2020 has been an interesting year, for lack of a better word. The COVID-19 pandemic, record high unemployment claims, and economic uncertainty has provided the need to adapt to new market conditions. When it comes to hiring or replacing talent, human resources departments and hiring managers are challenged with fiscal, social/ethical, and compliance matters.
Many companies and CFOs focus on Employee Headcount as an important metric. Headcount reporting highlights quarterly payroll expenses as well as employee benefits expenses (medical benefits, retirement, insurance costs, and paid sick leave/PTO). There are also a variety of financial ratios factoring employee headcount that executive leadership analyze to measure financial performance. According to a report provided by the Small Business Administration (SBA), employee payroll costs can add up to 40% additional expenses on top of employee gross wages. In many other cases, payroll costs can add 70% additional expenses on top of gross wages.
Third Party Payroll solutions are a useful tool for companies dealing with a headcount freeze or mandate. In these cases, an employee can return to work, but transition to an employment agency’s payroll (that provides payroll solutions). A company can bring back an employee, but not officially rehire. The employee is happy to be back at work and the company maintains its valued relationship while maintaining productivity. This is a creative solution for headcount compliance. There is no employee-employer relationship since the employment agency is now the W-2 Employer of record. The company is simply using an employment agency as a vendor or Independent Contractor.
Since the employment agency is now the Employer of Record, the agency pays the employee directly and provides all wages, health benefits, insurance coverage, as well as unemployment benefits. In many cases, an employment agency’s payroll tax burden is less than its company client so there may be additional cost savings.
This year, the federal government passed the CARES Act. Along with this legislation, came the Paycheck Protection Program, an SBA loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. Small businesses may receive loan foregivness for up to 24 weeks from the loan inception date.
What happens when the loan forgiveness period ends? Since wages will no longer be reimbursed by the federal government, should companies furlough employees or continue to keep the headcount (without the government credit)? It’s a challenging decision.
Third party payroll solutions are also an option during this transition period. If an employer or company cannot substantiate the additional headcount (post PPP forgiveness), they can still refer their employee to an employment agency as the new Employer of Record. The outcome is continual employment, increased employee morale, and headcount compliance. Additionally, there are no temp-to-hire or conversion fees to rehire an employee from the employment agency. It’s a win-win scenario.
Employees are the life line of any organization. Treating employees fairly and with respect should be the mission of any company. Unfortunately, these challenging times present difficult corporate decisions. Headcount mandates and the Paycheck Protection Program pose opposing postiions with regards to hiring. Partnering with an employment agency that provides third party payroll solutions and a background in worker compliance is a strong option that can help a company navigate through these situations.