Staff Leasing for a Staffing Company: A Case Study

Author: David Schek
Date: 18 Jun 2008
 

Staff Leasing for a Staffing Company: A Case Study
David Schek

One fun and frustrating task for any owner of a staffing company is choosing an appropriate business model. To make things even more interesting (or crazy, depending upon one’s perspective), once you have chosen your business model, countless suppliers and vendors offer an array of products and services to support your choice. As a staffing company owner for 20 years with offices in 35 states, I made many of these decisions.

Some of my choices worked out great; others did not. Some started out promising and morphed over time. One model that I used with consistent, positive results was staff leasing or PEO for my employees. With offices throughout the country--employing 15,000 to 25,000 employees per year, most on short-term assignments—I was always monitoring my back office costs. Keeping my expenses low was critical because my relative transaction costs were high compared to other staffing companies whose employees worked much longer assignments.

When faced with climbing unemployment and work comp costs in certain states, my CFO suggested staff leasing. My immediate reaction was . . . skepticism. Beside adding another layer of administration (code for “higher costs,” I thought), I was concerned about my employees’ reaction to a new relationship. But frankly, with declining margins and less than stellar risk control measures in the offices where employee turnover was rampant, my efforts at controlling these expenses were akin to pushing a string.
I had heard that about 400 staff leasing companies operated in the country, but some had spotty track records for service, some were relatively new to the business, and some seemed downright shady. So my CFO and I focused our research only on companies that had been in business for at least 10 years and specialized in working with staffing companies with high turnover. After narrowing the field to 4, we embarked on site visits.

The PEO we selected was 25 years old and provided human resource and payroll services to about 1.5B of payroll a year. Their small “campus” of buildings was impressive. Apparent during our initial visit— and throughout our 10-year relationship—was that they viewed and treated me as a client. They understood that if I did not receive good service, I could always move my business to another PEO, return to the state fund, or procure an outside payroll service for tax administration. I never had that warm and fuzzy feeling in dealing with the state funds; if anything, I sensed that, as a client, I was a nuisance to them.
We signed up with our chosen PEO in 1995 and used them in about 20 states (for approximately 10,000 employees) until I sold my business in 2006. The new owners continued the PEO relationship. My employees and office managers perceived the PEO as part of the company’s back office, and worked with them no differently than when working with companies like Paychex or ADP to process the payroll.
The PEO also operated alongside the 3 funders I had during this time (1995 to 2001) to help me grow my business from 3M to 27M.

I strongly believe that staff leasing can be a clever business strategy to help grow your staffing business. But first, you need to identify and articulate the goals you are trying to achieve by partnering with a staff leasing company. Next, you need to research potential PEO partners. You can streamline the research process by working closely with a professional who knows the service, has experience in working with the types of employees to be staff leased, and understands the capabilities of various staff leasing companies.
David Schek started LeastStaff.com about 14 months ago with the mission of connecting staffing companies to appropriate PEOs nationwide. As of June 1, Least Staff has worked with more than 13 companies generating 15M in payroll. You can reach David Schek at davidschek@leaststaff.com or 866-909-8287.