Outside the Ranks
Small Businesses Stretch Dollars and Workdays by Outsourcing Human Resources
February 1, 2008
It’s best to leave some things to the experts. For companies without a dedicated human resources department, outsourcing payroll, benefits or staffing services can free up more time for running the business.
“Small business owners are focused on a business idea or product that they are skilled in and excited about – nobody gets excited about filing a worker’s comp policy,” says Rick Bartholomew, CEO of A-Plus Benefits. Tracking payroll taxes, ensuring a safe workplace and administering benefits can become very complex. Third party human resources administrators can take away much of the burden.
Creating an internal human resources department requires cost and infrastructure. By outsourcing, a company can immediately gain access to years of experience in human resources, benefit administration and risk management. “[Business owners] are not likely to find someone who can wear all those hats to work inside their own organization,” Bartholomew says.
When to Outsource
The right time to outsource is right now, experts say. “As soon as you add that first employee, your world becomes far more complicated than being a sole proprietor operation,” Bartholomew says. “[Outsourcing] makes sense on day one of becoming an employer.”
Because small business owners rarely have human resources experience when they start a company, the myriad responsibilities can be overwhelming and time consuming.
“Even if the company hasn’t evolved to a point where it needs benefits and a 401k, and is subject to a lot of employer laws, there are still payroll complexities that I would outsource immediately,” Bartholomew adds. “It’s becoming far more the norm that people outsource their payroll function at a bare minimum, regardless of size and age of the company. It makes more sense than having an internal department that handles that.”
Sharing Your Employees
Outsourcing companies vary by service model. Most function strictly as a third party administrator, offering payroll or staffing services without sharing liability. The relatively new professional employer organization (PEO) model operates a bit differently. Instead of just processing your employees’ paychecks, a PEO actually becomes a co-employer in your company.
“Your employees would be still your employees, but they become a co-employee of ours,” Bartholomew says. “It gives us responsibilities and liabilities, and allows us to pay payroll taxes under our tax ID.”
One of the most attractive features of using a PEO is its ability to qualify for lower health insurance premiums. Most small employers are limited in their benefit options because the insurance risk is distributed across such a narrow pool of employees, causing high premiums. As a co-employer, A-Plus Benefits has an aggregate base of 16,000 employees. “Because we can go to market with thousands of employees, we are able to spread the risk over a larger base of employees than a small employer would have on its own,” Bartholomew says.
For many companies, the most pressing human resources need is staffing. Nothing can be more time consuming and frustrating than trying to fill empty positions, especially with record low unemployment rates. Staffing agencies can help take away the burden of finding qualified employees. Brett Bawden, service manager at Nesco Resources, says staffing services are especially beneficial to companies that experience a seasonal spike in business. “If you don’t have a built-in HR department year round that is designed to handle [big] personnel increases, it’s a good idea to outsource the recruiting effort, the payroll and the hiring during the busy season,” he says.
Because temporary employees are employed by the staffing agency, the business owner doesn’t have to worry about the payroll, benefits or tax filings. The business pays the agency the worker’s hourly wage, plus a percentage or fee to the agency, and the agency handles the rest. Temporary employees can become permanent employees by buying out the contract with the agency. Though the business owner is paying more for the employee, Bawden says it is still cost effective.
“The more hiring you have to do, the less time you can dedicate to your own internal staff. Hiring means hours spent doing interviews and money spent running ads in the paper and on TV. That all adds up. That is money that could be used for bottom line activities.”
What is a PEO?
A Professional Employer
Organization (PEO) is a company that provides an outsourcing solution for many of a company’s administrative operations, including payroll, benefits, human resources and safety and risk management.
When selecting a PEO, consider the following:
• How long has the PEO been in business?
• What is the PEO’s reputation in the industry?
• What independently audited information is available for the PEO?
• What has been the average increase to their medical insurance premiums each year?
Source: A-Plus Benefits