The rising cost of health insurance and the growing number of employment regulations have increased the burden of personnel management for small businesses.

To administer human resources, a small business would have to hire accountants, human resources and benefits specialists, lawyers and risk managers. But most small businesses can't afford such a specialized work force.

"Unfortunately, just because a small business may not have the means to hire this kind of staff, it does not mean they don't have to comply with the laws," said Jerry Diddle, president of Lenexa-based Axcet HR Solutions. "A lot of times, the burden of these things falls to the employer or to a 'right-hand' person who doesn't have the skill set to deal with them."

That's where companies like Diddle's come in. A professional employer organization helps small businesses deal with all aspects of human capital.

Through a co-employment relationship, a PEO contracts the responsibility and liability for personnel administration, including benefits, tax compliance, payroll and workers' compensation. The business owner retains duties unique to the business, including hiring, firing, training and disciplining.

PEOs help address regulatory compliance, reduce liabilities and produce a more resourceful company, said Mike Mapes, regional council leader for the National Association of Professional Employer Organizations (NAPEO).

"How much money are you making when your employees are working on HR or benefits or workers' comp claims? The answer is zero," Mapes said. "PEOs get their employees' time back, so they can work on business-related items. It instantly makes the company more efficient."

NAPEO said the average size of members' clientele is 17 employees. Diddle said his clients have 10 to 100 employees.

Mapes, president of Omaha-based The Alliance Group Inc., said a PEO offers three main benefits: economy of scale, increased infrastructure and reliability of service.

The PEO is able to act as the employer of record, so it can aggregate clients' sizes when searching for workers' comp or employee benefits. Diddle said Axcet can buy plans with an organization of 6,000 employees, rather than 60.

Source: Kansas City Business Journal, May 26, 2006.