A lot of the calls we get are from companies looking for some sort of HR outsourcing solution…but they don’t want to give up payroll, they don’t want to “outsource” that. Funny thing is that when asked…most confess that they use an outsourced payroll service already. And, we know they don’t self-insure on benefits or workers compensation insurance. Therefore, they are already outsourcing 3 of the 5 legs of the HR department anyway.
Why not roll them up, get some economies of scale, tell Betty-Sue Badbenefits and Roy Shakeyriskmanagement to work in a department within the company that actually pulls in some revenue?
Risk management, aka, workers compensation insurance will ultimately be based upon your experience.
So, what is the “soft cost” of human resources? There have been many studies and questionnaires floating around to make a case for HR outsourcing services. What we see is that most companies do not buy into the concept of “soft costs” until they become “hard costs.” Meaning, we do not get a business owners attention until after the fact. And those facts are turnover and non-compliance issues (fines) and workers compensation modifiers that give owners nose bleeds.
Our goal should be to take all aspects of a company’s human resources department into account when proposing a solution. Line-by-line, department-by-department.
SUTA (state unemployment tax assessment) or SUI (state unemployment insurance) is charged by every State to businesses to cover unemployment claims. Every business is rated on their claims and given a base rate that they must pay to stay out of legal hot water with their State.
But, what are cutoff’s? Once you have paid a particular employee a certain amount of pay over the course of the year, the SUTA is cutoff. For example, in the State of California, once you have paid an employee $7,000 in one year, you no longer have to pay unemployment taxes on that employee. The cutoff point varies from State to State.
How does a PEO handle this? It varies from PEO to PEO. Some honor cutoffs…some ignore them entirely. Others smooth out your SUTA rate over the year. So you may see a SUTA rate billed at a fraction of what you would normally expect…but it is likely that you will continue to pay that rate for the full year.
You should check with your PEO or HR Outsourcing provider to see how they handle cutoffs.
Most likely, the buying provider or PEO will have you conformed to their processes and systems within 18 months. Now would be the best time to re-evaluate that relationship to see if it is truly what you were hoping and to see if there are better options.
Most likely you are…You just don’t realize it. Here’s a quick test to see if you are hr outsourcing.
If you answer false to any of these questions, then you outsource HR.
1. My company is self-funded for workers compensation
2. I handle all aspects of payroll internally, from collecting the hours to cutting the checks to quarterly and annual tax payments to w-2’s to setting up direct deposit for my employees
3. I do not offer any benefits to my employees
Not as easy as you think, is it?
Let’s start with number 1…workers compensation. The common misconception is that workers compensation insurance is a burdensome tax to business owners and that it is only in place to protect employees…quite the contrary. Workers compensation insurance is in place to protect owners’ businesses in the event of a work-related injury to an employee. A second misconception is that if all of the employees are 1099’ed, sub-contractors, then the business owner is held harmless. That is fine and well until a sub hires a sub and they end up with an injured employee. Who then is going to be the responsible party? Trust me, that stuff flows uphill. Bottom line…workers comp…gotta have it. If you don’t you’ll be paying off the lawyers and injured with the proceeds from the sale of your business.
Which takes us to number two, outsourcing your payroll. Everyone should be using this service. Your time is money and your money is money…don’t waste either by doing this function in-house. Plus, the related fines if you flog it up.
And then you have employee benefits. Who is managing that? Your office manager? That’s great, that’s a money saver, because they work for free, right? Again, you’re wasting their time, plus opening yourself up to labor law infractions as I’m sure your office manager/client service rep/admin assistant is up to speed on all federal and state regulatory labor laws. Here’s a quick test of that employee’s knowledge of human resources. Ask them what C.O.B.R.A. stands for…and how long an employee must be retained on your company’s healthcare plan once they leave your employ. (Answers: Consolidated Omnibus Budget Reconciliation Act…and 18 months.)
The Department of Labor (DOL) has submitted its fiscal year 2011 budget to Congress. One of its main objectives is to penalize employers who misclassify employees as independent contractors.
Another reason for small businesses to outsource their human resources to a solution like PEO (professional employer organization). Once the DOL finds a company that has classification errors, the liability for back wages and overtime pay, as well as to DOL penalties, will start adding up and potentially put them out of business.
Here is a link to an article in Entrepreneur Magazine that is at the heart of why small and mid-sized businesses should be outsourcing their HR, in particular, PEO is mentioned as a more cost-effective way of doing business.
I have found another, third-party, website that talks about the true cost of labor. This link below will take you there. It delves a little deeper into the issue of unproductive work time, but you’ll get the drift.
With a PEO or other HR outsourcing model, you can expect your labor costs to be drastically lower than the 44% that this site highlights.
With all the labor regulation that is a major cost and time loss to business, especially in the restaurant and hospitality, PEO is a great way to cost-effectively remain compliant.
Here is an article in Fast Casual by the president of NAPEO (National Association of PEO), that outlines some key points and considerations for businesses in the restaurant industry considering hr outsourcing in general, and PEO in particular.