Realize the Benefit

Westring Construction is only four years old, and owner James Westring brought on his first employees just last year. But already the Madison, Wis., remodeler offers a full complement of benefits, including paid time off, health insurance, and a SIMPLE IRA. Knowing the challenges of attracting and retaining talent, Westring says he felt compelled to have a benefits plan ready before he held his first job interview.

“It took up a lot of my time,” he says. “I had to do it where I found an open spot. It took me probably a good three or four months of on-again-off-again research — getting quotes, asking questions. It was a lot of work, but I knew I had to do it.”

Putting together a comprehensive benefit package, as Westring found, is time-consuming and often frustrating. But he isn't alone in recognizing the necessity of the effort: Survey after survey finds that benefits attract quality employees, promote long-term relationships, and advance a company's professionalism. Many remodelers also say that, looking beyond the bottom line, they feel morally obligated to offer benefits such as health insurance and retirement plans. However much they may complain about the legwork, these remodelers find a way to establish and administer a market-competitive benefit package while keeping the rest of the business in order.

Essentially, there are three approaches to setting up and administering a benefit package: hiring a full-time human resources coordinator; outsourcing HR and benefits through a professional employee organization (PEO); or handling benefit administration yourself, or with the help of a bookkeeper or administrator. The first two approaches offer, respectively, a high- and low-cost option for taking benefits administration out of the hands of the remodeler. But each has its advantages and disadvantages, and, if only for the sake of short-term convenience, most remodelers opt to handle things themselves.

It's by far the most expensive strategy, but hiring a full-time human resources professional offers significant benefits. The gain is two-fold: A human resources professional saves everyone else a great deal of time and trouble and at the same time provides expertise in benefits and human resources issues likely unmatched by anyone in the company.

At S.N. Peck Builder in Chicago, co-owners (and husband and wife) Neil Peck and Barbara Rose recently hired Iola Alexander as the company's first human resources coordinator. They decided to create the position after the addition of a Case Handyman franchise grew the company to 50 employees.

Arriving with 20 years of experience, Alexander made an immediate impact. “She's much better at handling the ins and outs” of benefit administration, Rose says. “We now know we're consistent with state laws and that our practices are clean and first-rate.”

Alexander handles every aspect of HR and benefit administration, from recruiting to health insurance to tool and gas allowances. She also researches new benefits, such as telecommuting, at the request of the owners. And Alexander provides an extra layer of management, setting up employee meetings and managing performance reviews. She was particularly helpful when it came time to reassess the company's insurance policies, Rose says.

“We went and got competitive bids for every type of insurance. I wouldn't have had time to solicit those bids and evaluate them the way she did,” Rose says. “She even made a color-coded chart [listing options]. We saved a lot of money that way.”

Unfortunately, for most remodelers a full-time human resources coordinator isn't affordable: Starting salaries for trained, experienced HR professionals generally begin around $40,000 a year. After considering the alternatives, Rose says, S.N. Peck Builder decided that the size and revenue of the company warranted the expense. But at 50 employees, she adds, “we're right at the edge of where it makes sense.”

For small and midsize companies, outsourcing benefits and human resources to a professional employer organization (PEO) is a more likely solution than hiring a dedicated staffer. By allowing many small companies to access the resources of a much larger organization, PEOs can provide comprehensive human resources and benefits services at a relatively low cost.

PEOs do everything an HR coordinator would do, including managing payroll, workers' compensation, health insurance, and retirement plans. Many also provide free consulting to help with establishing HR policies, as well as benefits education.

The way it works is this: A PEO enters into a relationship with your company in which it takes legal responsibility for every aspect of the business related to your employees. This includes payroll, tax compliance, workers' compensation, health insurance, and retirement benefits. So, because they legally employ all their clients' employees, PEOs can spread risk over a huge pool of employees and negotiate low rates for health, workers' comp, and various other insurances. No matter how many employees you have, if you buy health insurance through a PEO, you qualify for a large-group rate.

PEOs charge an administrative fee in addition to the cost of wages and benefits. Usually these fees are set as a percentage of payroll, somewhere in the range of 2% to 7% for complete services. So, for example, a company with a payroll of $500,000 might pay somewhere between $10,000 and $35,000; that's thousands less than even the lowest-paid human resources professional.

Remodeler Todd Jackson brought on a nationwide PEO called Paychex after his company grew from three to 25 employees in just four years. Paychex helped Jackson create much-needed HR systems and at the same time improve administration of his company's benefit package, which includes health insurance, 401(k), and a profit-sharing plan. The whole service, including free consulting and on-site benefits education costs, less than $60 a month per employee.

“As our volume grew,” Jackson says, “our staff grew, so our need for better systems grew. Paychex allowed us to get a handle on the overall benefit package so it wasn't a burden.”

Paychex also offers online self-service —each of Jackson's employees can access his or her own records online without consulting office staff. More importantly, employees can make their own adjustments to retirement and medical withholdings, a huge time savings because Jackson offers his staff consumer-directed health insurance that requires they take an active role in shaping their own plan.

Although hiring professional help is an attractive option, many remodelers feel it's not worth the cost and opt instead to manage benefits and HR administration by themselves. When that's the case, it's typical for companies to add benefits one or two at a time over several years. David Crane, owner of Crane Remodeling in Nashville, Tenn., provides his employees with holidays, vacation time, and health insurance, as well as both a 401(k) with a 25-cents-to-the-dollar match, and a profit-sharing plan. But it didn't happen all at once.

“We've added benefits progressively,” Crane says. “As soon as we brought on full-time employees, we did vacations and paid holidays. Then a few years later we did health insurance, and a few years after that we added the 401(k). Starting out as a small company, you have to think at first about what you can afford and what you need most.”

At companies large enough for benefits to be an administrative burden, remodelers usually have some help in the office to lighten the load. Conscientious and capable administrators can be invaluable in this situation.

Julie Thibodeau, bookkeeper at Criner Construction for six years, spends about 15 to 20 hours a week on benefits and human resources administration, according to company president Robert Criner. Thibodeau's efforts for the Yorktown, Va., company include helping with everything from organizing the company's annual pig roast to policing employee use of company cell phones.

“It falls into Julie's hands to research these things enough to where I can handle them in an effective manner,” Criner says. “She takes care of a lot of it without being told to.”

Sometimes remodelers find that a qualified administrator is worth making an effort to keep. At Atlanta Design & Build in Marietta, Ga., company founder and president Dale Contant offers flextime and a work-at-home option to Vicki Wadsworth, the company's director of administration.Wadsworth, whose corporate experience has helped improve Atlanta Design & Build's human resources management, uses the added flexibility to pursue missionary and community service work.

“The big picture is she's getting her work done, and she's incredibly valuable,” Contant says. “If she's able to get it done and she's happier [because of the flextime arrangement], that kind of thing goes a long way with an employee.”

Even if human resources duties are included in the job description, however, it's rare that office workers are trained for more than an administrative or bookkeeping role. That means the complex tasks of research and employee education fall to the company owner.

Health insurance is widely reported to be the benefit most desired by employees, but for remodelers (and most other small-business owners) it's also the most troublesome. On the rise for years, rates for traditional plans continue to soar. New consumer-directed plans offer lower-cost options, but the plans tend to be more complicated, a fact that doesn't make deciding any easier.

“Health care, I think, is the hardest thing to manage,” Wadsworth says. “You're trying to find the medical care that's cost-effective for the company but that provides quality health care without costs that are so high to the employee that the benefit is no longer there.”

Finding a plan isn't easy. And sudden spikes in premiums can send remodelers scrambling for a new plan — you might have just 30 days to find a new plan or be forced to pay the higher rate.

To facilitate the research process, remodelers typically turn to independent insurance brokers. Brokers know what's available inside and out. Tell them your needs and limitations and they'll present you with a handful of potentially suitable plans, making your decision easier. More importantly, brokers have contacts and a deep knowledge of cost structures, which enables them to negotiate far better rates than you would on your own.

“The brokers are the ones you really rely on to tell you what's out there and what's best for your company,” says Everett Collier, co-founder of the San Francisco firm Collier-Ostrom.

With retirement programs, too, much of your effort will be spent finding the right plan and getting employees to see the value in it. Typically, remodelers seek the advice of a professional to help them choose and administer a plan. Some remodelers have independent financial advisors, but you can also go directly to a financial services institution, such as a bank, an investment fund, or an insurance company. Their representatives can help steer you toward the right plan.

Whether it's health insurance, a retirement plan, or something less complicated, setting up the program is only the beginning. Making sure employees know what they're being offered is just as important.

“The challenge is helping production really understand the benefits that are available to them and to really make sure that we are communicating effectively,” Wadsworth says.

At Winans Construction, Paul and Nina Winans motivate the Oakland, Calif., company's employees to study company policies and programs, and strive to constantly reinforce that knowledge.

“We set up a cycle where these things get spoken about regularly,” Paul says. “We have weekly production meetings, and every fourth week, we go through items in the employee manual; we ask questions about the manual and people acquire points for correct answers.” Employees who earn enough points can win prizes such as new tools.

Thanks to the increasing popularity of flexible spending accounts (FSAs) and health savings accounts (HSAs), which offset high deductibles with lowered premiums, educating employees about health insurance has never been more difficult. The idea behind these plans is that employees can use the savings that result from lower premiums to fund accounts that they can draw on later when expenses arise. Employees, however, often struggle to see the benefit.

“Education is probably the greatest obstacle that employers face in getting employees to recognize the value of [consumer-directed plans],” says Trent Bryson, an HR consultant.

The key is to emphasize the savings that employees will realize through lower premiums and tax deductions.

“All too often,” Bryson says, “the complaint from employees is that they're reluctant to set money aside because they don't want to take time to think about what their expenses are going to be. But if you said to an employee, ‘I'll give you $1,000 to sit down for 20 minutes to think about your expenses,' they'd do it right away.”

Retirement plans also require a substantial educational effort, says benefit expert Richard Davis. Failing to communicate the value of the program will surely result in disappointing employee participation.

“Selecting a vendor takes a lot of time and effort,” says Davis, a consultant in Chicago. “Often we see a lot of effort going into that selection process, and then the information is handed out to employees and they're expected to figure it out on their own.”

The first step is to have a professional from your financial services provider meet with your employees to explain the plan and all of its options.

“We have weekly production meetings where all the guys in the field are together,” says Wadsworth, of Atlanta Design & Build, “so we schedule an IRA expert to come in and talk to the guys. That way they're hearing it from the expert first-hand. It takes just 15 to 20 minutes and then [employees] can ask any questions they want.”

Atlanta Design & Build offers employees a SEP IRA and a dollar-for-dollar match. Contant agrees that it helps to clearly explain what an employee's contribution is worth: “If you have someone who shows [employees] on a board that if they make $1,000 a week and they're putting 3% [in their IRA], that's $30, but since it's tax-deductible, it's really only $20. Then, if the company matches that 3%, it's actually a $60 contribution. So it might end up costing him only $20 to put $60 in his account.” —David Zuckerman is a freelance writer based in New York.

If you do hire a PEO, it's important to remember that the company is economically motivated. A study in the journal Entrepreneurship: Theory and Practice found that PEOs may, for example, take advantage of incomplete contracts that fail to limit fee increases, account for future needs, or explicitly spell out whether the PEO assumes legal liabilities.

It's also possible that companies with idiosyncratic cultures or processes will find that PEOs don't meet their needs for customized services; or that if they do, the company might become dependent on customized service, tolerating fee increases or a drop-off in quality to avoid switching vendors.

To ensure the best service, the authors of the study recommend that you work consistently with the same representatives — try to find a PEO that either provides a permanent point of contact or assigns small teams to just a few regional clients. (For more information about PEOs or to find a PEO in your area, visit the National Association of Professional Employer Organizations' Web site at www.napeo.com.)