The Use Case Podcast – Storytelling about Lyons HR with Bill Lyons

Music:   Welcome to RecruitingDaily’s Use Case podcast, a show dedicated to the storytelling that happens, or should happen, when practitioners purchase technology. Each episode is designed to inspire new ways and ideas to make your business better. As we speak with the brightest minds and recruitment in HR tech. That’s what we do. Here’s your host, William Tincup.

William Tincup:   Ladies and gentlemen, this is William Tincup and you’re listening to the Use Case podcast. Today, we have Bill Lyons from Lyons HR, and we’re going to be learning about the business case from Lyons HR. Without any further ado, Bill, would you do us a favor and introduce yourself and Lyons HR?

Bill Lyons:   I’m happy to do that. Thanks for having me today, William.

William Tincup:   Sure.

Bill Lyons:   I’m Bill Lyons and I am currently serving as the executive director … I’m the founder of Lyons HR, and just within the last few months have transitioned the role of CEO over to another associate here in the company named Bruce Cornutt. But I’m still very active in the business working on a number of strategic initiatives that we have going on at the moment. Yeah. Lyons HR started in 1995, so we’re in our 27th year. 

We started as a commercial staffing operation, and the company was quite successful. We were primarily in the northern part of Alabama, starting in Florence, Alabama, and then expanding into Huntsville and eventually into Birmingham, and then into seven other locations. We divested that business in 2018. The PEO, which is what we’re primarily known for … And PEO, again, stands for professional employer organization. 

Our PEO started operations in 2008. 14 years into it, we’re one of the largest privately-held PEOs in the country and continuing to grow. It’s an exciting business. In fact, last year I wrote a book on the industry. I was so fascinated by the fact that there was not a whole lot of information out there on the industry. I wrote a book entitled, We are HR:    The Business Owner’s Definitive Guide to Professional Employer Organizations. 

I know that’s a mouthful, but that really is the best way to describe the book. I start with the early days of our industry explaining how the industry started and then how it evolved, some of the peaks and valleys of the evolution of the business, and then getting into the value proposition of the business and then eventually the future outlook. Yeah. It’s a topic that I love to talk about.

William Tincup:   Well, we have a number of things in common. My sons go to a camp up in Mentone, summer camp in Mentone, Alpine, and I went to Alabama for my undergraduate. Anne and I spent a lot of time … We got married in Birmingham at Samford. We got plenty to talk about if we’re going to talk about Alabama.

Bill Lyons:   Yeah. I know.

William Tincup:   I love that you’ve got staffing roots and at one point you also got into the PEO business.

Bill Lyons:   That’s right.

William Tincup:   We’ll leave staffing aside for now. We’ll get back to that at one point maybe, and talk more on the PEO side of Lyons HR. I’ve done a lot of work in PEO and with PEOs over the years. I’m glad you wrote a book. I’m really glad you wrote a book because it’s one of the most misdiagnosed or misunderstood categories of business that operates and helps HR. Usually it’s smaller businesses. I mean-

Bill Lyons:   That’s right.

William Tincup:   It does a lot of … Some PEOs can go further up the employee size and headcount size. I love the fact that you wrote a book just to explain things to people because PEOs step in and help out with compliance and recruiting and payroll and benefits and all kinds of stuff. For a small business owner, being a small business owner PEOs have been a life blood. Thank you for that. Congratulations on your 27th year.

Bill Lyons:   Yeah. Thank you.

William Tincup:   Tell me about the PEO industry as a whole. As you researched the book and also as you understand the history of just first person, why do you think it’s … Misdiagnosed is not the right word, but misclassified or misunderstood?

Bill Lyons:   Well, the industry’s only been around since the late ’70s, early ’80s so you’re relatively 40 years in. The business has not matured so the acronym PEO I don’t think is as recognizable as other acronyms. In fact, in the industry, there was some discussion about trying to rebrand the business model away from PEOs. Then there was strong opposition to that initiative because we have so much invested in that acronym of PEO. 

I think it’s confusing because some people look at a PEO and say, “Well, is it a staffing company?” Well, no, they’re not a staffing company. A staffing company is a completely different business model. Then a PEO, you look at a PEO and say, “Well, you’ve got these online HR platforms that also do payroll, and is it the same as that?” No, it’s not the same as the PayCores and those type companies that do provide HR support, but are certainly not as comprehensive as what you find in a PEO. 

The reason I wrote the book, William, is because I felt as though there was this misunderstanding out there, and I just wanted to sort of get the word out there from somebody within the industry to differentiate between what we do as a PEO and some of these other types of businesses that are out there. Then to also sort of describe the value that small companies that work with PEOs receive.

You mentioned that larger companies tend to have their own internal HR infrastructure and it makes a lot of sense. You think about the average size of a PEO client is about 20 employees. Okay. An employer that has 20 employees is still subject to many of the rules of the Department of Labor.

William Tincup:   Oh, yeah.

Bill Lyons:   Still subject to Title IV, still subject to all the things that can get them in trouble, but very rarely will they have the expertise or the budget to go out and hire the expertise they need to navigate those waters. Smaller companies, say between 20 and 75, tend to do much better when they outsource those responsibilities to a PEO because when they do so, not only do they pick up payroll and payroll tax expertise and filings, and all the things that come with processing the payroll. 

You pick up benefits experts, you pick up risk and workers’ comp experts, and you also pick up HR compliance experts. We refer to the PEO business model as being comprised of a team of subject-matter experts, and that really is true. A small business really cannot expect an HR person coming in to be experts in all of those areas, but they have exposure in all those areas, which is why the model works so well for the smaller businesses.

You think about a company that gets up to 200 to 300 employees. Now, all of a sudden you have a different calculation to make. Okay. Does it make sense for us to invest in the expertise and resources for someone in-house or for an HR department that consists of legal, of compliance and of benefits and all these other things? Does it make sense at that level? There is a break point at which it does. It does make sense.

Obviously a company the size of Microsoft or Walmart, they’re going to have legions of HR professionals working on staff because of the size of the operation. But exactly where the wire trips depends on the industry and the type business and what the exposures are, but typically the smaller companies really tremendously value and benefit from working with a PEO.

William Tincup:   Yeah. A hundred percent. I can tell you just from my own experience that being an entrepreneur, you could find yourself in trouble really quickly using that payroll tax as working capital.

Bill Lyons:   Oh, yes. Yeah. 

William Tincup:   I’ve made that mistake and paid for it dearly with the IRS, but I found using a PEO liberating for two reasons, both the 940, 941s payroll tax things, and also for benefits. I was working through a benefits broker before that with my company. Again, under a hundred employees, I couldn’t agree with you more. Over a hundred employees, I think you’re absolutely right. It depends on is it a construction company? I got some questions around that as well.

Bill Lyons:   And depends on how many states they’re in. I mean, you look at a company that is-

William Tincup:   [crosstalk 00:   09:   53].

Bill Lyons:   … only in one state tend to navigate the rules and regulations of their state, but if you’re in multiple states, sometimes that can get very complicated. That’s part of the compliance feature. We’ve got clients that are in multiple states. We have to keep up with what comes out of the state House in 50 different locations.

William Tincup:   Right. Right. Right. Right. As a buyer, I found PEOs just super helpful for all of those reasons, but to aid with the 940, 941s, the payroll tax, just so I wouldn’t have access to it. Then you learn once you don’t have to access to it, you live within your budget. You go on as an entrepreneur. You go on as needed. Also, I got better benefits than I-

Bill Lyons:   That’s true.

William Tincup:   … than I could through a benefits broker. I could get better benefits because a PEO has just a larger pool of which to then go out and negotiate and just get better deals.

Bill Lyons:   I think one of the biggest values is just the fact that there’s peace of mind knowing that all of your employer responsibilities are being managed by, as I said before-

William Tincup:   Oh, a hundred percent.

Bill Lyons:   … a team of experts because one HR department made up of one or two people cannot be experts in payroll tax necessarily. They’re not going to be experts in all the facets of benefits and HSAs. Just what we’ve just gone through with the pandemic and the PPP loan process is one of the things which I think we have, as an industry, distinguished ourselves among our clients.

The roots with our clients have grown deeper as a result of having gone through that experience together. When you try to dissect the PEO value proposition, the sum of its parts are worth a lot more than its individual parts because it’s the comprehensive nature of it that makes it such a great value.

William Tincup:   A hundred percent.

Bill Lyons:   When you think about … In the book, I talk about the four pillars of profitability and these are the four general areas where businesses can get in trouble. These are the four areas that PEOs step in to the shoes of the employer and take those responsibilities away. As we’ve been talking about payroll and payroll tax filing and payroll tax administration, getting W-2s out at the end of the year, making sure that those things are filed properly and the employer or the client doesn’t have to concern themselves with that at all. That’s one pillar. 

The second one that we refer to is benefits and benefits administration. If you’re a 20-man group and you’re going out and trying to get a 401(k) plan, or you’re trying to get a group health plan, chances are you’re not going to get the most competitive program because of the size of your group. But if you’re part of a PEO that has 10,000 lives in a group, then those savings are passed on to you.

Not only do you have access to a broader range of benefits, but those benefits are being managed by a group of benefits experts and the open enrollment period is done electronically. That again takes a huge burden off of a business owner. 

The third area that we talk about is safety and workers’ comp. Obviously this is more important if you are in an industrial setting with moving machinery and industrial exposures. In a professional setting, it’s less of an issue, but many of our clients are industrial clients that do have safety concerns.

Having safety professionals go into a location and evaluate and actually put plans in place that improve the safety environment there that’s going to result in lower workers’ comp cost can be a huge, huge benefit. Then finally the thing that sort of wraps all of it together is HR compliance. You think about all of the laws that have been passed over the years since 1964, the Civil Rights Act and the EEOC established. 

Then all of the laws that have been passed in recent years up to and including the CARES Act, all of these things fall into the lap of a business owner. If they don’t have a team of experts helping them interpret that information and properly execute on that information, they can expose themselves to some real liability. 

I think when you have all four of those pillars working together, and again, a PEO provides all of those things, when you have all of those things together, I think a small business has a tremendous advantage over their counterparts who are not using a PEO. In fact, the statistics bear that out. Companies that work with the PEO grow faster, have 50% less turnover and are 50% less likely to go out of business.

William Tincup:   It’s funny in fact that you mention safety. One of my businesses was an ad agency. When they did the initial safety audit, there was like 25 things that they found that were things that we had … I mean, just didn’t even think about and weren’t going to think about. The folks that are listening, for the audience members that work in a professional environment, safety isn’t just forklift driving.

Bill Lyons:   That’s true.

William Tincup:   And trucking. I mean, in a professional environment, like an ad agency, they had literally 25 things that we go back and fix, and they were easy fixes. It’s just, we didn’t have the mindset of looking at our own work environment and looking at it from a safety perspective.

Bill Lyons:   Yeah. For years, one of our largest workers’ comp claims occurred at an insurance office where we had a lady who slipped and fell on some ice. It was during an ice storm and she slipped and fell and dislocated her arm and had a pretty severe injury. I don’t know what kind of safety engineering can prevent the weather from happening and making the steps slippery, but that was one of the larger claims we had for a long time.

William Tincup:   Oh, yeah, of course. Now, there is … or at least there was … Ben and spoken at NAPEO a few times. There’s different types of workers or classification of workers obviously, what the industry used to call white, gray and blue. I’m not sure if that’s still the way that we think about it. How do you look at it? Through Lyons HR, how do y’all look the classification of employees?

Bill Lyons:   Well, every client that we bring into our workers’ comp program we have to provide their sick code and their NCCI code to our carrier. Most of the underwriting will consist of looking at their website, reading their description of their operations, and then our carrier will assign to them the appropriate NCCI classification. 

One of the more common one is 8810, which is an administrative clerical code for essentially an office worker. Then you’ve got 4410. There are hundreds of different classifications that are created to describe a particular business activity. Then each of those classifications comes with their own separate rating system. The NCCI-

William Tincup:   In rating … Sorry, Bill, to interrupt.

Bill Lyons:   Yes.

William Tincup:   The rating system is associated to an actuary table and risk?

Bill Lyons:   That’s right. That’s right. That classification throughout the state … And workers’ comp is regulated at state level. You’ll have those classification, injuries are reported to the National Council Compensation Insurance, NCCI, and to the state. The state will promulgate a rate based upon the experience of claims that they have in those various classifications. 

Over a period of time, those rates will move up or down, depending upon whether they’ve had an increase or decrease in rates. Look, it works like any other insurance actuary system would work. Each state will have their own rates that will be applicable in that state. It’s based upon the claims experience.

Then each operator … If you have, let’s say, for example, an HVAC contractor, well, one HVAC contractor may get better rates than his competitor because he has a better safety record, or he has a better claims experience than one of the others.

It’s important that you focus on and pay attention to your safety protocols in every one of these industries, because all industries are not treated the same and all competitors within the industries are not treated the same. Because if you’re a loose and careless operator, then you’re going to pay higher rates than if you’re a clean and a safety-conscious operator.

William Tincup:   Well said. Thank you so much. One of the things that as you talked, I would like to kind of get back to is the size of company where it makes sense. I remember when … I think it was TriNet when they first came to market 150 years ago, they really focused on white collar and six-figure jobs, paperless. They focused on a very, very, very tight market, very, very specific market. 

Martin Babinec really kind of focused, zeroed in on just a really, really, really specific type of audience. I believe, and I think he would say today, that that was all just kind of zeroing in on certain types of jobs and companies and things like that. You had mentioned earlier in the show where at certain different break points for certain different companies, is that related back to safety and workers’ comp?

Bill Lyons:   I think one of the reasons that TriNet has diversified, as well as a lot of the larger ones, is because much of their growth has been the result of acquisitions. There have been [crosstalk 00:   20:   15] amount of consolidation that’s taken place in our industry. You may have started out as a boutique PEO where you’re only wanting to focus on white collar professional class codes because you want to stay away from the workers’ comp insurance.

But then all of a sudden, you decided that, “Hey, it makes sense for us to make this acquisition and they have industrial exposures, or they may have construction exposures.” Then your entire business model may change. No. 

I think the reason that the larger the organization gets the more they need to review whether or not the PEO business model is the best fit for them, is because larger companies with larger revenue streams and larger complexities at some point in time, the cost associated with outsourcing that is probably not going to be advantageous. Again, if you’re a 25-man company, you’re not going to be able to have the budget or be able to afford all the subject-matter experts that you need in order to keep you in compliance.

Outsourcing it to a PEO makes a lot of sense, because for a small fee, you can have access to those subject-matter experts. However, if you have 500 employees at your location and you’re paying a fee on all 500 of those employees, at some point in time, the cost associated with that may be more advantageous for you to bring that in-house and hire your own staff. 

Again, that depends on the industry and type of work and what the exposures are. There are a lot of variables, really when we go into determining that. But again, generally speaking, if you’re between 25 and 75 employees, a PEO is a beautiful fit for you.

William Tincup:   Oh, a hundred percent.

Bill Lyons:   If you’re 150 or more, is when really the decision needs to be looked at differently.

William Tincup:   Well, and most of the great PEOs like yourself, they help clients transition internally. Once you get to that point, it’s like, they totally understand. I’ve seen them with my own eyes that people in the PEO industry are responsible like that. Two questions left. One is across state lines, because you’ve got to keep up with local and state and federal compliance-related HR and employment laws. 

What are some of the things that just you’ve seen and just here’s the difference between South Carolina and Florida? Just things that you would never even think about and as an employer, an entrepreneur growing a business, you just never even think about to keep up with?

Bill Lyons:   Well, one of the things that comes to mind is some municipalities will impose an occupational tax on the employees that work in that particular area. It’s a withholding just like FICA or any other thing. If you come from a municipality or state that doesn’t have that, you’re not familiar with it, you may have somebody employed there and not even realize that you’re supposed to be remitting that, and then come to find out you get fined because you … Ignorance is not an excuse to not [crosstalk 00:   23:   31] the law.

William Tincup:   Oh, no. No. The feds don’t play that game. No.

Bill Lyons:   In our business, we have a licensing and compliance department. We monitor everything that’s going on. Every time we have a client that has employees in a new area where we perhaps have not been before, we have databases that we can access to find out what our responsibilities are for that particular municipality. 

Again, if you look at the inverse of a funnel, you got the federal government, then you got the state, then you got the city and the municipality, all of that has to be taken into consideration. They’re not the same from state to state. Some states have different licensing requirements upon us.

Right now, there are 40 states out of the 50 that have PEO licensing requirements and there are 10 that do not. We are pushing as an organization, as NAPEO, to get at all 50 states with similar licensing requirements so sort of standardize the industry.

William Tincup:   Oh, that’d be helpful. The last question I have for you, Bill, is the best way to work with a PEO. Someone when they’re listening to this, and they’ve never walked down this path, what’s the best way to start?

Bill Lyons:   Well, some people like to work with a smaller boutique type firm that does not have just a huge footprint all over the country, because they like the personal touch. We started out that way, but then our business evolved and grew to where we’re now in 46 states. I think the things that are important to me are IRS certification and ESAC accreditation. Not all PEOs in existence are both.

Lyons HR, our company, has always been ESAC accredited. As soon as the CPEO program was finalized by the IRS in 2017, we were one of the first PEOs. I think we’re the eighth PEO in the country to receive that certification. What that does is it requires that the PEO comply with certain financial standards that we pay an annual fee to maintain the certification. 

We have to provide an audit. We have to provide a bond. It essentially gives assurances to the client that all federal taxes are being properly-

William Tincup:   Oh, that’s fantastic.

Bill Lyons:   … are being properly remitted to the federal government. Now, ESAC, which stands for the Employer Services Assurance Corporation, are headquartered out of Little Rock, Arkansas is a smaller, less-known accreditation, but a much more comprehensive accreditation than the CPEO, certified PEO. 

The accreditation through ESAC provides assurances to clients on all employer responsibilities, not just federal tax reporting responsibilities, but state and local, as well as benefits administration. Some of the earlier sins committed by some of our forefathers were withholding payroll taxes and not remitting them correctly and also withholding benefits deductions and withholding 401(k) and pension deductions, and not remitting them to the proper authorities.

As you said earlier, the risk of operating on payroll tax withholdings, and those kind of things can be a real strong temptation to a struggling business owner. But if you are accredited by ESAC, you have to submit to quarterly verifications of your internal processes that ensure that all of those withholdings are being remitted to the proper authorities. That’s a quarterly review, whereas the certification with CPEO is annual.

William Tincup:   Well, for the practitioners that are listening, that is a wonderful way to ask questions, the probative questions of a PEO that you’re looking at, because those are super, super important. Bill, thank you so much for your time today. Thanks for coming on the RecruitingDaily podcast.

Bill Lyons:   Thank you, William. It’s been great to be with you.

William Tincup:   Absolutely. Thanks for everyone listening to the Use Case podcast. Until next time.