The Bigger Picture: No More HR Headaches?

June 1, 2007
Pamela Moore, PhD

It seems that more practices are turning to third parties to take over hiring, firing, and managing staff. Sounds good. But be careful.


Lately I’ve been getting a great many questions about professional employer organizations (PEOs) - companies that provide human resource management on behalf of employers.

PEOs are nothing new. So either the physicians I talk to are especially sick of dealing with HR, or a trend is beginning to emerge.

PEOs promise to take all the burdens of HR off your shoulders. They’ll write job descriptions, make sure you comply with labor laws, do payroll, hire and fire, and even allow your employees to share in benefit programs usually available only to big employers.

How much work a PEO does depends on what you want. “Most often, we see physicians who want to step out of the role of HR, period. They want to see patients,” says Noel Rosas, business development representative for Staff Resources, a PEO based in Sacramento, Calif. No surprises there.

Imagine no more frustrating conversations with schedulers. No more arguments with front-desk staff. No more hoping an overburdened manager with scant HR experience will magically start handling staff without your help. “Physicians can separate themselves from the business of employment. They can just say, ‘Here, you take care of this for me,’” Rosas assures.

Ronald L. Evans loved the PEO he used as a manager at a nine-physician cardiology practice. “The transition to the PEO went rather smoothly for us,” he recalls. “The practice saved a considerable amount of money on group health insurance expenses, and the PEO afforded our physicians and staff a much wider menu of benefits.” Evans is now executive director of finance and administration of the internal medicine department at The University of Texas Health Sciences Center in Houston. The staff there is also under a PEO beloved for its benefits.

As always, however, the benefits come at a price - 3 percent to 5 percent of gross payroll, according to Rosas. You have to decide which is more painful: the HR duties or additional overhead.

And if you do decide to move forward with a PEO, shop carefully. “In shopping for a PEO, no two seem alike in the way they price their products or structure that pricing. That makes comparisons problematic,” Evans says.

Some PEOs might not even be interested in your business. PEOs typically work best in large groups or in situations where smaller groups join together to enlist their help. A smaller group might not have enough employees to make the business worthwhile to a PEO, warns Nick Fabrizio, a consultant with the Medical Group Management Association. Or, if staff includes physicians, the price may be too high.

“It can get tricky if some of your physicians are employed and receive W-2 wages, while others are compensated via 1099 or K-1 distributions,” Evans explains. “PEOs generally price their product based on a percentage of total payroll. If the majority of your physicians are employed and receive W-2 wages, the price of a PEO can be prohibitive.”

And as much as staff woes drive you crazy, are you really ready to let someone else have a say in whether you can hire your niece or fire your nurse? “It always is a little more difficult when you’ve got a third party in there,” Fabrizio adds. “People think they still have control but no headaches,” but it may not work that way. “And when you run the numbers, people are surprised by how much freedom costs.”

Trend or not, only an analysis of the numbers - and your heart - can tell you whether a PEO is right for you.

Pamela L. Moore, PhD, is senior editor, practice management, for Physicians Practice. She can be reached at pmoore@physicianspractice.com.

This article originally appeared in the June 2007 issue of Physicians Practice.