We frequently hear some terms around TempWorks that can complicate our work. Today I’ll cover two of them, Letters-Of-Intent (LOI) and Professional Employer Organization (PEO).
Letter of Intent
Diamond vendors want to make it sound easy. Ask a girl to marry you with the right hardware involved, and the deal will go down without problems they say. Things are never so simple either in life or in the software business version of wedding engagements: Letters-Of-Intent.
The buyer will introduce conditions - "Subject to Board approval by Acquirer" or "Subject to the Company not having a material adverse change," – and so on. These ‘outs’ trigger easily – don’t get hung up on them. The real negotiation lies in the conditions to close. These can include formally written requirements but may also be construed by the buyer to mean anything they want. For example, we may agree to integration with QuickBooks, and they might take that to mean we’ll fly down and spend two weeks figuring out how they should organize their chart-of-accounts – all at no charge.
By focusing on the more constraining issues like these, you can learn about what your negotiation process is going to be like and decide whether you really want to do business with the prospect, and the earlier the better.
Insurance loop-hole to some, low cost staffing to others, the PEO business has suffered from miscomprehension, fraud and the long-hand of the government. Nevertheless, employment has gotten so complicated and expensive that organizations still find it advantageous to outsource to a specialist. If I have a factory and employ 300 workers and suddenly I’m denied worker comp insurance or my SUTA rate just went through the roof, I may find it economical to pay my workers through a PEO that takes on the role of employer. Staffing companies get into the PEO business naturally because they get tight with their client companies and quite rightly want to help them with their employment concerns. Frequently these kind of relationships don’t work out because the margins get set so low that the risks of worker comp, fraud or bankruptcy (by either the PEO or the client firm) are no longer worth taking. Further the government lurks in the background making the deal less tenable; for example, increasingly the PEO is required to pay the SUTA rate of the customer organization rather than its own.