HR OutsourcingPEOs Help Small Companies Stay Focused by Administaff
Winning in business, like winning the Super Bowl, World Series or Stanley Cup, demands laser focus, relentless drive and the ability to execute. But even as the marketplace screams for your undivided attention, the business of running a business has never been more complicated.
The most successful companies have learned that outsourcing certain business functions not only frees up time, but can also improve processes by infusing market-driven passion and discipline into areas that had previously languished.
Think of the time and energy you could save by handing off your human resources (HR) functions, including payroll processing, employee benefits management and retirement services to professionals who focus exclusively on handling HR matters all day, every day.
Many small and medium-sized business owners across the country are turning to Professional Employer Organizations (PEOs) to resolve their HR needs. A PEO serves as an off-site, human resources department that manages daily administrative needs such as payroll processing and related tax filings, employee benefits management and workers’ compensation coverage and claims resolution. In addition, PEOs can take advantage of volume buying power; they are able to offer employees of small businesses a comprehensive benefits package that can include health, dental and vision coverage, a prescription drug program, and short and long-term disability insurance that they may not otherwise access.
What else can a PEO do?
Full-service PEOs typically also provide employer liability management, some government compliance, training and development, and recruiting and selection assistance as part of their total service offering. Business owners benefit by entering into a co-employment relationship with a PEO because they can better focus on more profitable and productive tasks - like finding new customers and retaining existing ones - while the PEO handles the time-consuming HR-related activities.
Employer liability management. In a co-employment relationship, a company can transfer many of its employer liabilities to the PEO, share others and better manage those that remain. The result is lower risk and reduced liability – a key to safeguarding the enterprise that provides jobs for workers and services for customers.
Government compliance. According to the Small Business Administration, small businesses employ about 50 percent of the workforce but shoulder 63 percent of the total regulatory costs. A PEO brings the discipline and know-how to help keep companies out of trouble – reducing penalties and paperwork.
Training and development. A strong T&D program is an essential component of an effective retention strategy. Employees want to know they can learn, grow and develop professionally.
Recruiting and selection. A full-service PEO helps a company identify the right people for the right jobs. Focused recruiting and selection services include writing job descriptions, placing ads, reviewing resumes, interviewing, and conducting background checks and pre-employment testing. Some PEOs also handle outplacement if it becomes necessary.
Why do businesses outsource?
According to an Annual Survey of Executives by the Outsourcing Institute, ten reasons companies choose to outsource are:
- Reduce and control operating costs
- Improve company focus
- Gain access to world-class capabilities
- Free internal resources for other purposes
- Resources are not available internally
- Accelerate reengineering efforts
- Function difficult to manage/out of control
- Make capital funds available
- Share risks
- Cash infusion
Reduce and Control Operating Costs
The single most valuable reason for outsourcing is to reduce and control operating costs. Companies that try to control all resources themselves incur higher research, development, marketing and strategizing costs, while an outsourced agency lowers that cost by the sheer size of its consistent output.
Improve Company Focus
Leaving operational detail to outside resources frees businesses to focus on broader business aspects, including strategizing and meeting customers needs. While not focusing on areas outside its experience, the company can place more emphasis on its core internal functions. And more importantly, the company can narrow its focus to the needs of its clients or customers.
Gain Access to World-Class Capabilities
The bottom line of outsourcing is using specialists in their given fields and those who are the most efficient and productive to maintain certain aspects of a business. Just as a business outsources for the purpose of focusing on what it does best, PEOs have refined their capabilities to meet the needs of their clients. PEOs have specialized industry knowledge, with experience from similar clients facing similar challenges.
Free Internal Resources for Other Purposes
Outsourcing non-core functions enables an organization to redirect its resources to aspects producing greater returns. Resources, most often defined as people whose energies are focused internally, cannot be focused externally – on the customer, client or product.
Resources are Not Available Internally
One reason a company outsources is for the simple fact that certain resources are not available within the company. It is also possible that the operational costs to maintain necessary internal resources may not exist. Outsourcing is often a good decision for a company experiencing rapid growth or expansion.
Accelerate Reengineering Benefits
As a non-core internal function, reengineering is often put on the backburner, even though ignoring this aspect of business can greatly diminish efficiency, performance, cost-effectiveness, speed and quality. By outsourcing these capabilities, a company reaps the long-term benefits of reengineering.
Function Difficult to Manage/Out of Control
Outsourcing can be the solution to this difficult problem; however, an organization doesn’t entirely get rid of management responsibility and must work with the PEO to ensure that the particular function is resolved and under control. Part of outsourcing is accepting that an outsider can perform the task more successfully.
Make Capital Funds Available
Outsourcing makes capital funds available for core areas. Within most businesses, there is enormous competition for capital funds. Capital expenditures can be difficult to justify when compared to areas more easily relatable to customers, clients or production. Outsourcing also eliminates the need to show return on investment in non-core areas.
Share Risks
It’s about a collaborative relationship. By the very nature of the function, outsource providers share many of the risks. When responsibility for a task is shared, so is the risk. A co-employment relationship with a PEO helps to significantly lower the risk that one company assumes.
Cash Infusion
Functions that traditionally carry a significant amount of overhead if done internally can often be outsourced to reduce a company’s expenditures in that area, essentially serving as available money. For high-growth companies, having needed cash to expand marketing or production efforts can be the difference between getting to the next level and standing still.
How do business owners find the right PEO?
Like any business decision, the decision to consider a PEO is a careful one. Although a PEO may not be the answer for every small and medium-sized business, it is definitely worth considering. The National Association of Professional Employer Organizations (NAPEO) offers the following guidelines to companies considering a relationship with a PEO:
- Assess your workplace to determine your human resource and risk management needs.
- Make sure the PEO is capable of meeting your goals. Meet the people who will be serving you.
- Check the firm’s financial background; ask for banking and credit references, and ask the PEO to demonstrate that payroll taxes and insurance premiums have been paid.
- Ask for client and professional references.
- Check to see if the company is a member of NAPEO, the national trade association of the PEO industry.
- Investigate the company’s administrative and risk management service competence. What experience and depth does its internal staff have? Have any of the senior staff of the PEO been certified as a Certified Professional Employer Specialists (CPES) or other relevant professional designations?
- Understand how the employee benefits are funded; are they fully insured or partially self-funded? Who is the third party administrator (TPA) or carrier? If required in your state, is their TPA or carrier licensed?
- Understand how the employee benefits are tailored. Determine if those benefits fit the needs of your employees.
- Review the service agreement carefully. Are the respective parties’ responsibilities and liabilities clearly laid out? What provisions permit you or the PEO to cancel the terms of the contract?
- If your state requires a PEO to be licensed or registered, make sure the company you are considering meets the requirements.
Staying ahead of the competition is hard enough without the crushing weight of employment-related paperwork, the constant flux of workplace laws and regulations, and ongoing hassles with benefits management. A super team needs a super support staff. And with a PEO on board, your team can concentrate on being fast, focused and ahead of the game.
Article provided by Administaff (NYSE: ASF), the nation’s leading Professional Employer Organization (PEO), serving as an off-site, full-service HR department for thousands of small and medium-sized businesses throughout the United States. For more information about Administaff, call Adrienne Kos, sales consultant in Administaff’s San Francisco office at 650-357-5927, or visit the company’s Web site at www.administaff.com.
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