ABCO Payroll Services®

By Roger Reynolds

Employee leasing companies expenses are increasing and revenues are decreasing. The "SUTA Dumping" law is going to have a significant impact on the expenses of employee leasing companies (see my article in ABCO Payroll Services August 2006 newsletter).

2006 has been a year of layoffs and closings in the construction industry; this means unemployment claims against the employee leasing companies have increased, which will increase their unemployment tax rate. In the past the employee leasing companies would just transfer employees at the beginning of the year to one of their companies with a minimum tax rate. The new law will prevent those transfers in January of 2007.

Workers' compensation rates dropped an average of over 13% in 2006; in 2007 the drop will be over 15%. Many employee leasing companies are at least partially self insured, this means revenues are going to drop.

Increased expenses and reduced revenue means less profit for the employee leasing companies if they don't raise rates, such has been the case for GevityHR which raised rates 14.9% in 2006. Even with the increased fees Gevity's 3rd quarter 2006 profit was 11% lower than last year's. Roy King, the company's president and Chief Operating Officer, recently left the company and there are no plans to replace him. Chief Technology Officer Lisa Harris, who joined Gevity in 1999, plans to retire at the end of the year. It looks like they are being proactive on reducing costs for 2007.

Administaff is being required to pay over $5.6 million to the state of California after California's EDD (Employment Development Department) grouped together the various companies of Administaff which resulted in an increased tax liability for previous years. This is from Administaff's 10K filing for 2005:

In December 2003, we received a Notice of Duplicate Accounts and Notification of Assessment from the EDD. The notice stated that the EDD was collapsing the accounts of our subsidiaries into the account of the entity with the highest unemployment tax rate. The notice also retroactively imposed the higher unemployment insurance rate on all our California employees for 2003, resulting in an assessment of $5.6 million.

Administaff of course is still appealing the decision.

Now is the time to contact those clients that you know are with employee leasing and ask them if they are getting the workers' compensation rate reductions passed along to them. Offer to do a comparison of cost with the new lower rates. Tell them you have an "Alternative to Employee Leasing" that may save them money and put them back in control of their business. (Of course that would be payroll service with ABCO Payroll Services and a pay-as-you-go workers' compensation policy that you sell.)

I look at the competition with leasing companies in the long term; that means I see it as a victory even if I don't get the account as long as the leasing company can be forced into lowering their price. The more they lower their price the less profit they are going to make and the less competitive they are going to be in the future.

Happy Hunting!!