HR Outsourcing: An effective risk management tool for property managers

Commercial real estate property managers have always had to function in a highly competitive market, especially in New York. However, current economic conditions, coupled with post 9/11 security issues, have introduced new challenges. In a report issued by the Institute of Real Estate Management (IREM) titled, "Transforming Real Estate Management: Four Critical Issues," technology, workforce development, business competition and risk management were cited as representing their greatest challenges. Interestingly, all four areas are effectively supported through the use of Human Resources (HR) outsourcing. HR Outsourcing Provided by PEOs HR outsourcing in its most comprehensive form is offered through Professional Employer Organizations (PEOs). These companies provide a complete HR solution, from: employee payroll preparing, reporting and tax filings; employee benefits design and administration; and insurance; to workplace regulatory compliance; unemployment administration; Workers Compensation hearings; EEOC reporting; and a wide range of value-added employee services (e.g., Employee Assistance Programs (EAPs), adoption assistance, college scholarships, and discounts for shopping, transportation, travel and entertainment). By legal definition, PEOs are co-employers who assume certain responsibilities and risks on behalf of their clients. Currently, this $51 billion/year industry consists of approximately 700 PEOs nationwide serving an estimated three million employees and their employers. The Technology Factor The most sophisticated PEOs now offer their clients a complete online service wherein employers and employees alike can access information about their programs and benefits online, 24/7. This technology speaks directly to the IREM's finding that property managers, more than ever before, require readily accessible information which enables them to be more responsive to both their staff and their tenants/residents. In addition, the report noted the valuable role of technology-related solutions in risk management. Workforce Development The IREM report noted a serious shortage of talent for property management firms. The report referenced a survey by RHR International which found that 65% of companies surveyed expected to lose 50% or more of their senior managers over the next four years. Attracting and retaining qualified staff is a major challenge for property managers which HR outsourcing addresses. By pooling all of their clients' employees into one large pool, PEOs are able to realize significant economies of scale relating to employee benefits. These savings benefit clients by enabling them to offer their employees a better selection of benefits (i.e., medical, dental and vision coverage, flexible spending accounts, health reimbursement and health savings accounts, life insurance, disability income, long-term healthcare and retirement plans). Because of the wide selection, employees can choose options which best meet their individual needs, which they value greatly and weigh heavily in their employment decisions. The Competitive Edge HR outsourcing is not a marketing tool, but it does enable Management to focus on core revenue producing functions assured that experienced professionals are managing their human resources. Major risks and related fines are clearly mitigated with the PEO competently managing the payroll, taxes, benefits, etc, while also facilitating compliance with various laws and regulations. Property managers can cite their well-managed Human Resources programs and position themselves as better property managers. After all, why would building owners want to entrust their properties' management with an organization that did not have its own house in order? This could be used as a market differentiator. Further, because of the employee-centered offerings PEOs provide, property managers can attract "the best and the brightest," further boosting their competitive edge. PEO Credentials PEOs have become a regulated industry. Select a PEO which bears the Employer Services Assurance Corporation (ESAC) designation; the equivalent of FDIC and SIPC to the banking and securities industries, respectively. This seal of approval denotes that a PEO's level of service quality, operations and fiscal responsibility meet ESAC standards. ESAC-accredited PEOs are covered by a $1 million bond held in trust by a national bank, and a $4 million umbrella bond to cover claims in excess of the $1 million bond held for each PEO. To date, there have been no defaults by ESAC-accredited PEOs, nor unresolved claims or litigation. Louis Basso is the president and Barry Shorten is the executive vice president of The Alcott Group, Farmingdale and Buffalo, N.Y.