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?
Easy…one…but it cannot be the owner of a sole proprietorship (you can’t lease back yourself). That said, most PEO’s are looking for 10 plus employees, and I have seen companies with more than 5,000 using PEO successfully.
If your company has less than 10 employees, the likelihood is that you will use the PEO for hr, payroll, benefits admin and safety. However, the health plan will probably be carved out in put in your name, although the PEO should administer it for you, making necessary payroll deductions.
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.
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.)
We are often perplexed by companies that come to us looking for a solution and seem to be under the misguided perception that PEO (professional employer organization), sometimes referred to as employee leasing, would mean a loss of control.
On the contrary, PEO allows business owners to know exactly, to the penny, how much their total labor burden is or will be.
Currently, their payroll processing, benefits costs and risk management are in differing departments or services. With PEO, it all comes together, neat and tidy. The rates charged, plus benefits, are already pre-negotiated. In addition, the employer risk is shifted entirely to the PEO. Meaning, if there is a workers comp claim or unemployment claim or workplace tort for harrasment or wrongful termination, that responsibility all falls upon the PEO.
One of the immediate advantages of PEO or employee leasing is that management’s time that was previously spent on personnel management and accounting can now be directed toward activities that effect earnings and profit.
In addition, a company that arranges with a PEO will find immediate economies of scale in providing benefits, especially healthcare. Other benefits, such as cafeteria plans, life insurance, disability insurance and 401k plans, are not often offered by smaller companies, but through a PEO, they are all available at no additional costs.
Lastly, a PEO or employee leasing firm provides assistance in defining personnel policies and compiling employee handbooks as well as compiling and recording employee files.
Of course, if you bundle in additional HR services like software, benefits, compliance and workers comp, there are greater savings to be seen. That is why for small businesses, we recommend PEO and other total HR outsourcing solutions to gain economies of scale so the payroll is basically free.
I always get a chuckle out of small business owners who will not make a change to PEO or other HR outsourcing solutions because they say that their accountant does their payroll and they are the only ones they trust to do it.
News Flash: Most accountants don’t do the payroll themselves. They farm it out to a clerk in their office…or more often they have ADP or Paychex do it, then pass if off as their own work and up-charge their clients for their “expertise.”
So, instead of saving money using PEO, a small business is paying, on average, $100/hour to their account for a service that only costs $100 per employee per year to do.
“Instead of doing your own payroll in-house, consider a PEO (Professional Employer Organization) to take over the administrative and legal responsibilities of managing your employees. You are not selling your employees to someone else- you are just using their service to help your small business save money while offering your staff better benefits to boot! This means, no inside human resource personnel costs, reduced legal liability for your company and better benefits packages for your staff. Look to a professional employer organization to help you save money.”
Totally different concept. What we (HROplus) is talking about is lowering your overall labor costs by more efficiently handling non-revenue generating operations within a small business (payroll, workers compensation, risk management, benefits administration, labor law compliance) and saving client companies thousands in administrative and hard-dollar costs thanks to immediate economies of scale.