Use Employee Leasing to Boost Profits

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.

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.

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.