As a member of the highly regulated cannabis industry, you may be considering a Professional Employer Organization (PEO) to manage your workforce needs. By partnering with a PEO, your employees are “leased” to the assigned organization, where they become the employer of record, managing payroll, tax filings, and compensation claims.
Although this strategy may seem appealing, it’s important to consider your company needs and goals before handing over the keys to your workforce to an outside party. Here are a few things to think about before deciding whether a PEO is right for your cannabis business.
PEOs are often thought of as a great resource for small companies just getting started. This has been an even stronger sentiment since the passing of the Affordable Care Act (ACA). One of the main value propositions of a PEO is that they can leverage their large ecosystem of employees under their umbrella to offer reduced healthcare costs for small businesses. While the initial benefits of a PEO seem appealing to many small businesses and entrepreneurs, their cost can begin to outweigh the benefits as you grow (especially above 100 employees).
When scaling, a challenge you’ll face if using a PEO is that as you grow, your cost to retain employees internally will decrease (on a per employee basis), but a PEO’s per employee cost isn’t likely to change. PEO’s typically charge a percentage of your entire payroll, and don’t usually offer regressive pricing as you scale. For example, if you have 30 employees, the per employee price you’ll find through a broker, or even independently, isn’t likely to be lower than what a PEO, charging 3-10% of your entire payroll, can offer. However, as your internal employee ecosystem grows (number of employees), healthcare prices (main driver of employee cost) will decrease on a per employee level; so at 100 employees it is very likely that your independent pricing will be competitive and often times lower than a PEO that is still charging that 3-10% of your entire payroll.
At a certain point, every company will find it more cost effective to internalize HR/payroll efforts and convert to something like an Administrative Service Organization (ASO), sometimes also called Business Process Outsourcing (BPO). These operate similarly to a PEO, but offer your organization full ownership over your employees, processes, data, and more.
You’re probably thinking, “great, I’ll use a PEO for now and switch when/if I ever get that big.” While that is an option, keep in mind what the “break-up” process might look like with a PEO that has full ownership of your employees, processes, data, and more. With any Human Capital Management (HCM) partner, you will rely on them to not only keep your data and records safe, but also report those records in a timely and responsible manner.
PEO’s differ in that they often have complete legal control over that data and those records. A PEO that loses motivation or desire to fulfill their obligations (because of contract disputes, or another means of disturbance) can cause considerable damage to your reputation and legal status. These are crucial in the cannabis industry where compliance is key. More importantly, a failed PEO partnership can lead to considerable financial costs and even potential cannabis license revocation.
2. Software and Data Restrictions
When you choose to work with a PEO, you must be ready to trust them with your employee data. In addition, you must trust that their software is, or can be customized for your exact needs (and is adaptable as you grow and your needs change).
A common criticism of PEOs is that, because they aim to serve a wide variety of clients, they often have a “one size fits all” or “out of the box” software that might serve some clients better than others. Being dependent on their software, means being dependent on them for customization, troubleshooting, etc. In addition, it means depending on them to collect, store, manage and own your sensitive data. In the cannabis industry, where 1 in 3 businesses is audited every year, ownership and proper organization of your employee and payroll data is crucial in proving compliance and avoiding regulatory restrictions.
3. What if your relationship with your PEO goes south?
For a lot of small business, it seems like a no-brainer when a PEO offers the ability to save considerable money and reduce the stress of Human Capital Management. However, knowing that your PEO will have full legal control over your employees’ benefits, tax filings and more – what happens when the relationship goes south?
In an example described in Forbes Magazine, a company’s PEO changed their terms during implementation and the company was forced to either pay outrageous fees upfront(undisclosed in the sales process) or have all their employees dropped by the PEO.
It’s important to note that many small businesses have great experiences with PEOs, and that model is the preferred way of payroll and HR management in many cases. As a rule of thumb when considering a PEO, always ask your prospective PEO partner (and yourself) these questions:
- How many hours per week will you guarantee and dedicate to my company?
- Will we have a dedicated contact, or will my employees have to speak with several different people?
- Do you have my employees’ best interest at heart?
- How unbiased can you be when making recommendations considering you’re liable for your advice
Wurk: Your Cannabis HR and Payroll Solution
Wurk was designed and built to facilitate the healthy and compliant growth of the cannabis industry. Our cannabis software, combined with personalized support and HR services will ensure you are managing your workforce like other best-in-class organizations while avoiding compliance pitfalls. Unlike a PEO, Wurk operates as a part of your HR team, so you still maintain full control over workforce policies, employee benefits, etc. We take the stress out of applicant tracking, on-boarding, payroll, benefits, scheduling/timekeeping and much more.
We’re proud to support all verticals of the cannabis industry to ensure businesses can comply and thrive in this rapidly evolving regulatory market. And we know that your people are your most important asset, so we’ll give you the tools you need to protect what matters most.