No More Middle Class?

I came across this article the other day, and the stats are a eye-opening.

Click here to view the article.

The numbers do not lie.

1. Almost 1/2 of all Americans have less than $10,000 saved for retirement.


2. 83% of all US Stocks are in the hands of the wealthiest 1% of American people.


3. For the 1st time EVER, Banks own more residential homes than all other Americans put together.
   


4. Over 1 in 5 Children are living below the poverty level, the highest level in 20 years!


5. Only the top 5% of households have earned enough additional income since 1975 to stay in line with housing costs.

This article points out a few more interesting statistics about the struggle of the middle class, which is slowly fading.  As a 28 year old, I am more worried about retirement.  Will Social Security be around for my generation?  How much will I have to earn, and save, in order to retire comfortably?  Pension funds, will these completely die out by the time I retire?

I've seen a lot of news articles lately discussing Government spending, the deficits, and drastic cuts that are just around the corner.  Some of these cuts include the following:

1. Raising the retirement age required to draw off Social Security.  By the time my generation retires, will the new retirement age be 85?


2. Drastically reduce personnel costs in the government, specifically the military, such as charging veterans more for medical benefits and cutting retirements.  Some discussions include bonuses/incentives to service members with fewer than 20 years of service to separate early and avoid paying full retirements.  Will current service members receive the same retirement benefits in 20-30 years as current retirees?  Or will my generation of military veterans see lower benefits than previous generations?

I've done the math, and at my age, I will need to save an average of $50,000 per year (2010 USD value) for the next 25 years to retire "comfortably."  And by comfortable, I assume Social Security is gone, medical insurance costs increase with inflation (likely they will be higher), and I am able to live off of 50% of my previously earned disposable income levels.

Saving $50,000/year is not easy.  For most families, it definitely means dual incomes and a very strict savings/investment plan.  So my advice to everyone out there, especially younger Americans, is to SAVE, SAVE, SAVE.  Figure out the bear minimum you can survive off of, and do not overextend yourself with debt.  The sooner you pay off your debts and get your savings/investments producing interest income to supplement your income the better.  It can be done, but it will require our generation to be disciplined and smart when it comes to our finances.

Good luck everyone.  Assume the worse, and hope for the best.

Great Daily Show Episode on Lehman Brothers Fraud

[caption id="attachment_82" align="aligncenter" width="146" caption="Daily Show Lehman Episode"][/caption]

Click On Jon To Watch This Episode

Starting a Business - Ideas for Capital

Have you ever thought about taking that big leap and starting a business?  Do you already own your own business, but you need some capital to bring your vision to fruition?  Whether you need $1,000 or $1,000,000 this little thread can help you figure out some next steps.

For the sake of keeping this short and sweet, let's assume you've already researched SBA loans, business lines of credit, and spoken with your personal banker about getting a business loan.  My goal, in this thread, is to share my thoughts on some of the ways you can get financing, outside of speaking to your banking institution.

Remember The 3 F's.  FRIENDS - FAMILY - FOOLS!

Starting, managing, running, and growing a business is NOT easy.  But, if you are passionate about what you do, you can make it work.  I do not use the word passionate lightly.  If you do not have a passion for your own business, STOP READING NOW!  I will assume those readers stopped and went on to careerbuilder or monster to find a new career.

Now, for you passionate entrepreneurs, let's tackle the 3 F's.  Friends, Family & Fools.  Yes, these resources can be your best source for getting capital into building the business of your dream.  You will be surprised to find out which of your friends, and who in your family, share an entrepreneurial spirit with you.  The risks are high with any investment, and doing business with friends and family has its pro's & con's.  But, they can also be a great source of support, brainstorming sessions, and yes CAPITAL.  Talk to your network, let them know what you are trying to do, and always remember to act like a professional, even if you are getting capital from a "fool." ;-)

If you tap out the 3 F's, look into the following:  Venture Capital & Angel Investors.  After you search these key words, make sure to research "Venture Forums."  Most city business chambers have resources available to small business owners, so make sure you take advantage of them.  Just make sure you have a solid business plan ready, professionally bound with non-disclosure agreements, pro-forma statements, references, and resumes for key executives in your business.  Don't forget to include influential adviser's that you can call upon for advice.

Last note, if you are a military veteran, make sure to research unique options that may be available to you.  The Patriot Express Loan is one example of special funds that may be available to you.  They carry higher levels of government guarantees, which lowers the lenders risk of giving you a loan.  Basically, the government is willing to guarantee a higher percentage of your loan, and that makes you a prime candidate in the banks eyes as you lower their risk.

Good luck business owners!  Feel free to post comments on other useful resources that may be available for entrepreneurs like yourself.

Shorting Stocks? What Is A Short Sale?

I remember hearing investors talk about "shorting" a stock a few years ago, but I never understood what they were talking about.  Shortly thereafter, I was finishing up some finance classes in college when we came across the "short sale" topic.  I've had friends ask me about this a few times, so I figured I would put a very simple explanation of this on the blog.

In the simplest terms, short selling a stock is a bet against the stock.  If you believe that a stock is overpriced, and due to decline in value, then you would short the stock.  You are betting against the firm's stock price.  For example, let's assume you look at a stock with a price of $100/share.  You have a gut feeling that the firm is going to have a bad quarter, and you believe the stock is going to drop down to $70/share.  Well, in this case, you would not want to buy the stock at $100 if you believed that you would lose 30% in value, but you would want to "short" the stock.

What happens next is the interesting thing.  Let's say you commit to buying 1,000 shares that you believe will be selling for $70/share in the next month.  If the stock drops in value, great, you buy the 1,000 shares at the lower price and you profit from the difference.  But, if the stock goes up to $200, you are forced to purchase the 1,000 shares at the higher price.  See the risk involved?  There are certain protections you can look into when dealing with short selling stocks, but I will simply tell you to contact a financial representative for more details if you are a novice investor interested in short selling.

The reason you commit to buying the 1,000 shares, is due to the fact that you are temporarily borrowing the 1,000 shares at $100/share.  In essence, you start the process by borrowing the shares, collecting the 1,000 shares at $100/share (that calculates to be $100,000), then you later return these shares for the profit or loss.  If the stock goes down to your target price of $70/share, you then purchase these shares (at a cost of $70,000), return the 1,000 shares that you borrowed, and walk away with $30,000 in your pocket.  Simple right?

Buyer beware, if that stock prices goes up, you are stuck paying that difference.  With any investment, there is always a risk involved, so be cautious.

Last note:  Should investors, brokers, and firms be scrutinized for profiting off short sales?  Some people tend to believe that the entity betting against a firm must have known something ahead of time.  Examples:  "Why did you short the stock?  Did you know in advance that the mortgage-backed securities were worthless, so you bet against them?  Why didn't you warn the general public or SEC?  If you knew the firm was struggling, you should have told everyone!"

There are plenty of arguments to support and defend short sales, but I will leave the ethical discussion of short selling to your next cocktail party :-)

Retirement Planning Ideas and Pension Discussion

I read an article last month, and I will post the link if I can find it again, but it said that less than half of all American adults have at least $10,000 saved for retirement.  That means that 50% of American families are not even close to being eligible for retirement.  Now I know these numbers can be skewed in one direction or another, but the idea of "retirement" is one that will haunt the generations to come.

Will I have enough to retire?  With the average life expectancy increasing, how will that effect my retirement planning?  Do I need to save $500K, $1mil, $2mil+?  Will my pension go away like so many others we have seen over the past few decades?  I thought my home would be my source of retirement, but I currently owe more than its worth and I'm already 60 years old, what should I do?

There is no simple answer for everyone.  Let's face it, some people like lavish lifestyles, and others don't mind living in a tent :-)  The first decade of 2000 gave American's, and the rest of the world for that matter, a unique perspective of both economic booms and economic depressions.  With that said, most adults that lived through these trying years have already realized that something needs to change if they are going to retire in their lifetime.

The younger generations, those with 30+ years left of working before they reach retirement ages, will have plenty of time to start saving and planning for retirement.  Doesn't mean they will all follow a strict "save 20% of the paycheck" philosophy, but we are most likely going to see a change in the type of jobs people choose and locations to live as younger generations try to apply these new life lessons.  "We've seen our parents lose their retirements, their home equity, and their jobs... how can I avoid all of that happening to me when I'm there age."  These are questions I ask myself all of the time, and I can sense a quiet movement in my generation to avoid these same results.

One thing facing millions of workers, is the threat of bankrupt pension funds.  The trend suggests that pension funds are a thing of the past.  In the coming years, we are likely to see more state and federal pension funds come under pressure to change as the funds struggle to meet payments to retirees, who are naturally living longer than normal.  I fear some government employees, and possibly even military veterans in later decades, will face some kind of decrease in retirement benefits as these funds continue to come under pressure and scrutiny from financial experts.  I think it is absolutely wrong to promise any individual a defined retirement benefit, have them give up 20-30+ years of service only to take some or all of  that away in the end.  It's sad, it's wrong, and unfortunately we are going to see more of this in the future.

Jake's Simple Advice:

• My only simple advice is to SAVE, SAVE, SAVE!  At least 20% of your income per year.


• Live within your means and find ways to cut out lavish expenses.


• Don't invest in real estate where your mortgage is more than what your rent would be.


• Understand the "Time Value of Money" (TMV) & how it will affect your retirement (i.e. $1 in 1950 is not the same as $1 in 2000).


• Talk to a financial advisor, and setup your own retirement funds (i.e. ROTH IRA, Traditional, SEP etc.)  Do not expect your employer or government to take care of you.


• Vehicles are depreciating assets, don't buy luxury brands for the image value, it only loses value.


• Set a monthly budget, adjust quarterly, but stick to that budget.  Here's a simple method to stay on track, if your budget is $5,000 per month of expenses (rent, mortgage, food, dining out, gifts etc.), deposit $5,000 into your operating account on the 1st of the month.  You can have all of your income deposited into a savings/money market account, and make 1 transfer per month, regardless of how much you make.  If you make $10K/month, but your budget is $5K per month, then you save $5K per month!  Stay committed, stay dedicated, & stay on track.


• Figure out what you can live off of, and avoid increasing that amount year-after-year.  A 10% pay increase should not equate to 10% more to spend on "stuff."


• Take advantage of interest NOW!  If you have large amounts of money in a savings account, say $10K+, you need to move money around, especially if you are only getting 0-2% interest.  Remember, TMV, inflation averages 3% per year over the long-haul, which means you are already losing money at 2%.  Get yourself some CD's, Money Market Accounts, Mutual Funds etc.  Talk to your financial advisor.

Simple Idea for Green Business Cards

Here is a simple idea created by my broker Trish. We have an eco-friendly real estate brokerage, and what better way to advertise ourselves than with our new green business cards. Trish came up with the idea to use old cereal boxes, cut them up into business cards, then print or stamp the logo, genius!

See photo below:

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Fix The Mortgage and Real Estate Crisis

The reviews are in, and making homes affordable is not working.  Banks are dragging their feet, and homeowners are living with the stress of the unknown for months if not years.  Plus, short sales are a mess.  The second lien holders are holding up the sale, trying to get payments off the HUD and/or simply denying homeowners from a solution to their problem.  The list goes on and on.

So what needs to be done?  Here we are in the 1st quarter of 2010, and foreclosure filings are still at an all time high!  The government just re-launched new guidelines trying to entice banks into accepting short sales with a cash incentive to homeowners, but its likely to be just as successful as the MHA program...

The fact is, right now it makes sense for some homeowners to let their property go.  Especially those facing large deficits in their loan to value ratios.  For example, a homeowner in Orlando may owe $300K for a home that would not appraise for more than $150K today.  If there was ever a time to let the home go to foreclosure or short sale, it would be now.  Get rid of the negative cash flow and avoid 30+ years of payments and move on with a new financial strategy.  I am not saying this as a "how-to" or advice as to what homeowner's should do, but more as a head's up to the industry as a whole.  How can we fix real estate when factors like this are leading the wave?

Answer:  there is no simple answer.  Good borrowers will continue to weigh the pro's and con's, and as values continue to struggle in finding a bottom, more homes will enter the foreclosure process.  In most scenarios, it makes more financial sense.  Plus, due to the bail-outs, it is socially more acceptable today to allow your home to enter foreclosure than ever before.

The main problem is the artificial inflation homes experienced in the last decade, and the fact that banks/investors loaned money on this artificial equity.  Who should suffer more, the investor or the homeowner?  The debate could go either way.  After all, the mortgage note is simply a contract for the homeowner to turnover the deed if they default on the payments... but banks don't want the negative equity property.

Unfortunately, those that continue to hold properties that were financed at the peak (100% LTV) will most likely have 5+ years of wait time before they see values reach loan amounts.  Some areas are better and worse than others, but patience will be required for most of the people looking to hold through these tough times.

My advice:  residential loans should follow similar underwriting to commercial loans, by taking out the emotional side of valuing a home.  Look at "what the home would rent for" and the mortgage should be at or near that level.  When you allow emotional valuations to resume, as a bank, you have to assume the risk of default and be willing to accept the loss.

Lehman Downfall, What Happened & What's New?

Lehman Brothers will more than likely go down in history as the firm that used misleading accounting practices, that were borderline illegal.  The gray area, known as REPO-105 transactions, allowed Lehman to "legally" hide the firms financial difficulties.

Click Here for a detailed review of the tricky accounting practice.

The question facing firms today, is whether or not they need to adjust their accounting practices?  How could it be legal for any firm to use these repo transactions in the first place?  Is this not mis-leading investors?

Click Here to watch a funny overview by Jon Stewart :) He does a good job relating the Dodd reform bill, and the Lehman situation.

First Enron happened, and the Government responded with the Sarbanes-Oxley Act. Now, the "Financial Reform Bill" is pending legislation that will include supposed safeguards that will protect citizens from firms becoming "too big to fail."

Unfortunately, SOX didn't help avoid the Lehman downfall, and I highly doubt any new legislation with stop this unethical behavior.  Especially considering the fact that what Lehman did is still considered "legal."  What kind of example does this set for other firms and accounting departments?  Well, they know the loopholes, and accountants will always be pushed to find the new loopholes within new legislation.  This is a never-ending cycle.

The main problems in my opinion:  Ethics.

"It's not ethically right, but it's technically legal."

Useful Real Estate Sites and Tips

Quick update on some useful real estate sites.  See below:

Click here for a nationwide site with rentals and residential homes for sale.

This link is useful for calculating mortgages.

If you are looking for property data in a specific county, simply google the following: "County Property Appraiser."  For example, if you live in Escambia county, google "Excambia Property Appraiser" to find useful sites in researching property data.

Loan modification program, Making Homes Affordable, Click Here.

Hud Site, Click Here.

Health Reform

Whether you agree with the recent "Health Reform Legislation" or not, as a business owner, you need to be aware of the effects this bill could have on your business.

Click on this site for the main government website for direct information on health reform legislation.

There are some changes that take effect in 2010.  Make sure to check out the site above for more information.

As new information comes out, I will try to post helpful links to this site.

Creating More Value in Your Business with Human Resources

Human Resource departments are under stress now more than ever. With the recent “Stimulus Package” signed in on February 17th, 2009, human resources departments are are trying to stay up with key laws and provisions.

This blog will have human resource related topics to educate business owners and employees on how to build more value with your most valued asset, your people.  Human resources can be one of the most time consuming and costly portions of your business, if you allow it to consume your time and energy.  My job is to simply educate business owners and employees like yourself that you do have more options.

Check back often to learn more about building value in your business. Topics to be discussed will include the following:

How can I lower my health care costs?
How do I increase employee morale and productivity?
How do I measure, and more importantly, decrease my turnover ratio?
How can a PEO increase my business value, protect my assets and handle some of my employee related issues so I can focus “On” my business, not “In” my business?
How do I stay compliant with all of these changing employment laws?
What is EPLI? How can it protect my business?
How can I do a “Human Capital Assessment” on my business to better understand my return on human capital?
How do I spend more time focusing on my clients and profitable venues in my business, not the monotonous back-end duties that take up valuable senior leadership time?

There are going to be some very in-depth discussions on this blog that will greatly benefit your business. Check back often and make sure to post ideas, questions and thoughts as you have them. Don’t hesitate to contact me directly for specific questions about your business.

Keep building value,

Jacob Hesse

How Can HR Increase Profits?

Business owners are constantly trying to find new ways to stay ahead of the competition and build a valuable business. If you are a non-profit organization, think about it as building value and maintaining a great organization that is worthy of future donations and contributions. No matter which industry you are in, you have to continually find new ways to build value and maintain a competitive edge in your field.

Too often, companies overlook their most valuable assets, their employees. Human resources is really an art of managing your employees, and it directly effects profits. From attracting and retaining the highest talent, to keeping the best employees within your business, these are challenges faced by every employer. Even when you have a qualified employee, how do you plan on retaining them as an asset to your organization? More importantly, how are you going to measure their productivity levels and how are you going to make sure they stay productive?  Productivity levels can drastically change your profits. Turnover can also be a major factor in your profits.  Both productivity and turnover levels should be analyzed and considered as a part of your companies strategic planning processes.

What can you do? Think about following some simple steps. First, hire the right people. Its not always easy knowing whether or not you have hired the “best” person for every job, but you need to do more then a simple interview. Conduct thorough background checks, get quality references and put your potential employees through some real hands on testing. If they show up to the interview looking drab, you may want to avoid any future discussions.

Secondly, productivity can be improved by doing things such as training. If your budget allows, make sure your employees have the opportunity to do some continued education. Send them through a leadership development course or time management seminar. You will be amazed at how much your profits can be affected in the long run by allowing your employees the opportunity to grow personally and professional under your watch.

There are hundreds of different ways to decrease your turnover and increase your productivity levels, so its important to look at your HR department. What kind of training to you offer your employees? How well do you recruit and retain your employees? Have you looked at your historical turnover ratio? Have you implemented any long term cost containment strategies? Do you have any asset protection against employee related law suits?

Being an employer is not easy, but it can be very rewarding. Treat your employees the same way you want to be treated, with respect and dignity. Don’t think of your employees as a “dime a dozen.” If your business is your most valuable asset, then your employees should be as well.

Continue to create HR value, and you will be surprised at the outcomes.

Jacob Hesse

What is a PEO?

What is a PEO? If you asked 10 people that question right now, how many of them would be able to answer that question? If you are lucky, maybe 3 of them would be able to give you a good overview of the PEO industry.

The Professional Employer Organization (PEO) industry is one of the most consistent, growing industries in the U.S. What does that mean exactly? Well, this industry, otherwise referred to as the “employee leasing” or “co-employment” business, has continued to show growth since its inception in the late 1980’s. In fact, during its first decade of existence, employee leasing grow at a 1000% rate. Since the year 2000, the industry has continued to grow at a 30%+ rate per year. How could an industry, one that is not widely known or understood, have such phenomenal growth?

The simplest way to explain a PEO, is to think of it as an “outsourced human resource department.” Every business with employees, could benefit from using a PEO. In fact, unless your firms focus is “Human Resources,” you should look into using a PEO. Why? It’s simple, save money and increase your human resource value within your organization.

PEO’s offer considerable savings in areas such as payroll, benefits, workers’ compensation and general human resource related affairs. This varies state-by-state as well as PEO-by-PEO, but the general idea remains the same, PEO’s can save you money. With money saved is money and value earned. In many scenarios, you may be able to take advantage of the significant savings offered by a PEO to completely off-set the initial investment for their services! This industry has one focus, and that focus is HR. They can help manage your employees and all of the processes that go along with HR.

Whether your business has 5 employees or 500 employees, you can benefit from a PEO. It does not cost you anything but time to get a quote, so why not? If you truly value your time, then you would stop worrying about changing HR laws, payroll reporting, benefits administration and all of the other monotonous HR related duties and start outsourcing these tasks to the professionals. This does not mean that your firm does not have a professional HR department, but in most situations your company does not have the group buying leverage a PEO does. For example, Landrum Human Resources has over 10,000 employees under its PEO umbrella. Consider the efficiencies and buying power of an organization that is dedicated to doing one thing, managing your HR functions.

Do some research before you jump into bed with a PEO. After all, they are going to be handling your most valuable assets, your employees. Even though you retain all decision making for your employees (hiring, firing and direction of daily work), you still want to research your PEO and make sure you are getting your money’s worth. DO NOT pay for PEO services, and get stuck with “Payroll-Only.” If they claim to be a true PEO, make sure they are experts in the HR arena.

For example, how well does the PEO handle an EEOC claim? Do they fight these battles for you? What kind of training does the PEO offer for your employees? How can they help your productivity levels? How can they help your turnover rate? What kind of accreditation’s do they carry (ESAC, NAPEO, WC Cert. etc.)?

A PEO is a trusted advisor, not a vendor! I am willing to bet that you take your time in choosing the right attorney to represent you as well as a reputable CPA…why not choose the best PEO as well? Just like everything else in life, sometimes you get what you pay for. There are many PEO’s that promise lower health care rates and lower billing rates, only to turn around and raise them on you a year later. Make sure you look at their historical rates as well as their financial stability. If they are going to be handling your payroll, you will want some guarantees that they will pay your employees on time and any applicable claims.

In summary, a PEO just makes sense. Stop thinking about everything that can create value in your business as an expense, and start thinking of it as an investment. When you find the right PEO, they can give you a great return on investment. Yes, its great to see the initial hard cost savings right when you sign up with a PEO, but don’t get caught up on initial costs/savings. Think long-term with your PEO provider, why wouldn’t you?

Jacob Hesse

Smart Ideas For The Workplace

Are you looking for some smart ideas for the workplace? If so, here are a few ideas you may want to try out.

Idea Box – simple, yet effective. If you haven’t already, allow your employees the opportunity to share their ideas with an “idea box.” Your employees may have some great ideas on how to cut costs and improve productivity. You can make it interesting by giving a gift card to the employee with the best idea each quarter. Be creative and find a way to show your employees that you value their ideas.

Create a Wellness Program – this is especially important for those companies that have increasing health care costs. A wellness program can help show your insurance carrier that you care about your employees health. A healthy employee is a happy and productive employee. You shouldn’t expect more than 25% of your total workforce to get involved with the wellness program right away, so don’t try to push it on them. Eventually their co-workers will start telling them about how much fun they have had with the program and they will encourage one another to join. Once again, offer some kind of reward, like paid time off. You can create a committee to track each employees performance each month, and give out awards for those that reach their goals. Keep it simple.

Create a Fun Committee – this can be a great way to keep things fun and exciting in the workplace. Your employees should feel comfortable in the workplace, and what better way than to have a fun committee? You can plan company picnics, a good old fashion recess at lunch or just plan company parties. This can be a very good way of building strong relationship among your employees, which ultimately leads to a fun and energetic workplace.

If you have some more fun ideas for the workplace, please share it with everyone. Work is the “necessary evil” that we must all partake in, well most of us anyway… so we may as well make the workplace a fun place to be.

Jacob Hesse

Consolidate, Leverage, Outsource, Save Money All At Once

If you are a business owner, please write down your answers to the following questions:

1. Who handles your workers’ compensation insurance, claims and overall administration?
2. Who handles your benefits administration?
3. Who handles your state and federal unemployment filing?
4. Who handles your payroll?
5. Who handles your employee related issues?
6. Who do you have for your EPLI coverage?
7. Who implements training for your risk management and safety policies?
8. Who trains your staff on sexual harassment & leadership development?
9. Who stays on top of FMLA, ADA, EEOC, COBRA and all relevant employment laws?




Answer: If you had more then 1 entity for all of these answers, you are behind the curve.

All of these items listed are important functions for your business. They can affect your business in many ways, specifically asset protection and profitability and/or overall organizational value.

Solution: Unless the items listed above are your core competencies, you should get some quotes on outsourcing to a PEO, employee leasing or co-employment model.  The entire purpose of these organizations is to focus on human resources, nothing else.  A PEO would do a terrible job trying to run your medical office, law firm, bank or whatever other type of business you may have, but the reputable professional employer organizations’ will likely perform your HR functions better then your staff could.  Think of them as a “trusted advisor,” much like your corporate attorney and/or tax accountant/CPA.  Do you have an HR Trusted Advisor?

Why? Look at the items above, and give yourself a best guess estimate of how many hours your senior level leadership puts into administering any of these functions. What if you could save just 100 hours per year for one senior level employee from dealing with these items. Whether its negotiating new health insurance rates, finishing workers’ compensation audits, dealing with unemployment claims etc., think about the opportunity cost. If this single employee is worth more than $10/hour, I guarantee the outsourcing will pay for itself.

In most scenarios a professional employer organization (PEO) will charge your firm anywhere from $5/hr to $25/hr if you were going to break down their fees to the hourly level.  This is a range of hard dollar cost that you will be invoiced from a PEO, think of it as getting your corporate attorney on call at all times for $5/hr.  Only a PEO doesn’t just bring a “what-if” type service, they handle the day-to-day HR functions for your business to include payroll, benefits, workers’ compensation and all of HR administrative functions.  In some situations, new clienst of a PEO show an instant hard dollar cost savings due to lowered rates in things like health care premiums, but if your company does not get an instant savings you should not discount the value of the service provided.  Too often businesses believe they can get all of the professionalism that a PEO offers for free, as if they weren’t a real business!  Be realistic, if you are going to get a company to take on risk, administer parts of or all of your human resource affairs, don’t be upset to see that you may be looking at a nominal investment similar to hiring a $7/hr FT employee.

In most scenarios, a PEO will off-set their fees through health care plan savings, workers’ compensation insurance savings, state unemployment rate savings and most importantly employee time. Every state has different guidelines for these off-sets, but it is definitely worth your time to look into.

Stop telling yourself you “Don’t Outsource.” Unless you answered all of the questions above as an “internal item your business handles,” then you are already outsourcing. Unfortunately, you have not maximized your return on outsourcing, your just one step out the door. Take the plunge and call a PEO.

Jacob Hesse

Protect Your Biz from Employment Lawsuits

It’s no secret that the Obama Administration is very “pro-labor.” Just look at the stimulus package that was passed and you will see the first signal from this administration that more protections and securities are going to be put into motion for employees. In fact, employment law is the fastest growing area of litigation, so how do you protect yourself from employee-related law suits?

Many firms get insurance, known as Employment Practices Liability Insurance, to protect themselves from employee related lawsuits. The only problem with EPLI is how unaffordable it is for small and medium size businesses. Deductibles are usually considerably high, and the main protection that you seek (punitive damages) is hard to get into an EPLI policy at an affordable rate. Just like buying insurance for your car or home, EPLI policies vary in protection and underwriting policies.

One alternative many companies will choose is looking into the “Employee Leasing” or “Co-Employment” model as a way to hedge some of these risks. How does this work? A professional employer organization (PEO) will enter into a co-employment relationship with your company, and some PEO’s offer EPLI coverage as a part of their service package. This is can be a very cost-effective way to get EPLI coverage without paying the large premiums yourself. The PEO may still charge a small fee to your business for this coverage, but at a fraction of what the actual policy costs.

What else can you do? Employment law is the primary responsibility of your HR department. Some companies hire on internal general counsels to oversee risks such as employee related lawsuits. Other firms search for a “Trusted HR Advisor,” to call on for employee related issues. You should not assume that 1-10 internal HR managers will be able to stay on top of 100% of the growing changes in employment related laws. Most HR managers have enough on their plate to start with, that staying on top of FMLA, ADA, COBRA, EEOC and all of the other employer related statutes and laws is simply overwhelming. In fact, some companies have one individual who’s sole purpose is overseeing FMLA changes and administration, 40 hours a week!

There are some very cost effective ways for you to protect your business. With the average employee related lawsuit averaging $120,000 to $150,000 for initial court costs alone, it is definitely worth your time to research some additional protection to your business. Its not “if” but “when.”

If you are curious about how much of this is true, in terms of rapid changes moving forward in employment law, go ahead and Google it. You will be surprised to see how much is already in the pipeline for 2009 and this is only the first year under our new administration.

Stay informed, stay protected & stay profitable.

Jake Hesse