An HR Alternative for the Modern Private Medical Practice

So a doctor walks into the OR… sounds like the beginning of a good joke, right? Only, it’s no joke! The surgeon has protocols, procedures, and contingent plans in place to ensure the best possible opportunity of a positive result. The physician has malpractice insurance in place to protect against an unforeseen or undesirable result.

The same physician walks into his/her medical office and is informed by an employee that they have been sexually harassed by a co-worker or a key employee informs the doctor that they need to take an extended leave to care for an ailing family member. Are there proper protocols, procedures, and contingent plans in place to ensure the best possible outcome? Is there Employment Practices Liability Insurance in place to protect against an unforeseen or undesirable result?

Any business with one or more employees must effectively execute a broad scope of HR management disciplines that involve payroll, employee benefits, labor law compliance, risk management, and a host of employment challenges. For new, growing, and even mature medical practices, these responsibilities can become overwhelming, draining valuable resources at a surprising pace. As the business of employment becomes more complex, many medical practices are discovering that outsourcing the HR function is a strategic business decision that makes sense.


HR Challenges

Whether your practice is a start-up or an established medical practice, your business plan should address how you will recruit, manage, and retain physicians, medical support staff, and administrative personnel to properly protect, manage, and grow your business. Recruiting and retaining quality employees with “in-demand” skills involves a complex set of responsibilities and challenges. Even with the best of intentions, lacking the proper protocols, policies, and employment infrastructure, an environment of significant liability can and often does exist.

Consider the time, human power, and resources necessary to tackle the most basic employment responsibilities of just a few employees and the exponential impact as the
practice grows. These basics may include:

  • Payroll Processing and Tax Filing
  • Labor Laws and Compliance
  • Employee Benefits Management
  • Unemployment Administration
  • Workers’ Compensation
  • Risk Management


Effectively Managing HR Challenges and Complexities

As with most operational functions, there are multiple solutions to consider that will address the needs of the organization. Specific to HR, consideration of taking on this liability internally should be weighed against the potential benefits of outsourcing this function to a professional services firm that specializes in HR management.

“Going It Alone:” The Traditional Approach of Internal HR Management

For decades, start-up and small-to-medium-sized organizations have attempted to minimize their potential employment liability and assumed the core responsibilities of managing each aspect of HR compliance internally. These duties often fall on the shoulders of a Practice Manager with limited or no training in personnel matters or the time to keep abreast of ever-changing labor laws.

Often, an external payroll company is contracted to handle payroll processing, tax collection, and filings, but lacks the ability to store and track all employee data in a single location or provide guidance as it relates to the Department of Labor (DOL) mandates. This often creates an environment where a Practice Manager is overwhelmed and results in management taking a reactive approach to addressing or resolving significant employment issues in an effort to avoid liability, fines, or lawsuits.

“Leave It to the Professionals:” Outsourcing Your HR Responsibilities

Human Resource Outsourcing (HRO) with a proven Professional Employer Organization (PEO) utilizes a co-employment model that provides an efficient and cost-effective solution with access to HR support, payroll, employee benefits, and technology managed by a single vendor. The PEO model achieves economies of scale by aggregating hundreds of clients, resulting in a reduction in the time, liability, and overall cost of employment to each individual client.


Outsourced HR Firms Reduce Employment Cost & Uncertainty

A PEO can provide more for less because of efficiencies derived from
the following:

  • Economies of Scale are achieved when the PEO can replicate the required employment functions and services for multiple organizations while still customizing client-specific policies. This model enables the service provider to distribute its costs and deliver a cost-effective solution to each client.
  • HR Technology known as a Human Resource Information System (HRIS) may not be a cost-effective solution for a small practice on its own. However, through the PEO, this technology becomes a viable option to provide access to robust reporting and tracking of critical employee data through management and employee self-service portals.
  • HR Expertise is made available, starting with a proactive approach to developing and implementing the proper protocols and policies to minimize potential employment liability.  Ongoing HR guidance is provided to address changes in employment laws, updates to employee handbooks, job descriptions, and access to guidance to help navigate adverse employment situations as they arise.
  • Peace of Mind that employment compliance has been achieved and maintained, enabling the physician and staff to focus on the core function of the practice.


Unique Benefits of Outsourcing HR

With a PEO, some additional programs that are usually only available in large corporate environments become accessible to small medical practices. These benefits can be extremely valuable to employees and directly to the practice ownership.

  • Multiple Employee Plan (MEP) Retirement Plans: Asset management fees for a 401(k) plan are typically determined based on the amount of assets in the plan. Therefore, smaller employers pay higher fees as they have fewer assets under management than a larger counterpart. The PEO can offer an MEP, which is a 401(k) retirement plan that has more assets in the plan and therefore reduces the cost inside the plan. It is also able to reduce the administration, liability, and costs to administer the plan.
  • Deferred Compensation Plans: These plans are typically only offered in large corporations. But a PEO may offer a deferred compensation plan that enables highly compensated owners and key employees to defer income into future years. By deferring income, participants also defer taxes while the monies are invested. Investments are withdrawn at a future point in time, typically when the owner or employee is in a lower tax bracket. While a deferred compensation plan can be implemented in addition to a 401(k) retirement plan, it provides much more flexibility for owners to be selective in regard to who participates in the plan.
  • Group Employee Benefits: A PEO usually has an established suite of employee benefits that are based on a larger group and offered to eligible employees. These benefits are also administered by the PEO, reducing the administrative burden related to managing a suite of employee benefits.


Is A PEO Solution Right For Your Practice?

Like any good business decision, the key is doing your research to identify the best solution for your particular needs. A quality PEO will meet with you to discuss your needs, concerns, and objectives. You should expect to provide the following information to potential service providers that will be used to underwrite and develop a proposal for
services specific to your practice:

  • Company Information
  • Employee Census
  • Current Benefit Plan Summaries
  • Workers’ Compensation Declaration Page
  • Workers’ Compensation Loss History
  • State Unemployment Tax Information

The proposal should clearly identify how your objectives will be met and clearly state the services that are included in the service fee, as well as any additional costs for optional services. Service fees and all associated costs should be transparent and easy to understand.



According to a study by noted economists Laurie Bassi and Dan McMurrer, businesses that use PEOs grow 7% to 9% faster, have 10% to 14% lower employee turnover and are 50% less likely to go out of business.

The decision to outsource the HR function is a growing trend as employment liability and the administrative burden of employment continue to tax internal resources of small businesses and medical practices to their limits at a rate that is not sustainable without hiring trained HR staff in house or outsourcing this critical function.

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