Beyond Meat just enjoyed the most successful IPO in nearly 20 years. The company, which makes meat alternative foods, raised $240 million from its offering.
Beyond Meat will no doubt use some of its financial windfall to hire lots more people. But here’s one department that won’t get any additional manpower: human resources. In fact, Beyond Meat has no HR department of any kind.
According to documents filed with the Securities and Exchange Commission, Beyond Meat outsources all of its HR responsibilities to an outside company characterized as a Professional Employers Organization (PEO). Such a business handles tasks like payroll, tax documents, and employee benefits.
In addition, companies use PEOs to meet Obamacare’s requirement that even smaller businesses provide healthcare to employees.
Under the PEO arrangement, the company and PEO are both considered a person’s employer. So the PEO is able to pool all of the employees of its clients into a block that can purchase coverage at a more affordable price.
So small businesses and startups normally use PEOs as a way to save costs.
But a rapidly growing publicly traded company worth over $9 billion? That’s pretty unusual.
Not to mention extremely risky. W-2 forms and open enrollment docs sound like routine, boring stuff but they are extremely important routine, boring stuff. Which is why Beyond Meat listed its arrangement under “Risk Factors” in the company’s S-1 prospectus. (Bolded sections are mine)
This relationship permits management to focus on operations and profitability rather than human resource administration, but this relationship also exposes us to some risks. Among other risks, if the PEO fails to adequately withhold or pay employer taxes or to comply with other laws, such as the Fair Labor Standards Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act or state and federal anti-discrimination laws, each of which is outside of our control, we would be liable for such violations, and indemnification provisions with the PEO, if applicable, may not be sufficient to insulate us from those liabilities. Court and administrative proceedings related to these matters could distract management from our business and cause us to incur significant expense. If we were held liable for violations by the PEO, such amounts may adversely affect our profitability and could negatively affect our business and results of operations.
This section doesn’t even fully capture the entire risk. HR departments don’t just oversee administration tasks but also workplace issues like sexual harassment, discrimination, and employee misconduct.
Outsourcing these responsibilities to people who are not regularly in the office sounds pretty dicey, especially in the #MeToo era. Startups focused on growth instead of managing people ultimately regret it, especially when they face plenty of costly lawsuits.
“This is especially true in the PEO relationship where there is an inherent level of insulation between the PEO and the worksite employees,” Steven Pletcher, a managing partner who oversees PEO practice with Scopelitis, Garvin, Light & Hanson law firm, wrote.
“Not only must the PEO be aware of and take steps to avoid these errors, it must be in a position to educate and monitor its clients to assure that the errors do not occur without the PEO’s knowledge, resulting in potentially costly lawsuits.”
The real question is how long Beyond Meat intends to use a PEO. You would think a company that says it wants to sell food not just to vegetarians and vegans but to everyone will eventually need to take direct control of its workforce.
In other words, it doesn’t seem wise to skimp on a HR department, especially when you can afford one.
But then again, maybe Beyond Meat hopes to disrupt not just the food business but rather how all businesses operate.
“Our success depends in part upon our ability to attract, train and retain a sufficient number of employees who understand and appreciate our culture and can represent our brand effectively and establish credibility with our business partners and consumers,” the company said its SEC filing.
“If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand image may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our business, results of operations and financial condition.”
For investors’ sake, let’s hope Beyond Meat hired one hell of a PEO.