ABCO Payroll Services®

By Roger Reynolds

What impact has higher unemployment tax rates and lower workers' compensation premiums had on leasing companies?

Just because you haven't had businesses calling you every day to save them from employee leasing doesn't mean changes are not taking place.

Recently, two of our clients were solicited by employee leasing companies. One of those companies was offered .75% state unemployment (SUTA) tax rate; however the client was at the minimum of .12%. In years past the leasing company would also have had the minimum rate, but those days are over. The other leasing company was quoting a 1.5% SUTA rate. The bottom line, it would have cost both clients thousands of dollars more to go with employee leasing.

Keep in mind that the SUTA dumping law didn't take effect in Florida until January 2006. When the construction layoffs become part of the rate calculation equation in 2008, the SUTA rates for employee leasing companies are going to go through the roof!

And we all know what lower workers' compensation premiums will mean to experience mods if the claims don't decrease on a proportional level. (Does anybody believe claims are coming down?)

I believe the following paragraph from Gevity's 10K report for 2006 will be an eye opener when it comes to the impact the SUTA Dumping laws and lower workers' compensation premiums are having on the employee leasing industry.

"The Company has announced a long-range strategic objective of providing its range of insourced HR services to its clients on a non co-employment platform. This option provides significant flexibility for a client by allowing it to retain the benefits and insurance programs of their choice without the risk to the Company associated with providing workers' compensation and healthcare insurance programs to its clients. The Company expects to evolve towards this 100% service fee driven revenue business model. To date, the results of this new business model have not had a significant impact on the Company's revenues or results of operations."

You may want to read that again (I did). That's right -- Gevity's "long-range strategic objective of providing its range of insourced HR services to its clients on a non co-employment platform ..... is to evolve towards the 100% service fee driven revenue business model". I interpret that as moving from an employee leasing company to a payroll service provider offering a range of auxiliary services.

Keep calling those clients that are with employee leasing, keep chipping away, there is about to be a big hole in the employee leasing industry's facade.

You may want to read some previous articles from our monthly newsletter:

• "Unemployment Tax "SUTA" Dumping"
• "Why Now is The Time to Pursue Businesses who are with Employee Leasing"