Tag Archives: risk management

How many HR Professionals does it take to change a light bulb? Less with PEO or BPO or ASO.

We all know the old jokes about <insert profession here>.  Lawyers, doctors, politicians and yes, HR professionals.  Which leads me to the greater question:  How many HR professionals does a company need on staff? 

The old rule of thumb, as I was taught, was for every 50 employees, you need an HR pro on staff.  But, of course, that ratio becomes skewed as the company becomes larger.  In other words, a company with 2,000 employees certainly can do without 40 HR pro’s (imagine that labor costs…at an average salary of $50,000, plus taxes, benefits, etc…you are in the range of $2,500,000).  Jaw-dropping, I know.

More reasonable would be about 15 for a 2,000 employee group.  But how can a company get that number down further?  Outsourcing functions to a PEO (professional employer organization), ASO (administrative service organization) or BPO (business process outsourcing) can drastically reduce a company’s overhead in the HR department.  We have worked with companies that have anywhere from two to 5,000 employees and have been able to cut their HR department in half, or better, thus saving an average of $62,500 per employee, and set them up with a solution that costs substantially less.  Include in the savings an  industry leading HR software solution that integrates with critical core business software, and now we are talking about a savings in the millions of dollars. 

Sounds great, right?  You can save your 2,000 person company $1,000,000 annually with this type of solution.  Who’s against it?  Why HR pro’s, of course.  This means cutting down their little fifedom.  Any department within a company does not like to see its numbers erased.  But who better to be erased than a non-revenue generating unit like human resources. 

The answer to the question: How many HR professionals does it take to change a light bulb? 

  1. One to write up a job description
  2. One to hire the individual to change the bulb
  3. One to explain the benefits the new employee is entitled
  4. One to act as risk manager to be sure that all OSHA rules and regulations are followed and reported
  5. One to write up the performance evaluation
  6. One to lay off the employee
  7. One to inform the employee of their ongoing benefits and access to COBRA, et cetera
  8. One to manage the unemployment claims

Did I miss anything?

That’s eight (8), and that is only if everything goes right and the employee does not get injured in the process and you need to have another HR manager handle the workers comp claim and another to manage the “back-to-work” program.

What is the “soft cost” of Human Resources? Can a PEO or HR outsourcing provider quantify?

Payroll is a commodity.

Benefits will cost what they cost.

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.

How PEO helps businesses gain control

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.

HR outsourcing versus offshoring

A common misconception is that HR outsourcing will take over jobs and move the offshore.

A search for outsourcing leads to this article:

http://employeeleasing.blogetery.com/2010/01/03/how-to-outsource-their-tasks-most-feared-small-business/

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.

Bogus quotes by bad competitors

Just got off the phone with a client.  Seems that some big name providers like to put together a quote for services that they have no intention of writing.

For example…a PEO will tell a prospect everything they want to hear…provide a “contingent” quote, then when the client has signed the client service agreement, put down their deposit and are a couple of days from calling in their first payroll, the provider’s risk management department will call the client and tell them they cannot write one or more of the proposed workers comp codes.

This happens more often than not.  How do you protect yourself from this egregious business tactic?  Insist on a non-contingent quote for services.  If the provider hedges, for whatever reason, it likely means his workers comp coverage cannot take on your risk.  Be aware, some of the big name PEO’s do this all the time to block business from going to smaller PEO’s that can write that business.

Why would an employee/worker want to be employed by a PEO?

This is a topic or question we hear quite often.  Usually it is the client company posing the question. 

The easy answer is that the employees of a PEO have access to the benefits package normally only seen at a Fortune 500 company.  That is, major medical, dental, vision, 401k and various other insurance products.  The economies of scale that the PEO enables for its client companies allows the employees to save quite a bit on the cost of benefits. 

The longer answer is that the PEO has the human resources expertise to be sure that its shared employees are taken care of from a risk management standpoint as well.  We often have business referred to us from employees of companies that were in a co-employment arrangement at a previous employer and have seen the benefits first hand.

 

 

Saving a bundle on workers compensation insurance

Generally speaking, PEO, or other HR outsourcing solution, can save their clients upwards of 10 to 25% on their current workers compensation insurance.

How can they do that?  By better managing the risk management and billing process over a larger group.  Again, this is basic economies of scale.  If you are a 25 man manufacturing company, doesn’t it stand to reason that you would be better served piggy-backing on a larger company’s insurance program as they have the capacity to manage claims and cut costs?

In addition, most PEO’s, offer pay-as-you-go workers compensation insurance.  So the “big deposit” and/or make-up payments at the end of your insurance year are no longer a factor.  Giving smaller businesses a more flexible cash flow.