Friday, March 11, 2016

Tales From the Over Regulated State # 20 - Concierge Bureaucracy Managment

Thanks to Chris Muir at Day By Day Cartoon, I find a link to a topic I've been talking about for quite a while in a deep article by Skipsul at Ricochet: Cartels and Concierge Bureaucracy Management.  The author begins by recounting a story heard on NPR's Planet Money about a Concierge Bribery business in India and goes on to link it to things going on here.

My opinion, and I know I've expressed it here many times (sample), is that the continuing mandates from government agencies are destroying full time employment as we've always known it.  It's not just the Federal government, but states, counties, local - all of them - that are increasingly adding regulatory burdens.  The load being put on companies is getting so odious that the companies respond by not hiring full time employees any more, simply hiring self-employed contract workers.  Skipsul points out that these regulations have resulted in the development of companies who exist to help employers handle the regulatory overload.  Skipsul starts by talking about how Obamacare is ravaging the medical profession and industry and forcing one man practices to fold and join into the creation of big practices, which he calls medical cartels.  I assume the description means that these regional cartels control most of the medical practice (including pricing!) in an area.   He then enlarges the view.
The complexities of complying with the myriad kludges of federal, state, and local income taxes, payroll taxes, workers’ comp systems, and unemployment taxes have already driven most employers to contract with specialized firms for handling payroll. Only larger corporations have the budget to acquire and maintain the complicated accounting packages for running payrolls internally, so most smaller companies have, for years, offloaded this work on companies such as ADP or Paychex. With every added employee comes a new set of filings, and more potential for error. Just within my own company, we have have employees from two states and seven different local taxing jurisdictions, each of which has its own income tax, to be submitted on its own form, and by its own arbitrary deadlines. Say what you will about the virtues of federalism, each of those various towns, cities, and counties is a petty fiefdom unto itself, and all must be paid whether I actually do business there or not.
In short, businesses in America run a gamut of risks to their well-being, and the laws and regulations today put them, almost by default, on the hook for actions that in another time would have fallen on individual actors. And just as Obamacare has driven the medical industry into cartels to cope with the bureaucracy, so now general employers now are consolidating their employee pools for protection. The payroll firms of old are now changing into something new: The Professional Employment Organization, or PEO.

The PEO is the logical extension to outsourcing payroll processing. The way a PEO works is simple: A business shifts its employees from direct employment to the PEO. The business then no longer directly employs anyone, but contracts its employees back from the PEO — for a fee, of course. In return, the PEO not only assumes the administration of payroll, but handling of benefits, the creation of HR policy, and all of the overhead thus entailed. The PEO, being effectively a national employer, can offer health and retirement benefits that my own little company cannot possibly offer, and liability concerns shift as well. The PEO is the ultimate concierge service in employment. However, PEOs are by their nature employment cartels, consolidating the employment pool into just a few firms.
The concept of the PEO isn't new: think of old companies like Manpower or Kelly Services, agencies where an employer can hire temporary workers for specialized positions.  The field has existed for decades, but Skipsul puts it this way:
I was informed by one PEO that PEOs in general have seen their employee pool grow nationwide by 15-20 percent per year since Obamacare was shoved down our throats (prior to that, their main markets were in the usual lefty bastions of California, New York, and Illinois). This is an alarming trend, not because the PEO concept is somehow wrong in itself, but because it is a sign that even small businesses are now economically unable to keep up with the burden of our government. ... Just as small medical practitioners have found themselves driven into large regional medical cartels, so now American businesses are finding themselves drawn to employment cartels.
I recommend you read the whole thing.  It's not much longer than this.  This is the Law of Unintended Consequences writ large, as it pertains to the ever growing government Hydra (cut off one head, two more grow back); the over regulated state.  Create a law to protect company retirement plans from being raided and fewer companies offer them.  Create a host of laws to protect workers from firing, and companies respond by hiring contractors for entry level jobs; contractors that can be dropped at will; as one engineering director once colorfully described it to me, "contract engineers are like toilet paper... use 'em and throw 'em out".  Create laws saying health care insurance must cover everything imaginable, from preventive exams and flu shots to sex change and treatment for substance abuse, and then recoil in horror at the increased premiums and outrageous deductibles. 

The world of full-time work for a corporate employer is ending - it has already ended for many.  I can imagine a time in the not-too-distant future when there will be a handful of large corporations with full time employees, and everyone else will either work for a small PEO, or will be self-employed by contract to small and mid-sized corporations. 


  1. The outfit I work for goes through a hiring agency that is much like what you described above. They specialize in placing people with professional experience in certain job descriptions.

    You can be employed by the placement agency while working for such and such a company for years if the company does not want to outright hire you.
    The placement agency is your actual employer and pays medical benefits, vacation and your hourly wage.
    It took 11 months for the outfit I work for to actually hire me and that is not uncommon anymore. That was 4 years ago now so this is not a new phenomenon, it has just blossomed now because of the conditions you described above.

    1. I forgot to mention that the place I just retired from is the same way. The majority of people are hired through a temporary agency (POE as they say in this piece). The temp agency is the employer, and the company evaluates them as potential employees. If they like the person, they make an offer. It has been that way for a long time, maybe even 10 years. I think the only exceptions are higher pay range salaried employees.