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Benefits Column

Help for Small Employers

For decades, small businesses have been neglected by large employee-benefits-service companies. But there are now a couple of vendors working to fill that void.

Monday, November 14, 2016
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Most people familiar with my career associate me with large employers and healthcare systems. And while it is true that I've spent a lot of time working with big businesses, my heart often gravitates toward the smaller ones. I've been an adviser to a number of start-ups, sat on several advisory boards and run two small businesses myself.

Here's what I find interesting about the small-employer world. Not many service companies seem to want to help them -- especially when it comes to HR and employee benefits. It's not that they find small businesses difficult. And it's not that there aren't an enormous number of small employers that need help. Service vendors avoid them because their business is simply not worth the set-up costs, which are not offset by the per-employee/per-month charges. Therefore, working with small employers is less profitable. So these merchants either turn down the opportunity to work with small businesses or they want to charge a much larger set of fees. This leaves small employers feeling frustrated and disenfranchised.

I was drawn to head up small businesses because of their missions and value statements, and because I saw a clear way to use my accumulated experiences and expertise. Interestingly though, I was never hired for my HR and benefits knowledge. In fact, no one asked me any questions about my experience in this area during any of my interviews.

Shortly after taking over one of the businesses, I found it was a quagmire of benefit set-up errors, haphazard payroll execution and absent HR policies and procedures. In one instance, the company's payroll vendor even forgot to pay employees one week.

In fairness to my predecessors, they did not understand how to set up and run a business from an HR perspective. And they couldn't find anyone to fill in that gap. To their credit, they put together a collection of local accounting and legal services to help them, but didn't know how to vet their expertise, and they were reluctant to use them extensively in order to keep expenses down. I find this same approach with all of the small employers I've worked with.

So, when I recently had a conversation with Josh Reeves, CEO and co-founder of Gusto -- a payroll, benefits and HR services firm with 40,000 small-business customers -- I was not surprised to learn that one-third of small employers are fined by the Internal Revenue Service for errors with payroll taxes. In fact, in one instance, as I worked to correct benefits errors one of my companies had made, I found myself facing fines as well.

The good news for small businesses is that companies such as Gusto are available at reasonable costs to fill in the HR holes. The bad news is that the majority of the 28 million small employers in the United States have no idea these service companies exist.

What's more, Zenefits, a former partner of Gusto, was in the news in November 2015 for violating insurance laws by allowing unlicensed brokers to sell health insurance. For those small businesses that were considering using a start-up HR vendor, healthy skepticism made some take a wait-and-see approach.

Zenefits was taken over by David Sacks, who recently released Z2, an "all-in-one HR" experience that takes advantage of an app approach to its services.

Sacks told me that Z2 exemplifies two things about his company: Zenefits is an industry leader in the HR, benefits and payroll services space, and the vendor has taken its experience with compliance violations seriously -- causing them to bake compliance into every product so small employers don't make the same mistakes they have been in the past.

I had long conversations with both Reeves and Sacks and found both companies offer similar breadth and depth of HR, benefits and payroll services. Specifically, on the benefits side, both players provide medical, dental, vision, workers compensation, life and disability insurance, as well as 401(k) services. They also offer automated rules for the execution of these benefits programs as well as live help.

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The differences between the former partner companies come down to a couple of things. The first is that Gusto started in 2011 as a payroll company and methodically added its benefits and HR services. Zenefits began in 2013 with flagship software that manages a company's insurance benefits and added it payroll services later on.

Both companies want to make it easier for its customers to focus on the reasons they created their businesses instead of payroll, benefits, HR and compliance issues.

How the two companies made money initially differed widely. Gusto charged a fee for its payroll services while Zenefits offered many of its services for free, since it made most of its money selling employee benefits such as insurance products. Gusto now, too, brings in money from commissions made from its benefits services.

For me, the greatest difference between the two companies is their philosophies.

Zenefits is a fast-driven company with a focus on bringing as many services to its customers as quickly as possible.

People often classify Gusto, on the other hand, as a kinder, gentler company with a slow-growth approach to expanding the services it brings to employers. For example, Gusto's payroll software allows bosses to write personal notes to employees on their paychecks, and provides a "welcome wall" where colleagues can write messages to new employees before they start work, along with tips for what to wear to the office and how long the commute is between home and the workplace.

Whether small employers prefer working with fast-paced or methodical-growth service vendors, they at least now have a relatively new way to focus on their businesses and provide employees with the best payroll, benefits and HR services possible.

Carol Harnett is a widely respected consultant, speaker, writer and trendspotter in the fields of employee benefits, health and productivity management, health and performance innovation, and value-based health. Follow her on Twitter via @carolharnett and on her video blog, The Work.Love.Play.Daily.

 

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