5 Small Business Concerns That May Impact PEOs
The National Association of Professional Employer Organizations (NAPEO) reports a “decidedly negative” turn in the PEO Index. The PEO Index studies the bi-weekly status of payroll feeds on 160,000 employees at 8,000 worksites. The Index concludes that the dip in participation is due to 1) the extreme winter endured throughout large parts of the country and 2) the further delay in the Affordable Care Act mandate. Theory is that these conditions reduced the urgency for businesses to contract with PEOs.
However, other issues are squeezing small businesses from several directions and, at the very least, distracting them from rational analysis of PEO opportunities.
1. Healthcare
The Affordable Care Act is the law of the land, and it will likely continue through the next generation. Every serious and unbiased analysis indicates that premiums paid by employers will increase and the uninsured will be driven by the marketplace into employer plans where available. Small business employers have anticipated the change, budgeted for the increases, or planned to drop employee healthcare benefits.
The huge snafu during PPACA enrollment rollout and the subsequent postponement in the mandated enrollment date left businesses confused, sent them back to their budgets, and reduced their immediate concern for increased insurance costs. Small businesses pressed by their real time costs are in no hurry to incur new expenses.
2. Uncertainty
Political and economic inertia remain the government’s only certainty. The stock market has reached new record highs in fits and starts. The private sector has added a significant number of jobs. Housing starts and the GDP have steadily increased. However, no event has had enough spark to increase significantly consumer or business confidence. So, small business budgets, growth, and investment remain as sluggish as Washington’s inclination to raise taxes, manage spending cuts, and control the debt ceiling. Sequestors, freezes, or whatever they are called radically affect small businesses.
3. Minimum wage
The increase in the federal minimum wage, implemented as progressively, should not affect small businesses acutely. Implementation occurs over enough time for owners to adapt and adjust. However, it does mean an increase in labor burden that owners have to weigh when making decisions on benefits.
Seattle’s recent increase in minimum wage to $15/hour can prove more difficult. Even with a layered implementation, the increase is intimidating. It will drive businesses to reconfigure their organizational structure, re-think future hires, or lay off employees.
4. Capital
Lenders control more capital than ever, but the financial crisis of the last decade was solved partially by requiring lenders to tighten restrictions. Small businesses, thus, find it harder than ever to secure the capital needed to sustain or grow their business.
Restricted financing keeps employers from making new hires, let alone entering co-employment agreements. It reduces the business ability to make capital investment in the technology to remain current, competitive, and secure from cyber-attacks.
5. Taxes
According to Forbes, “tax compliance places a large burden on small businesses, both in the aggregate and relative to large businesses. The Internal Revenue Service estimates that businesses with less than $1 million in revenue bear almost two-thirds of business compliance costs.” It is not surprising, then, that “small business are more likely to underpay their taxes.” Most of this is unintentional because of the complexity of the IRS code, but the press of unresolved tax issues worries business owners into reserving funds.
PEOs offer solutions to all these concerns. However, contracting with a professional employer organization comes at a cost. Any PEO vendor and small business owner, given the chance to sit at a table with all their cards on the table, can structure an agreement that is realistic and cost-effective. However, all these concerns present significant distractions that get in the way of such sane and sober agreements.
Additional Source:
Seven Tax Issues Facing Small Business, 2014 by Donald Marron
