Tag Archives: workers comp

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.

Am I outsourcing my Human Resources already?

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.)

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.

Good article about what insurance agents should do before recommending PEO

PEO is a great solution for small to mid-sized businesses that cannot afford a full time HR department.

Here is a good article aimed at insurance agents that may be contemplating offering PEO services along with their other lines of insurance/business.

http://www.lifeandhealthinsurancenews.com/Issues/2010/June-21-2010/Pages/Partnering-With-PEOs-How-To-Protect-You-And-Your-Clients-.aspx

Article on the cost of payroll-only services

This is a pretty concise overview on the cost of payroll services for small businesses. 

http://www.choicevendor.com/blog/2010/03/how-much-does-payroll-cost-we-compare-4-top-providers/comment-page-1/#comment-1129

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.

Obama to go after independent contractors (1099’s)

Here is an article from Inc. Magazine from last week.  Let’s hope that Obama can get somewhere with this as legitimate companies get undersold on their services every day by what I call “pirate” companies that don’t pay taxes, don’t have workers comp, and use poor labor practices in order to win business. 

http://www.inc.com/news/articles/2010/02/cracking-down-on-contractors.html