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Want to increase your diversity spend? Look at payroll.

Between government contractors who are required to hit certain diversity expenditure targets and the growing number of organizations who have adopted diversity programs, increasing diversity spend is a hot topic among large and small companies alike.

Increasing diversity spend is beneficial to companies in several key ways:

  • It allows them to compete for more lucrative business and contracts
  • It enhances their reputation as a progressive organization, which may seed preference
  • And, even for those who do not have their own diversity targets, it makes them a more attractive subcontractor for companies who do

According to Fortune magazine, minority-owned businesses sell more than $50 billion in goods and services annually to corporate America. The federal government has also established contract goals for women-owned businesses, small disadvantaged businesses, firms located in HUBZones and service disabled veteran-owned businesses. These government-wide goals are 5 percent, 5 percent, 3 percent and 3 percent, respectively.

While many payroll companies can handle administrative tasks, because of the unique nature of the arrangement, outsourcing to a Professional Employer Organization (PEO), ensures that payroll dollars can count toward diversity spend. Here’s how it works: A PEO, or professional employer organization, provides outsourced human resources services and back office solutions, including payroll, to other companies.

PEOs deliver their services through a co-employment arrangement, in which client workers become joint employees of their company and the PEO, being paid by the PEO directly with the PEO serving as their employer of record for tax and insurance purposes. While an employer retains control over operations and workforce management, hiring a PEO allows them to transfer much of their compliance burden and employer-related risks to the PEO. In other words, the client is the onsite employer and the PEO is the administrative employer. In this case, the entire amount of a company’s payroll shows on paper as revenue to this PEO.  If the PEO is a woman- or minority-owned vendor, it is considered diversity spending.

Since PEOs also often handle other key areas, such as insurance, benefits and workers’ compensation, the diversity spend continues to add up, allowing some companies to double or even triple their diversity spend simply by changing a vendor. It’s also important to note regardless of whether an organization has four or 40,000 employees, everyone has a payroll, and it is typically their largest percentage expense.

Want to learn more on how QBS can help you meet your diversity spend goals or make you more attractive to potential customers? Contact us today.