESOURCE INC.

For official purposes, the employees of the Tulsa Grass and Sod Farm work for MORESOURCE Inc., a professional employer organization in Columbia, Mo.

So do about 2,200 other workers at small, blue-collar businesses in 13 states. They're leased to the companies, for which they perform their day-to-day jobs.

Working behind the scenes
MORESOURCE President Kathryn Cunningham and her staff of 14 handle such tasks as payroll, federal withholding and compliance with federal employment regulations; risk management and safety training, and -- most importantly for the employees -- benefits administration.

"They're the work-site employer, I'm the payroll-of-record employer," Cunningham said. "For a small employer, it helps them be a little more competitive with larger companies in retaining quality employees or attracting quality employees they'd like to hire ... By pooling the numbers, we're hoping for better economies of scale to save you, if not money, then time, so you become more efficient."

The Society for Human Resource Management describes employee leasing as an "explicit joint-employment relationship. The professional employer organization leases the workers back to the client company and ... performs most of the functions normally handled by an HR department."

Stunkard describes it as a cure for her major headaches, and a significant source of savings. Her main objective in leasing was to reduce escalating costs for worker's compensation insurance.

"Seven or eight years ago, private insurers stopped writing and nearly everybody in Oklahoma was forced to go with the state insurance fund," she explains. "They really started getting their teeth into it, and now you have to have 10 percent of your payroll on deposit with them. We were up to a deposit of $16,000 that they got interest on. If our payroll went up, which it did every year, we had to have more on deposit. And they didn't listen to you. They paid every claim, whether it was fraudulent or not, and that's not fair."

MORESOURCE is privately insured, and requires Tulsa Grass and Sod to keep only $1,000 on deposit, Stunkard says. It also has staff members who know worker's comp law and investigate claims. She says she saved $10,000 in worker's comp costs the first year.

"We take the difference, put it back into the business and use it for raises," she says.

Money to be saved
In a 1996 research report cited in Personnel Journal (a magazine now known as Workforce), Bankers Trust Co. found that small business owners generally save 3 percent to 5 percent -- and some as much as 10 percent -- of their payroll expenses by outsourcing to professional employer organizations. Most of the net savings come from lower costs for worker's comp, unemployment and health insurance.

Tulsa Grass and Sod's employee count ranges from a low of 35 in the winter to a high of about 50 in the summer. Besides allowing the company to save money, leasing its employees allowed Tulsa Grass to offer more benefits. They had always offered medical insurance, but now also provide dental coverage and a 401(k) as well, which has helped attract and retain quality workers in a tight job market. For all practical purposes, the day-to-day operations have remained unchanged.

Typically, professional employer organizations charge 2 percent to 5 percent of payroll to cover expenses, plus 9 percent to 20 percent of gross wages to pay for benefits and the organization 's profit, according to the Society for Human Resource Management. By contrast, USA Employee Services in Naples, Fla., says small businesses on average spend 8.5 percent of gross payroll on administration and 36.6 percent on benefits.

The numbers The average company using leased employees has 14 workers. Between 2 million and 3 million Americans are co-employed in such arrangements. Nationally, about 2,000 professional employer organizations handle more than $18 billion in employee wages and related benefits. Source: The National Association of Professional Employer Organizations

"The way HR is today, it's a fairly sophisticated function," said Anne Pauker, a New Jersey-based human resources consultant. "It's too much to expect one person to know everything about finance, administration, HR and where to hold the company picnic."

Seek compatibility, understanding
The key, she said, is to find a leasing company that shares a philosophy with your business. "You want it to be transparent in every way," she said. "You would want the leasing company to be able to speak for you in a way you would speak yourself."

You also need a leasing company that understands your industry. Cunningham had a background in transportation. The MORESOURCE president chose to focus on blue-collar companies. Her office has a business-casual dress code and is home to two cats. The environment makes her clients feel comfortable, she says.

While employee leasing companies might provide some relief in the area of liability, they can't make it go away. If you're looking at employee leasing as a way to make your company bulletproof when it comes to lawsuits for federal complaints filed by disgruntled workers, you're wasting your money.

"If the leased employees are subject to the control of the client company during the day, they could be joint employers," said Marjorie Johnson, a human resources and legal analyst for CCH Inc., which provides tax and business law information and software. "It's not what the agreement says. It's really who has control over what the leased employee does. It will be a court that decides.

"If you have some control, you might as well ensure that you're complying with the laws in regard to your leased employees. The liability could be there anyway."

From worker to boss
USA Employee Services in Naples, Fla., works exclusively with the high-risk construction industry. Part-owner Glenn Herriman said his clients generally have little business experience, and are happy to be able to concentrate on what they do best.

"My client grew up in a construction industry," he said. "Maybe he didn't even graduate high school and, suddenly, he's an employer. He's a laborer who, by accident, turned into an employer."

For his fee, Herriman says he saves his clients an average of about 3 percent of payroll.

"If you take a guy with 50 employees, that's over a million in payroll," he said. "I can stick $30,000 in his pocket, and the time I save him -- and relieve him of the liability, the burden and hassle of unemployment, worker's comp. It goes on and on."

Pat Curry is a freelance writer based in Georgia

-- Posted: July 1, 1999