One of the most significant challenges currently facing printers is the need to attract and retain capable employees. In order to be successful in today's competitive marketplace, printing companies must constantly improve productivity. And, while new technology, improved equipment, and redesigned workflows all potentially contribute to productivity, most of these tools need the minds and hands of qualified and committed employees to produce their promised benefits.

Finding, hiring and keeping good employees has become a difficult challenge for several reasons. First, the overall U.S. labor market is extremely tight, and there is little promise of relief in the near future. The national unemployment rate stood at 4.0% at the end of 2000, and most economists believe that the unemployment rate will remain in the range of 4.0%-4. 5% throughout 2001. Second, as the use of digital technologies expands to include an ever-increasing portion of the print production process, printing company owners and managers are finding that hiring computer-literate employees becomes as important as hiring craftsmen skilled in the traditional graphic arts. Unfortunately for printing companies, computer-literate employees are needed by virtually all kinds of businesses, and the supply-demand equation now clearly favors the employee.

Finally, printing companies face a real double-edged sword when it comes to employee benefits. It is increasingly necessary to provide an attractive benefits package in order to hire and keep good people. At the same time, employee benefits costs, particularly health insurance costs, are rapidly rising. In a recently released study, William M. Mercer, Incorporated, an international human resources consulting firm, found that U.S. employer-sponsored health benefits costs rose 8.1% in 2000. More significantly, the Mercer study states that the average cost increase expected for 2001 is 11% and that about one in eight employers (mostly smaller companies) expect increases of 20% or more.

For printing companies facing these employment-related challenges, part of the answer may lie in outsourcing human resources functions to a Professional Employer Organization. Professional Employer Organizations, or PEO's, are descendants of the employee leasing companies that first appeared in the 1960's. Today's PEO's become co-employers of their clients' employees, and assume responsibility for human resources administration. Most PEO's provide a wide range of services and benefits packages, including payroll administration, insurance benefits, workers' compensation, unemployment insurance, retirement plans, and assistance in complying with the plethora of employment laws and regulations that now confront employers. For these services, the typical PEO charges an administrative fee that ranges between 2% and 6% of the client's gross wages.

After struggling to gain acceptance in the early 1990's, the PEO industry has become part of the mainstream. According to the National Association of Professional Employer Organizations, there are now more than 2000 PEO's operating nationwide, and recent reports indicate that the industry is growing at more than 25% per year. At least 15 states regulate the industry in some way, and, in 1996, the Institute for Accreditation of Professional Employer Organizations began issuing credentials for firms that meet certain financial standards.

Working with a PEO can provide owners of small and mid-size printing companies with significant financial and operating benefits. First, PEO's can help control the rising costs of employee benefits, while enabling small companies to compete effectively with larger firms in hiring and keeping the best employees. By combining the purchasing power of thousands of employees, PEO's can negotiate more affordable rates on a broad range of employee benefits. This allows many small companies to provide "Fortune 1000" type benefits at a reasonable cost. In a project completed last year, we assisted a printing company client examine the PEO alternative and solicit and evaluate proposals from several potential PEO partners. In this case, the client saved enough in health insurance premiums to almost completely pay the PEO's administrative fee. While this level of savings may not occur in all cases, PEO's can often enable small companies to provide better benefits at lower costs.

A PEO arrangement can also dramatically reduce the administrative burdens associated with operating a printing company. By outsourcing payroll and benefits administration, a printer significantly simplifies the bookkeeping and "office management" tasks he or she must perform, and this may permit administrative personnel to be reassigned to functions that directly contribute to producing revenues. Even more important, working with a PEO enables a printing company owner to focus on managing the core parts of his or her business, without the time-consuming distraction of employment-related administrative tasks.

Given the employment challenges facing printers and the benefits provided by PEO's, outsourcing human resources administration is an alternative that printing company owners should seriously consider. But establishing a relationship with a PEO is a substantial business and legal undertaking. This step should only be taken after a careful analysis of the potential benefits and disadvantages of the PEO alternative, and after the printer has engaged in a thorough process intended to help select the right PEO. Outsourcing HR administration will not be the right move for every printing company, but, for many printers, it can provide a tool for improving performance and enhancing competitive advantage.