Human resources (HR) outsourcing has become one of the most popular administrative trends of the past decade. From payroll processing and health care benefits to retirement services and recruiting, there are many reasons to consider taking your HR function to an outside source—but not all HR outsourcing is the same, because when it comes to outsourcing various elements of HR on a piecemeal basis, there are a variety of choices.
Hiring a professional employer organization (PEO), which serves as a one-stop HR shop, is an attractive option for an increasing number of small- and medium-sized businesses. PEOs can bring much-needed relief to business owners who want to spend more time building their entrepreneurial dream and less time coping with HR issues.
What is a PEO?
It might be easier to start with what a PEO isn’t. A PEO isn’t a temp agency or a staffing agency, an insurance company, a simple payroll service or a mere 401(k) provider. A PEO serves as a full-fledged HR department. By entering into a relationship with a PEO, companies receive assistance with payroll processing, employee benefits management and compliance with the growing number of federal and state employer-related laws and regulations.
With a PEO at its side, a small- or medium-sized business is in a better position to compete with much larger companies, especially when it comes to employee benefits. Benefits provided by full-service PEOs rival those of big corporations, making them an essential tool in recruiting talented employees. Those benefits can include medical, dental and vision coverage, retirement programs, life and disability insurance, onsite and online training programs, tuition reimbursement, credit union services and adoption assistance.
Besides providing and managing a wide range of employee benefits, a PEO typically handles all personnel-related functions such as payroll processing, payroll tax filings, assistance with developing employee handbooks, employment tax filings and workers’ compensation coverage and claims resolution.
Most small companies simply don’t have the budget or staff to perform all of these functions. By using a PEO to provide these value-added services, business owners, in effect, multiply their capabilities without increasing labor costs, which frees them to concentrate on their core business.
How can a PEO help reduce a company’s liability?
PEOs help small- and medium-sized businesses manage risk, which may be more essential than ever as business owners consider the ramifications of an economic downturn. During times like these, there are typically more workers’ compensation claims and terminations, and increased opportunities for unemployment-related risk. But no matter the economic conditions, PEOs offer a competitive advantage by handling these and other HR functions, so business owners have more time to focus on building their companies instead of dealing with HR issues.
When a company outsources to a PEO, it becomes a co-employer with the PEO. Co-employment is a legal concept that replaces the traditional, two-party employment relationship with a three-party arrangement between the PEO, a client company and the client’s existing employees, including the business owner.
Under the co-employment arrangement, the PEO assumes or shares many of the responsibilities of being an employer and provides clients and worksite employees with access to a wide range of benefits and services not typically found at small- or medium-sized businesses. This unique relationship takes some of the legal burden off of the business because the PEO assumes substantial employer responsibilities and risk.
The maze of federal, state and local employment-related laws and regulations continues to grow. According to the U.S. Small Business Administration (SBA), the number of federal regulations regarding employment policies and practices grew by about 60 percent between 1980 and 2000. The SBA further reports small business owners now spend up to one-quarter of their time on employment-related paperwork. Through a co-employment relationship, the PEO can relieve that burden, enabling the business owner to maintain direct management of employees.
All PEO clients receive benefits and services customized to meet their specific needs. This approach provides the best of both worlds—the perks of a large corporation in the environment of a small- or medium-sized business.
Administaff uses a team-based approach to deliver all the functions and disciplines typically found in a Fortune 500-caliber HR department. Each team includes a team manager and client liaison, as well as specialists for payroll, human resources, recruiting, benefits, training and safety.
When should a company outsource its HR function?
Business owners should consider outsourcing the HR functions when they’re interested in taking the business to the next level. Companies that understand the value of HR and the importance of a competitive people strategy that enables them to attract and retain top talent benefit the most from a PEO’s comprehensive services. With HR in the capable hands of a team of specialists, business owners can sleep well, knowing that their employees are being taken care of, and their clients are getting the time and attention they deserve.
Alicia Gousis is a district manager for Administaff in San Francisco. Administaff is the nation’s leading professional employer organization (PEO), serving as a full-service human resources department for small- and medium-sized businesses. For additional information about Administaff, call (800)465-3800 or visit www.administaff.com.
Editor’s note: This Readers Speak Out is in response to “Don’t Lose Control with a PEO,” which appeared in the Aug. 2008 issue.
