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Cartels and Concierge Bureaucracy Management
Several years ago I heard an amusing story on NPR’s Planet Money program. The story described an Indian entrepreneur who, frustrated with India’s local political corruption and red tape, started a new business: Concierge Bribery. For a fee, he would seek out and pay off all of the sundry local officials whenever a local business needed something done. I thought how lucky we were that America had not yet descended to that level. I was deeply wrong. We, in fact, have had concierge bureaucracy managers for some time.
While it is generally a good maxim to never ascribe to mendacity that which can be explained by incompetence, normal logic seems rarely to apply to any of the corruption and rot stemming from Obamacare (and for the record, I refuse to call it “The Affordable Care Act”, or ACA). The act seems explicitly designed, among other things, as a tool to force a cartelization of the entire medical industry. We see this in the rapid demise of independent practices, as they close up shop and merge into large provider networks — effectively regional medical cartels. What we are not yet seeing, or rather noticing, on any scale is the very similar effect Obamacare (when coupled with the many other business strictures in place) is having on general employment itself.
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. Payroll services are effectively already the concierge bureaucracy managers. Now they are also changing into employment cartels.
The risks to an employer only grow should that employer choose to extend any benefits to employees, whether to meet some new arbitrary caprice of our rules (i.e. Obamacare), or to improve retention or morale. Just since the beginning of the Obamacare mandate, I have had a significant increase in the amount of paperwork I have to file each year, and in the number of mandatory notices and lectures I have to give my staff. Then there are the multiple workers’ comp filings I have to make every year (not to mention arguing with the state over how my employees are classified). Adding a 401k program could expose me to lawsuits for mismanagement if the market crashes, and the fees and audits would negate any upsides.
Adding to all of this is the greatest uncertainty: liability. Our legal structure is such that frivolous lawsuits are cheaper to file, and often less expensive to settle, than fighting them off, even when the entire lawsuit is without merit. The risk of lawsuits from one’s own employees is especially acute owing to whistleblower laws and other protections that make it especially difficult to gain redress even from completely unmerited lawsuits. An aggrieved employee can find a toehold in places unthinkable even a few years ago.
Realistically, if you are careful in your hiring and everyone acts like adults, the risks from these sorts of suits and annoyances are minimal. But I have learned the hard way that a particularly vicious and manipulative employee can stir anger and gossip like poison throughout an entire organization. And even long-trusted employees can change or harbor resentments for years, blindsiding everyone when that emotional dam cracks. Employers must be ever-vigilant about such things, laying groundwork against any damaging eventuality, no matter how slight the exposure seems at the moment.
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.
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. A small business in America can no longer easily manage the regulations of Human Resources. 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.
Human beings are ingenious and creative. We find ways to get things done, even when the powers of bureaucracy weigh heavy. Think of Boss Mongo’s tales of procurement in the desert, or the Indian Concierge Bureaucracy service, or black markets in the former Warsaw Pact. We recognize in all of these stories that there is a troubling backstory — one of deep government corruption and inefficiency. We know that if goods, services, and people were truly free to flow, all this human resourcefulness and ingenuity could be directed toward something productive. PEOs are, of course, very clever too. But their rapid growth is another sign that our top-heavy government has grown beyond the point where anyone can navigate it or fend it off.
How can we continue to point to America as a land of opportunity when even the act of employing a person requires the employer join a cartel and hire a concierge bureaucrat manager? Such are the fruits of socialist central control.Published in General
Well put, skipsul. See also: Extortion.
Skip, can you put conditions on the localities from where you hire?
Worthy of Main Feed promotion.
We’ve been living for decades with the businesses that specialize in filing taxes that are too complex for most mere mortals.
What economic activity will be next?
I’ve been wondering recently if I’m paranoid.
Then I think about this, or about how any off chance remark can be construed as hateful by the twitter mob, or how any way of expressing romantic interest in a woman is—at her sole discretion—sexual harassment. I wonder if an inability to distinguish ordinary people with ordinary motivations with threats to my well being is, strictly speaking, my brain’s fault.
Yes, indeed. Let me add my congratulations!
By the way, read American hero Hank Rhody’s Office gothic if you want to see the kinds of employees that this kind of employment generates. Ricochet is becoming self-aware, folks!
Possibly. It’s not something I’ve ever felt I had to do. I hope I never get to that point, with the exception that I will never open an office in California or New York.
Not until your son from the future comes back & tells you about the underground entrepreneurs of the Corvette resistance, is what you mean!
Not paranoid. Gothic. American gothic.
I don’t think it’s happened yet.
In case it doesn’t, let’s hope for a Most Popular box moment. Only 73 comments to go!
If someone mentions a certain candidate, we’ll be there in 5 minutes.
Skip, Augustine is saying, we will bring revolutionary justice if the class structure of Ricochet does not do justice. This is true.
Preach it, brother.
Our leaders decry the power of big organizations, while — in the service of “the little guy” — they make it nearly impossible for small organizations to be born or survive or thrive.
It’s all first-order thinking. Protect employees enrolled in 401(k) plans! (But the rules lead employers not to offer plans, so fewer employees get to participate.) Protect employees from capricious firing! (But the rules lead employers to be more circumspect in hiring.) Make sure health plans offer comprehensive coverage! (But the rules make the plans so expensive that some employers have to cut the plan offerings altogether.)
And on top of all the individual cost-benefit calculations, the whole apparatus becomes so unwieldy and complex that a business owner must to devote all his time to compliance rather than running the business, as you illustrate so well in the OP. No wonder our country’s rate of new business startups has plummeted. Net new business creation is negative now.
We have become France, but without the benefit of efficiency that comes from centralized micromanagement.
Or decent cheese.
Excellent post, Skip. I got taken by a fired employee to the local human rights commission. Thank God and conservatives that my state allows employers to terminate “at-will.” I had painfully followed employment law very carefully (most in my line of business use independent contractors, quite illegally) and luckily I live in a small city where I had met the local, very smart, very Left-wing labor lawyer, who, after hearing why I had terminated, agreed to represent me if need be. As he said, “When they hear my name at the Commission, they will know she has no case.” So, after taking a few years off my life, she lost. Lots of morals here, but one of them certainly is that one risks a lot more than money in being an employer.
Decent cheese is illegal because it does the naughty when you’re not watching-
You say that on this side of the Wisconsin border!
In all seriousness though, I do wish we’d deregulate the cheese market with perhaps more fervency than all other markets.
I’ve started tagging my posts “Not Trump.”
You have to learn from the French to watch the cheese do the naughty. The rest will follow-
When I wrote that post this morning I decided to tag it with “Not Donald Trump”, and was thrilled to see you had invented that invaluable tag.
I’ve never been more thrilled to be associated with Onanism.
C’mon down to Texas.
Too warm for my tastes.
There we go: Main Feed.
Smart politicians invest in “constituent services.” My last vote for a Democrat was for Jack Reed, when I lived in Rhode Island. Not that we had much of a choice–or that my vote made a difference–but I was grateful for the help his staff gave my family.
Reed’s office broke a multi-month logjam at USCIS that threatened to prevent the adoption of our now son. It was a nightmare of slow-walked paperwork, walled-off bureaucracy, and inert civil servants. The last straw was the black hole into which our consular appointment had fallen: our tickets and approval hung in the balance. Within 36 hours, Reed’s staffers had fixed everything (though annoyingly, the appointments appeared with apparently backdated approval dates).
Of course, my gratitude toward Reed was mixed with nausea. I’d had to swallow my pride, and ask my elected “fixer” to cut through the cancer of the administrative state.
I work in the PEO industry. It’s really not like that. The actual employer still retains effective control. And even for employers not in California or Ohio (those states get extremely complex), managing the process and doing the ordinary federal and state tax filings are ripe for outsourcing
I agree that the regulatory mire helping to fuel this industry is ultimately a disaster and should be reversed. However, there is still benefit to this for general risk mitigation (even assuming a sane regulatory state of affairs) and for the substantial savings on benefits programs in terms of both cost to participate participation and cost of administration.
A tour de force. This post should be required reading for all presidential candidates including the democrats and every single Congressional staffer.
I am a laser physicist at a university and have thought about starting businesses to commercialize technologies, but every time I am completely deterred by just what you describe. Fortunately, I also work closely with a couple smart tech companies with either much braver entrepreneurs than I, or at least with entrepreneurs that were a lot more naive than I am when they started their companies.
Ah, the “Chicago Way.” Get the right person to fix it for you, regardless if you were right or wrong. :-)
Well said, and so true, and so terrible.
My husband works by himself and has a shot at a project he can’t safely do by himself. He is highly skilled at that type of project and finds it satisfying, plus it would be better paying than other projects. He needs one or two weeks’ help, for which he could probably convince our son to pitch in.
Our son worked for him in the past but doesn’t now, so there’s no payroll service or worker’s comp insurance in place. Setting that up would take several days and cost several thousand dollars. Hiring our son off the books risks everything we have including jail for my husband. Doing it alone poses a substantial risk of permanent injury to my husband. I suggested looking into hiring our son through a PEO, which I guess would take a couple days and cost several hundred dollars.
He’ll probably do it alone.