Ep 84 | The Power of PEOs for Growing Companies with Pete Samson

Welcome to the Exit Engine Podcast, episode 84. So Pete Sampson, welcome to the Exit Engine Podcast.

Thanks, Joe. Glad to be here.

Awesome. So, so good to have you here, man. So, you know, today we're talking about something that is going to be unfamiliar to a lot of people, but I think it's Particularly important, as we said, to this audience, this $2 to $5 million revenue audience right now, because this is, as we know, this is a major inflection point for many things inside a business. There's a particular point of revenue growth where things start to change, and you can't necessarily— we talk about this all the time, right, John? You can't necessarily— what got you to this point isn't necessarily going to get you to the next level.

That's true.

The PEO. Okay, talk about what a PEO is and why it's so potentially so important to businesses at this particular point in time.

Sure. Yeah. So, so what a PEO is, it stands for Professional Employer Organization. And what that means is it's, it's an outsourced HR solution. But what happens is there's something that's actually very unique to it. It's called co-employment model. What that means is The PEO co-employment, your employees, their tax ID actually goes under the PEO's responsibility. And what that means is the, the PEO becomes the employer of record for like administrative purposes. And what that does is it allows the employees then get access to large group employee benefits. So like Fortune 500 benefits, you're under this PEO's plan. So you can be a company with 10 employees and you can have Google or Microsoft type benefits. What it also does is it does your payroll for you. It handles all of your tax compliance for employees across state lines. So they're the ones that handle all of that employee compliance. You no longer have to do that. And it also does your HR function. So you get access to these enterprise-level HR systems that connect all these kind of disjointed systems that we'll talk about in a little bit that a lot of these these types of businesses face.

Right.

But what it does not do and what the employer still does, which is very, very important, is the employer still retains 100% control of the hiring, the firing decisions. It stays their business, day-to-day operations, the culture, compensation, strategy, all of those things stay with the company. It's just you're outsourcing these administrative and HR and tax things and employee compliance to this, uh, this PEO. It's so— the real value is you can all—

Sorry, it's the best of both worlds, it sounds like, Pete.

The best of both worlds. Yeah, I mean, it really is for the, for the companies that it, that makes sense for. It sure does. Because when you think about a lot of these businesses at this $3 to $5 million range, right? So you either start a business or you've had this business for a long, long time and you, you want to exit. Well, usually you've built it from scratch at some point, and as you grow, you know, maybe you need to hire a— get your first salesperson, right? And now you're growing a little bit more, and it's like, geez, now I need to start hiring people. I need some kind of HR, but I don't— can't afford an HR rep necessarily. So you get an office manager. This office manager has been managing payroll and benefits and employee compliance and workers' comp and all of those things. Probably running it a lot of times out of spreadsheets and out of, you know, maybe you got a CRM system that you have stuff over here and then you are, you know, using other systems over here. The PEO is what solves for all of that. It allows these businesses access immediately to these huge, huge enterprise-level, you know, systems and it's all interconnected. Right.

It's amazing because again, it's probably a really cost-effective situation, right? I mean, A, obviously you're paying the service, right? But the idea is that also you're getting a level of benefits, as you said, and access to certain— because of the aggregate that they've built, right, where they're handling all these different things.

Right.

And because the employee's ID number, technically, they're being paid by this other company, technically, this other company can now go out and have all these benefits and could be giving benefits across different kinds of companies to different employees because they're technically part of that PEO, right?

And so, That's a—

but that, that, that's a huge— that, that for, for employee, right, for hiring of employees, for attracting talent, right, to a small company. I mean, this is the kind of thing, these benefits thing packages that, that, that can happen through a PEO like this are, are like major game changers.

Yeah. My, my kind of where I got into this kind of career was an employee benefits broker. That's, that's kind of my I still do a lot of that. And one of the biggest problems is medical insurance specifically is incredibly expensive.

Yep.

And it's year-over-year renewals we're seeing of 16%, 18%, 20% in some cases for these small businesses. That's normal now. That's medical inflation. That's not you've got bad claims. That's the way it is. And so you're exactly right, Joe, with these PEOs, it's economies of scale. And so your employees fall under that group master plan and it gets you into this larger pool. That helps mitigate a lot of that day-to-day risk and expense. And you had mentioned too, to back up a little bit in the beginning, that, you know, do these come with a cost? Quite often it's gonna add some cost, right, with these PEOs. But what it does and what it offsets is most of the time we see a pretty substantial reduction in your medical insurance rates. So if you already have medical insurance, you're saving quite a bit of money there. But the other thing is you have to— you're paying for a lot of other systems too. Payroll systems, you're paying for someone to manage, you know, the— you're probably having some system to track PTO and to track all of the things, your HRIS system. And you're also, you know, to get to that next level, you need to bring in probably HR people, all of these things, right? So, you know, You're talking probably, you know, what does it cost to get maybe an HR, a professional HR director level job? $150,000 now with benefits?

Yeah, probably.

You know what I mean?

And so this is a way to really streamline that. And when you actually do the side by side and you just add up both sides, oftentimes it's either at a savings or it's a small cost, but what you get in return is typically a lot more value.

Well, yeah. And if you, to your point, Pete, if you're saving, if you save one person, right? If you're a software development company, right? And you are a CEO that's involved in the software development or the CTO of the company, and you have all these employees that make a lot of money and you can provide a professional set of benefits and all the services of Google or of any, insert any company, competitor that they have, that can, again, Jo mentioned earlier, it can be a game changer to say, to demonstrate that that's a real company with real medical benefits and all these other benefits that come along with being part of the PEO.

You know, that's totally true. You know, with small businesses, which we work with all the time on our benefits side, on the PEO side, but on the employee benefits side, these businesses typically, you probably have to have a medical plan, you know, get people in the door originally. You probably have dental, maybe vision, maybe some disability, life insurance, kind of the basics. When you get into these PEOs, it opens it up to you. I mean, there are like every benefit imaginable, right?

Vision and—

Right, pet insurance, commuter benefits. You have access to, like, for example, sometimes you might have some on your credit card, but, but like where you can get 20% savings on a T-Mobile phone plan. Huge companies have such buy-in, they're so large, they get access to these tools for their employees. So imagine being this, you know, you got 8 employees and you're, you know, a couple million in revenue and now you have all of access to all of this.

Right.

So it is, it's huge. And, you know, that is the name of the game is employee retention. You know, you're You think businesses, you're competing in the market to sell your product, but the other place you're competing, which is just as important, is that talent pool. Because if you have good employees, trust me, other companies, your competitors know who they are. They're reaching out. You know what I mean? So it allows you to shore up that side of it too. Yeah, it's so true.

Such a good point. Yeah, it's a great point. And I think, again, when we talk, we bring it back to total exit value or just the corporate value. You know, what you're doing here is you're demonstrating the fact that you've got systems in place to handle all these things, that you are, that you do care about how you, about the talent pool, about how you are attracting talent, right? That you do care about your employees, that you do have a plan, okay? And that you aren't in a situation where everything is just like, well, kind of ad hoc and thank God for Nancy, the office manager, who keeps us all together. But in the meantime, it's not just about keeping it together.

Right?

Guys, this is the point when you're at this $3 to $5 million range, and John and I are going to start talking about this a lot more because this is something that is a relatively kind of recent discovery for us that I think is just really, really important to get out there. And everything you're going to see coming out here is going to start kind of focusing in on this range because you're a $50 million company, you've got most of these things worked out. Okay? But when you're a $5 million company, That can be a $50 million company one day, right? How are you going to get there, right? And what Pete's talking about today is this, you know, is one of these great ways of being able to get to that stat, that kind of status faster than, than you normally could, right? Imagine having to grow, John, the top line revenue, whatever, to get to that point so you can get to a point where you can actually afford benefits and whatever and that stuff. And you can't— how do you grow that way if you can't get the talent to be able to do that.

It's the ultimate chicken or the egg, right? It's like, you know, the thing about the PEOs that sort of interests me as well is obviously the employee benefits and all those things. But the risk standpoint, right, from a risk standpoint, again, risky that you're— if you're not, you know, providing your employees with the right benefits that they know they can get from another position. Like the worst thing you can have is an employee leaves your company for something that you could have provided or that you do provide, right? Like, Imagine in the exit interview, they're like, oh, I'm leaving because, you know, they have better commuter benefits or pet insurance or something. It's like, wait, we have that, or we have access to it. You know, it'd be a shame to do that.

Right. Yeah. Right. Not knowing sucks, right, in the moment of doing it. But the reality is that's why you have us here right now, right?

Pete, talk a little bit about the risk side of this, right? Like the risk mitigation of what you're providing and what PEOs can provide, if you don't mind.

Yeah, so, so that's actually probably one of the biggest reasons why PEOs are becoming so large. So it's the compliance, employee compliance.

Yeah.

I work with a lot of— I'm in a couple SHRM chapters, that's the HR, you know, up here where I'm at in the Minneapolis, Minnesota area. And so I network with a lot of HR professionals in there. These are large company professionals too, I mean, as well. But one of the problems is being compliant. It is almost impossible for a small business to be totally compliant with these types of things. ERISA, which governs, you know, 401 plans and benefits and all of these things— there's so many things that employers have to be responsible for.

Oh my gosh.

But it's even more because I live in Minnesota. If I have an employee in an outlying suburb of Minneapolis, they have different— like, they'll have to follow federal and state laws. But the city of Minneapolis has municipality. There's rules about PTO, there's rules about leave that are separate, right? So now multiply that by I'm national, or I'm thinking of being state lines.

Hiring someone in California— sorry to interrupt— but like hiring someone in California, or— and forget other countries, right?

Sorry, California people, because that list is this long.

Yeah, exactly. It gets worse. Yeah, right, exactly. But that's the point, is that it's hard and And with the remote work and hiring people from across state lines and things like that, but you're even talking about even city lines. We have the same thing in Philadelphia. You know what I mean? It's, you've got the tax thing in Philadelphia is the big thing, right? There's a, there's a city tax, right? City income tax, right? So when you live in Philadelphia and work in Philadelphia, you got, you got to pay this extra income thing. If you work outside of Phil— live outside of Philadelphia, but still work in Philadelphia, you got to pay that too, right?

It's nuts.

And again, these cities, the taxes, the whole thing, we could have a whole other discussion on that. But the idea is that it's the regulation and the ability to keep up with all the different things when you've got an employee in Minneapolis and an employee in Philadelphia and an employee in California.

Right. It's very hard. How does a $3 million company know what to do? You don't. It's impossible. Right.

So you're right. I mean, that's where there's so much here that has to be managed. Right. And when you're in a remote world like we are, it's getting even harder.

And think of this too. This is another thing to consider as well, because if I'm a business owner that's looking to exit in the next, you know, 3 to 5 years, right? What's the buyer— think about what's the buyer thinking, right? So the buyer, of course, is looking at their diligence. They're looking at the— they're looking at all of those things. However, something that, that's not quite often thought about that's, that's very important as well is they are looking at HR infrastructure. Because there are, you know, you're kind of like, I look at it this way, diligence can find risk. You know, you can really price risk out pretty well. But one thing that is a wild card always is that employee risk. Because all it takes is one employee disgruntled, sitting at a bar on a weekend complaining, and there's an attorney, a workers' attorney there. Because they will find out of compliance. And that right there, you know, you got all these problems. Even if you're in the right, you're gonna get, you know, you might get sued, all of these things, right?

Right.

When a prospective buyer is looking at a business and they're on a PEO, they know that all that's taken care of. And the reason why is that co-employment, what that actually does is because the, the PEO that falls under their responsibility, they have to be in compliance. ADP TotalSource, which is— we all heard ADP, it's huge. Their PEO, they're in compliance. Trust me, these people know, you know, the big pockets, right? They're not suing the business, they're going after ADP. All of these companies on the PEO, they know you're in compliance because they cannot be out of compliance, period.

It's so funny you say that because— and I've even told Joe this— I was talking to a guy at, um, a private equity firm and he buys companies. And it's, it's like if you've ever heard of the Van Halen contract, and I think we've mentioned this before on, on, on previous podcasts, but go, go look up— yeah, go look up pod— go look up Van Halen and Eminem's in a contract. And what the analogy here is, is private equity firms, when they're buying companies, they look at these— at what you're talking about, Pete, about, about PEOs and, and other HR policies as a signal. They look at that as a signal in the sense of if you're doing this, then you're, then you're doing the right things and we don't have to check certain things. And in due diligence, yeah, they're checking if you have all these HR policies. But when they hear that you have certain— that you're part of a PEO, Or that you're part of ADP TotalSource, not to give them a plug, but there's other companies out there that do it. But they view that as like, when I looked at a company and they had a certain provider of insurance, I was like, oh, okay, great. Like, I checked the box and said, I don't really have to worry about this more, this anymore, because they have this back and because the entrepreneur has thought about it. So it's, again, it's, it's, it's get back, it gets back to that risk standpoint of If they've done this and thought about this and joined this, it makes them like the decision-making is there at the company and smart.

If I'm a PE, if I'm a PE, I'm thinking, here's what I'm thinking, right, is, is what am I buying? One, right? But, but, but I'm also thinking in 5 years when I turn it, right? So there's got to be some type of growth in there. So when I see a company that's on a PEO, I know, I know a couple things right off the bat. I know they're in compliance. That's important. I also know they have the benefits, those types of things. I know that's important too. But I also know that for companies this size, that they have a Fortune 500-level enterprise HR system and process. I know that they can scale. I know that they have all of the tools to hire, the whole lifecycle. The PEOs provide so much more than we've talked about. They're providing the— from basically headhunting all the way through to the end. And so I know that that is in place.

Yeah.

Systems are in place, records are in place, everything is accounted for. That's huge.

Systems and policies and procedures that you need to make sure that this organization can repeat what it's doing well.

Look, right, unless you sell HR, HR is always a cost center, period. It is a cost center. You want that cost center, right? Let's turn that into a tool for growth. That's what smart PE and smart You know, the smart buyers know that I have to have this.

No. Yeah, you're exactly right. It's like, because these small companies, again, HR is a critical function. But to your point, unless you can do it, like, if you can do it better than the CEO, go ahead and do it. And you want— if you want to spend your time doing this, go ahead and do it. But if you want to spend the time in building your products and selling the products that your company is making, Then go out, go outsource these things, right? To your point, because it is just the cost of doing business, unless you're using it like a, you know, unless you really put this in there and you're getting all the benefits of a huge company, because then you're leveraging it beyond what you could do by yourself.

I want to say one thing about the PEO too, because you make a really good point. You know, an employee benefit broker, like I'm talking like these PEOs are the greatest thing ever, right? Am I selling? Am I making money? Like, where is this all coming from, right? employee benefit brokers, right? PEOs were our enemies. This is a little background. I hated PEOs because they would steal our clients and we'd try to steal them back, and it was this big, you know.

Sure.

And how I got into this side was I started losing some clients to PEOs, and I started kind of learning about them, and I all of a sudden realized, my God, this is exactly what not all my clients but a lot of this size businesses need. And so I did not come into this like drinking PEO Kool-Aid. I literally came to this conclusion on my own just through being in this industry, and I, and I had to pivot. And then I, I realized— we'll kind of talk about what I do later— but, but I realized that, you know, these PEOs provide a great solution to the certain people in these segments. And so I decided I'm going to learn as much as I can about this, and I'm going to, you know, be an independent consultant on these things. So I just, I wanted to share that because I, I don't get I have no love for the PEOs. At least I certainly didn't.

Right. No, it's interesting because, again, as a benefits person, which is really what you are, right? I mean, the idea is that the PEO is a whole other layer away from you, right? You were selling, you're like trying to get to these companies to sell them benefits directly and things like that. And then suddenly the PEO's in the way, right? And the PEO's obviously offering you stuff, the whole thing. So your pivot, Pete, right, is Is let's go sell benefits to the PEOs.

Well, it's more of just let's represent people to the PEO.

There you go.

Represent clients.

Right. Yeah. Talk about that a little bit. If you can just, if you can expand upon that and say like how to talk about like the shift that you just mentioned and then, you know, what your services are now, just so that everyone understands, because we've talked about a bunch of stuff, but like, what are you doing now, especially in the context of like what you've learned about PEOs throughout your career?

Okay, so this journey which started as PEO are the devil, and then I started to learn about it. But then PEO reps would come to our office because they want to help us with our client. You know, I'm just, I'm in this system and these salespeople are showing up and I started to learn. I thought, well, you know, I should probably learn something about this. You know, some clients that I have that may need help, let's just, what is this all about? And what I learned is that it is so so involved what a PEO is. There's just so much to know. And I started to realize too that each person, each PEO I talked to— see, PEOs sell direct. That's how they— that's their model. They've been around for 40, 50 years, but every PEO has their own sales force. They're huge billion-dollar companies. The sales reps have quotas, monthly quotas. They're trying to get people in the door. And once they're in the door, they're done. They're gone. You're with this team now, and the team that you get could be great. It could be terrible. I don't know. And so I realized there's this disconnect. There's not that relationship of an actual independent consultant that only works for you. And so that's how I got into this, and I realized there is a need. Just like you don't go— if you're going to get, you know, health insurance for your company, you don't call Blue Cross and you don't call Cigna and UHC on your own.

Right.

You go to a broker because the broker understands the market. They work for you. They're there next year and the year after, and I'm not gonna— the last thing I want is my client mad at me in a year from now, right? So upfront, we're doing our job. So that's where I kind of fell into this. I realized that that relationship doesn't exist in the PEO world.

Got it.

So I spent years making relationships, building it out. And so what I do is I'm contracted with probably 20 of the largest PEOs, at least the most reputable. I shouldn't say largest because there's certain boutiquey ones that do very niche things that's important. But I work with only ESAC accredited PEOs. And what I'm driving at is we do such volume now with these PEOs that we have dedicated service teams within each one.

Got it.

We have—

when you have issues, think of— and I talked about this earlier with you guys, you know, I like it to be almost like your cell phone company, right? When my cell phone's great, I like it. But when I got to call that 1-800 number a couple times a year, it's the worst call of my life. Same with cable company. PEOs, there's a lot of those problems too, because now you're calling them up and you don't even know who you're getting sometimes. Well, don't do that. You call Pete, your consultant, and then I call because I've got, you know, we do such volume. We have, you know, we—

Yeah, you know the names of people you're calling inside the PEO, right?

I mean, that's a special phone number.

Yeah, right.

You got the bat phone.

More than that, I mean, these, these, these PEO people are all on my cell phone. I mean, I call them up and say, fix this because I'm not going to bring clients to you anymore.

That's the whole point.

I mean, that's the thing, you know. So you were—

you're a service arm to them too. And the reality is, is that they're, you know, you're basically building clients and a book of business for them and, and all that. And so they're relying on you, you know, in some part for that. I'm sure it's not everything. And they probably are— I would expect to see, you know, this model also, that what you're doing, probably rise over the next few years, particularly because we are seeing—

In 10 years, we'll be They'll be like the medical insurance companies and things where they're selling through broker systems, independent brokers. It has to be.

And it's because the demand for this will rise. I mean, when people find out that this is— I mean, look, we've been talking about— we even talked about this whole thing within ExitEngine, right? Was that if we can get a large group of people together inside an ecosystem, right? Think of the aggregate things that we could do You know what I mean? To build stuff. I mean, we're already doing things like discounts and stuff like that. We were already talking to people like Salesforce and, you know, who advertises on our podcast and stuff like that. You know, we've got those, um, because of the— in the aggregate, you've got a lot of people here who are all the same thing. And can you do things like combine them together and give them healthcare and things like that that they could— all these things that they— that, that, that, that you can't do on your own. And the world as it stands right now is becoming more of these companies. Not less, meaning that there are more fractional consultants, there are more, right, there are more coaches, there are more independent business owners than ever before because out of necessity in terms of the way the economy, the global economy, and the way that things are going and the, uh, and the, and the unpredictability and the chaos and the layoffs and everything else. And so now what you're having is that people are going, I can do this, I can do this, build this myself, I can go out and Try to figure out a thing that I can do, and then they start doing it, and now they have a company. And suddenly they got to get— now I got it, and now I got to go get HR, and I got to go get all the back office things to be able to grow. And the only way I can scale my company is by having those— some of those things, at least piece by piece, in place, because otherwise I can't scale or grow at all.

HR is that growth, unfortunately. I want my growth to be my widget, man. I want to dedicate all my time and make my widget and take it to market and grow it. But you can't do that without that back office staff, you know what I mean? So that's what I mean by HR. It's always the cost center, but it needs to be viewed as a tool of growth, period. It's not pretty. No one likes it, and it's not pretty, but it's the reality.

By the way, it's also the most human part of everything, right? And at the end of the day, what we always say is like, what is a company? A company is a thing that's got people, product, and a process. That's it. Those 3 things. Every single company, that's what it is. Period.

The end.

Hey, I'm Joe Stapleton from the Exit Engine Podcast. Building a business is hard enough, right? Planning your exit shouldn't feel like another lonely, confusing project you have to figure out on your own. That's why we created Exit Engine. Exit Engine isn't just a software tool. It's an entire ecosystem designed to help founders engineer a successful exit. You'll get access to self-assessments, growth roadmaps, and a peer community where you can learn from other founders who've been in your shoes. You'll also find the guidance and expert resources you need to build a business that's actually worth buying and to do it without burning out. Imagine having the clarity to know what your business is worth, exactly where to focus to improve it, and the confidence to exit on your own terms, whether that's next year or a decade from now. You don't have to do this alone. You don't have to build a business alone. Join us and let's build your exit strategy together. Visit myexitengine.com to get started. That's myexitengine.com. The rest of it is window dressing and different idiosyncrasies and stuff and things like that. But at the end of the day, that's all it is. And you need all 3 of those things to be humming if you want to make a successful exit on your own terms.

Yeah. And also to your point, Pete, about scaling, right? We talk about scaling. It's like you want to scale your widgets and you want to scale whatever you sell. You do not want to scale your HR expenses and benefits. And when you think of HR as something that you're just going to, oh, I'm going to hire another HR person, like, no, no, no, no, no. That's not the right way to think about this.

It's— you need to streamline things. It's not adding more bodies, it's streamlining what you already have. I mean, that, that, that's, that's the quickest way to, to growth. It's the quickest way to generating— I mean, it's— it helps you directly, helps your, your P&L, right? The more automated and the more streamlined things are, less touches, less hands-on, less money, right? Yes.

And those fixes, these are, these are, by the way, You know, at this, these are the kinds of early-on fixes that you'll find also at ExitEngine, guys, because the reality is this is the stuff that is the low-hanging fruit, right? The stuff is looking at this stuff and examining these things are the things you want to do right away because this is the stuff that's easy to kind of uncover. There are solutions, right? It's just about knowing what questions you have to ask yourself, right, Pete?

Well, yeah, and what's cool about what you guys are doing is it's When you're a business this size, these solutions oftentimes are pretty simple to implement and they add quick value, right? These aren't like 10-year visions or 5-year visions, right? A lot of these you just don't know because you've been making, you've been running a business forever, that's what you do. But so you don't maybe know about certain tools or strategies that, well, you plug them in and they make results in 6, 8 months, you know.

Let's talk about that a little bit. If we can talk about, Pete, from a standpoint of when someone goes into a PEO and someone like when a company decides to leverage a PEO, can you talk about like what happens, right? So we're going to do it. We want to implement the PEO at our company. What are the steps that they need to do or what are the first things that happen and how do they probably do it from a medical insurance or one type of benefit? But talk a little bit about that if you could.

Well, remember that with the PEO, the medical is just the insurance. It's one of the benefits. It's a small fraction of this entire PEO. But what happens is, is so you sign up on a PEO, right? You start the first of whatever month, right? So February 1st, you start. But the month or so leading up to that, you're actually working with their teams through an implementation process. So you're having multiple calls. It's a fairly heavy lift. Now, our office is with you on those calls.

Sure.

We're with you as well. But the point is, it's a, it's a, it's a lift. But what you're doing is you're meeting with various teams within the PEO to build everything out. So you're meeting with, um, typically by then the insurances have been figured out because that's part of the ROI in the beginning. You're not gonna enter a PEO without knowing cost, right? But now you're gonna be meeting with coaches that are talking through your PTO plan. How do you handle vacation? What is your company policies around this? Oh, have you ever thought about doing this? Well, what does it look like if I were to do this, right? And you're— and you're— so you're building out this, how do we want to run this? Because the PEO reps are now taking that information and they're building your profile within their system. You're also meeting with the 401 team if that's something that you're going to put in there.

Yep.

You're meeting with other teams. You're— there's other teams that, that, that handle The hiring process, right? So now you're working out the LinkedIn strategy and the Indeed strategy and these, you know, these things. And so you're literally now deciding every one of these employee-related things, right? And a lot of it, you're sitting on these calls and you're like, I never even thought of that.

Yeah.

This is what they do, right? So by the time you start it, you know, day one now, all of the payroll systems in there— now you're on their enterprise-level system and they're— you're getting the best of the best. And what that means is now those systems are already built with your entire, you know, your rules around vacation, all of the different things, PTO policies, all of those times. It's all integrated with the benefits. It's all integrated with the hiring side, you know. So, so basically, to, to give you an example, you know, I, I write it right in the off the gate right now. You can go out to market, look for employees. They come in through whatever site you, you decided, and they have tools too to get even more deep recruiting. But let's say a basic, some LinkedIn posts and some Indeed. They come in, that's already loading things into your system now, a profile. And as they move through the process to day they're hired, it's already generating I-9s to send out. It's going through all of those processes. It's setting up the tax codes in different states, you know, depending on what state this employee is in on the personal tax. So it literally— that system goes right through. Then they log in the benefits and payroll is already adjusted. So your employees, literally the day they're— from before they're hired, they're going, right? And so it's— that's kind of the biggest It's so funny that you say that, and the reason I'm like getting excited is because—

or not excited, but like I had to design this program. I shouldn't say I had to design it. I had to change this program for not rolling on employees but rolling on contractors in one of my jobs. And we—

1099 contractors.

So they're not like, you know, but the whole workforce was essentially 1099 contractors. And it was like a nightmare because we had— we went from a paper process to Like a checklist system and like, oh, you got to fill out these things and fill out these things. And the reason I'm laughing is like, it would have been so great to have this like as a relatively small company to be able to do all the things you're doing. Because I'm thinking like, just said, I can remember just sending I-9s to people and like my brain would explode because all of the emails would come back and be like, oh my gosh, I'm just managing this in my Outlook. And it was a total nightmare. And having that's—

yeah, right. That's in Outlook. This one's over in Excel. This one's in QuickBooks. And then this, your employee benefits are with a broker somewhere signing paper forms. Yes, that's exactly, John, what we're talking about here. That's what the value brings from day 1.

What about things? So we know that the HR stuff, and obviously that includes everything HR from recruitment all the way through hiring, through the whole thing, and probably also to the other end too, right? I mean, all the way through exit of an employee and some kind of exit interview or whatever has to happen with 401 transfer or any of those things potentially that go on the back end, right? Which is, again, people got to realize the HR thing touches people before and after they're actually at the company and everything.

COBRA letters. Who's managing COBRA?

Yeah, all that stuff. Exactly. But what about— so there's that. There's obviously the benefits piece, right? Which we talked about. And that's a huge piece. And of course, getting the best of the best. Being able to be in a program that a small company could never afford and get the level of benefits that school teachers get and, you know, and Microsoft employees or whatever, that kind of level of stuff. And that's great. What about things like, you know, what else comes in through the PEO? You know, what are the other things in there? I'm thinking about things like other compliance things like legal and stuff like that.

When it involves your employees, all of that, of course, you have access to all of their legal teams. You have, you know, like, for example, one of the things, I mean, that's a very touchy subject is when you have maybe a sexual harassment case at work.

Right.

Or you have employee discrimination, something like that, right? These are things that most businesses are not, you know, we're not prepared to deal with, right? And it's pretty scary because You don't know, right? PEO, that's their teams. They have teams that come in, and because it's kind of their response, it's their response. So they, they come in and they're handling all of that stuff.

Right.

And so you have access to all of those legal teams. I mean, it really is full-service outsourced HR, but that's that co-employment model. Remember, right, your employees are under their tax ID. All of that employee law falls under the PEO.

So that's actually a really good question too. So let's, let's just lay this out a little bit. So, all right, I've got this company and I've got an LLC and I've got a tax ID number and all that stuff. And I've, you know, and I've had 5 or 6 employees or something like that. Or maybe I've got, let's say I've got 12 employees to put it over 10. And, you know, and that's how I've been operating. And now I'm a $5 million top-line revenue company. Um, and I'm now gonna— now considering, okay, here's Here I am. I got to clean this up. I hear what Pete says. Pete's right. I got to get this to a level where I'm more compliant and I don't have to manage this stuff and it's getting harder and I need more help in recruiting and all that stuff. Okay, so great. So I'm gonna go. I'm gonna go hire a PEO. The the the the the the the question is what happens to the rest of my like you know I've this the the employees now technically right are actually. Their employer of record is the PEO, not my company.

Yes, from an administrative side, and that's it.

Just for the administrative—

everything else. Yep. When you're the— when you're the business, they're 100% your employees. You 100%— and don't let anyone tell you different— you 100% control the hiring, the firing, the strategy. The— you can decide on any kind of rules you want around, you know, the handbook and policies, so long as they're, of course, Compliant with laws, right? But outside of that, the culture, everything is 100% yours. The PEO is just from an administrative point of view; that's where they fall under. So they're 100% your employees. You're just you're just transferring that that side over to the PEO.

Gotcha. So there's no there aren't. I just wanted so so things like my taxes and stuff like that. So I'm still paying their salaries, obviously.

Obviously, right?

But, you know, so I'm just, I'm just paying it through the PEO. So instead of setting up my ADP account or whatever where I'm doing payroll, I'm just, I'm just giving them the money, right? Or they're coming, taking the money out of my account on a regular basis or whatever to pay people, or however that, that works, right? So what I'm just, I'm just interested, I wonder if there's any other things that get in the way or things that I have to be aware of as an owner that say, well, this, this doing this will will also have this effect on your business, or may something you have to be aware of in terms of administratively while this happens, there's a— something happens to you tax-wise, from a business standpoint, or anything else that goes along that. I'm just looking for any other kind of red flag there, that's all.

Nope. But you do bring up actually something that, that, you know, we talked streamlined earlier that I just thought of too, is that— so, so, you know, how you pay the PEO, you said, right? Right. All the PEO is paid is whenever you run payroll That's, that's when they get their money. So you're tied, you have an account that's tied to them and it just transfers over each payroll and everything's rolled in that. What's really cool about that from a streamlining process is think about all of the things you're paying for. You're paying probably your payroll, probably, you know, like QuickBooks, right? You're paying probably some type of HRIS system. You're paying medical insurance to the Blue Cross. You're paying some of the other lines to Principal or Mutual of Omaha. you're paying all these things. You're paying state taxes over here. You're paying all of, you know, all of this stuff. Now it's all one withdrawal from your account every 2 weeks, or, you know, every other month, whatever your payroll cycle is. It's one, one payment. And so it's much, much easier. And by the way, certain insurances, like there's something, you know, some like work comp sometimes, or you pay, you know, 6 months at a time, policies like that. That can create cash flow issues for certain types of companies. You know, businesses where your work comp side, maybe it's a little riskier thing, right? When you're in the PEO, in which you're also getting, by the way, that discounts on that too, because it's not just your medical insurance, but work comp insurance, you're in that big pool too, but it's a monthly thing. So now that frees up sometimes cash flow issues. So there's a lot of benefits outside of just what we'll talk about that go along with it. Yeah.

And the question about, like, we talked earlier, or even maybe even before recording about your work with like a pork portfolio of companies that are private equity firms. So talk a little bit about, like, again, the benefit to the private equity firm for doing this is they want to focus on other things, yet they want to provide premium benefits to their company. So talk a little bit about how that works, Pete, if you could.

Well, so there's, there's, there's 2 sides, right? There's the buy side and the sell side of the PE, right? So the people selling, of course, you want it looking as good for diligence to get the most money as possible, right? So, Right? So you meet with an exit engineer, you do all of these things, right? So I think we understand that. But from a buy side, one of the things that— one is, you know, that all of these compliance things are shown up, right? I don't have that employee risk, that unknown of, you know, you can insure everything, but you can't insure the one person that's meeting the work comp lawyer that's disgruntled, right?

Right.

But the other thing you're looking for is, see, when a business gets turned, even in P&C, PC where it's, you know, you're turning every few years, there's a lot of uncertainty when that new group comes in, right? If I'm an employee, like I remember back in the old days, I worked for a business that was owned by some of these, you know, equity and it was transferred. It was always a scary thing because you don't know what does that mean? Are my benefits going to change? This allows certainly a PEO, they're already getting that. Or if I'm on the buy side, even if I'm buying that's not in a PEO, and putting one in. That goes a long way to, to those employees. You know, you want to keep the employees, right? You're not just buying the assets of the— of the— Yeah, you don't want the machines and—

yeah, you don't want to give an employee— like, when, when a portfolio company changes from one to another, you don't want to give a reason to an employee to leave, like, oh no, my doctor is not covered, or the benefit package is not flexible, or insert whatever benefit they had at the old entity. That's not present at the new one.

So, or even this too. I mean, I'm thinking to myself, if I started a business and I'm 20 years later and I want to sell it, most of my employees, they've been with me for— I love them, I care about them, they're important to me. That's small business owners that, that, that start their own. But that is probably one of the most important things when they go to sell is what about my guys and gals that I've had forever that I love and know their family and do picnics with Right.

You'd be amazed, Pete, just to interject there on there, and there's the answer is absolutely yes. But obviously it's also, you'd be amazed that people are willing to, founders are willing to give themselves up.

We had an example. Look, we had a recent example of exactly that, Joe. And that's exactly what Joe's thinking of, is they took less money to ensure that their employees were taken care of in the future.

Yep. So, you know, that to me, the PO is a solution oftentimes for that too, because you know that they're getting set up on these great benefits. You know, there's just— it's, it's so—

And let me ask you one other question. What, what have we talked— or what do you know about PEOs we haven't specifically asked about, or something that like you'd like to impart to the audience of like an important thing about PEOs that, that either comes up in your daily, uh, discussions with, with people, or something— again, something we haven't mentioned that's really important that we've somehow missed between, you know, Jo's brilliance and mine?

Here's what's important is there's about 700 or 800 PEOs in the US. Okay, how on earth am I going to find the right PEO for me?

Right.

Every single one of those PEOs is a sales rep that you have to deal with on the front end. That particular sales rep is going to, one, drink the Kool-Aid of their product. Nothing against them. When you work for a company and you're trained on that, and you're— even if you truly— even if they are one of the best, You believe it, you know what I mean?

Yeah.

Right. So each PEO is going to be an entire— you got to dedicate probably at least 5 or 6 hours on the front end of meetings, getting paperwork, getting quotes, going through all of that just to get numbers. Now times that by the 3 or 4 because you got to meet with 3 or 4 to really know. I mean, you can't just go with the first one, right? So you're timesing that by— that's a huge lift. Then each PEO themselves, their fees are different. They're shown differently. There's nothing wrong with that. However, if a buyer doesn't understand what they're getting, it's kind of— I don't want— intentional is probably the wrong word, but they're being competitive with each other, right?

And so—

But how do you know as the buyer though? Because when you see these proposals that come through, it's like, Yeah, how do you—

how do you apple-to-apple comparison them when they are different? Because they are offering different things in different ways, right? And different price points.

Some roll in work comp with their admin fees. Other ones roll in this way. Other ones charge— is it a part-time? They charge by employee. Other ones charge by total payroll. What matters, if you got 80 employees, 40 of them are part-time, you want that charged on probably a percentage of payroll, not a total employee, because If those part-time employees are showing up as expensive or close to a full-time, right? How do you want— right?

Right.

So what I'm driving at is you want an independent consultant that knows this world, that listens to you, that understands those things. And that's what I do. That's where I come in, because I'm going to sit with the company. And I, I grew up in this small business world. All of these businesses that you're working with, they're our bread and butter. That's Main Street America, right?

Right.

And so I understand what they need. I'm going to ask questions about where do you want to go, what are your strategies, right? Different PEOs come at different costs, right? And that doesn't matter if a PEO is more expensive if it gives you more value, right?

True.

But does that employee— does that employer need that? Maybe the, the, the ben-admin systems and the systems are, are top-notch, pretty-looking proprietary technology, right? That's great if I'm a tech company or maybe startup in San Francisco, but a lot of companies may not need all of that.

For me, right? Yeah, exactly.

Exactly.

So, so the idea is that what you're doing is helping them through, sort through all this stuff, figure out what's right for them in their situation, and then, and then obviously taking it from there and getting it set up and doing everything and kind of handling the— they obviously need to be involved on some level, but the idea is that you're kind of taking it through them, getting them set up, and then you're there to support them as they go through it, as the front line, right? As the, as the first phone call, right? Um, you know, kind of as support, the first layer of support, because you've got the relationship with them specifically. Like you said before, you've got the bat phone. You can get— you can, you can make things happen if things aren't going well or something's happening there or there's a miscommunication or whatever's been dropped or whatever, right?

Yeah. So basically that whole process I told you on the front end about, you know, just finding the process. What we do is you come directly to us, we're going to sit down for probably an hour, and we're just going to go through your situation. I'm gonna, I'm gonna collect a few documents from you, and then you're done. I'm gonna go out to market, I'm gonna get all the proposals, I'm going to compile— every PO is going to have questions, right, before they can take numbers. I'm going to shield you from them. I'm going to take all of those questions in, I'm going to wait till I have them all, I'm going to compile them in one sheet because a lot of times it's the same question for multiple ones. You're gonna get one thing, then I'm gonna have it all. Once I have the proposals, I'm gonna put it in a spreadsheet that's apples to— we're gonna be able to see line by line how they all, to a bottom line, we're putting in credits, things that some POs are gonna offer you that we have a special this month, come in and write like all of that down. Right. And then we sit from there and then we decide these are the value of this PEO versus this one, and we're gonna get you down to the 2 or 3 that make the best fit. Then we're going to, on your behalf, set up, you know, demo calls. You're not going to touch anything except for to show up on demo calls. Implementation was there, but the big thing is we're there for life. I can't have people I put in a PEO mad at me in a year, right?

Right.

Because it's a relationship business. We don't make a ton of money off these clients. Our— where I make money is having clients with me for 10 or 15 years.

Long term.

I am 100% Going to do the most, the hardest work for this client, every client, because it's once I have the client, I take care of them. That's how you make money in my world.

So, and, and I would imagine that one of those things might be, hey, this isn't working out with this PEO, right? Let's try, can you help me find a new one?

Right. 100%. Because then in a couple years, right? Or maybe you've outgrown a PEO. Outgrow it. Well, guess what? Let's, let's, unwinding a PEO is a lot. Well, we know how to do that, and we do that all the time as well, and we're gonna coach you through all of that, right? And so it's— we're truly the entire life cycle, right?

You know, right?

Yeah, no, it's amazing. Look, this is incredibly helpful information, Pete. I think, first of all, there's a lot of people out there obviously who don't know these things even exist, and I'm sure that many of them are fighting through these challenges in their growth, you know, right now, kind of figuring out, gosh, I know I need to do this, but the expensive HR and the things that go into it. And obviously, but you know, look, the reality is, is that once you hire employee 1, okay, employee number 1, you are now into a place where there are rules, there are, right, there's regulation, there's compliance, there are things, there's things that has to be done, uh, once you are now really doing that. And, and, and if you ever— again, you're not selling right now maybe, but the idea is that even if you're not selling, it has nothing to do with exit, is simply a matter of you being able to grow properly, right, by taking this HR component that is such a big deal kind of off your plate, right, and being able to get into a place, make it competitive, make yourself competitive from an employment standpoint, right, talent capture, retention, right, getting access to things that you could never get access to normally, right, and being able to— and then have it all managed. But the best part of the whole thing is having someone like Pete Right, who can actually guide you through all of this, help you when you have a problem, you know, are there, as he said, for you at the beginning, you know, they're for you for life because his interest is making sure that you're successful in whatever PEO situation you're in. And if that means changing PEOs because it's not working out or whatever, then Pete's there for you for that too, right? But—

This has been even on the front end. You know, I talk about how great PEOs are. Well, they're great for who they're great for. I would say 50%, at least, of the companies we talk to upfront, it's probably not a good fit. And we go through that, we explain why. Because the other thing is, I don't want to get someone a PEO that's the wrong fit because it's— that's not a good deal either, right? So, so it's—

Yep. No, absolutely. And what you don't want is people are going to be, you know, consistently unhappy or things that aren't working out or, or they can't afford it or whatever happens. I mean, Look, this is real. The fact is that it is only right for some companies. It's not right for everybody. If you can handle where you are, but I think the most important thing to take away from this conversation right now is, if you are in that $2 to $5 million revenue range, probably what you want to do is at least be considering a PEO.

Right?

Fair to say? Keep it on your radar screen as something that you should be looking at. In terms of when you, as you are figuring out your growth trajectory, right? Was that fair to say?

100%. 100%. Because it's, it, it is a solution that solves for many, many, many, many things. So it's something you should at least consider. Reach out to us. We'll sit for an hour. You're gonna know pretty quick whether it's important or not for you. And we're gonna get you in the right spot and inform you and arm you with the best tools to make your business what you want it to be and how you want it to end up.

And Pete, what's the best place for someone to get in touch with you? And obviously I have a bunch of stuff in the show notes, but where's the best place? Is it LinkedIn? Is it your website? Just give that out to the audience if you could.

Yeah, so website, clevelandbenefitpartners.com/peo, or just go to the main Cleveland Benefit Partners and our PEO button's there. LinkedIn's a great way to reach out to me. I'm on that as well. So that's kind of how I'm I mean, that's about it. It's about that simple.

And it's Pete Samson.

Pete? Pete Samson, S-A-M-S-O-N, by the way. Yeah, psamson@clevelandbenefitpartners.com. That's my email.

So, and you can find— we'll have all this in the show notes as well, as we always do. And so you guys can link, just check the description here, and you'll be able to find, you know, contact information for Pete. Pete Samson from Cleveland Benefit Partners, talking about PEOs today. Thank you so much, Pete, for for being on this podcast, man. This is incredibly informative, really, really important information to get out to our founder audience. We really appreciate you being here. Thank you so much.

Thank you. Appreciate it.

Awesome.