Continuing our discussion on small business employment priorities, we will discuss the first priority mentioned in the last post, stabilizing operating costs, and how an HR Outsourcing firm or Professional Employer Organization can help to reduce those costs.
Stabilizing operating costs
As employment costs continue to grow, employers must review their primary HR-related expenses. These areas can include: health insurance premiums, workers’ compensation costs, employment compliance, payroll/tax costs, salaries and overhead relating to employee administration. An HR Outsourcing firm can help small employers successfully reduce costs in all of these areas accessing the HRO or PEO firm’s Economies-of-Scale.
Economies-of-Scale.
Economies-of-scale is the primary method through which an HRO firm can reduce a business’ operational costs. Small employers with minimal payrolls and fewer than 500 employees are often limited in the variety of health insurance plans they can offer, have limited buying-power for workers’ compensation, and overall, have less flexibility in administering these plans. In contrast, by pooling hundreds, and even thousands of businesses, HRO firms aggregate health benefit plans, retirement plans, workers’ compensation insurance, and legal expertise. The HRO firm establishes relationships with large regional insurance companies and can offer better plan selections with lower premiums.
Stabilizing insurance premiums.
Another benefit of working with an HRO firm is that it provides the insurance carriers greater stability by offering insurance coverage to employees in a broader employee base. The pooled employees come from different industries and geographic areas which stabilize the premiums over the long-term. This provides the HRO firm greater negotiating power at renewal, thus typically keeping renewal rates below market averages.
Proactive programs keep premiums down in future years.
Beyond rate negotiations, HROs possess the internal resources to support programs that can help maintain low insurance premiums into the future. In health insurance, many offer Work/Life balance programs, health and wellness incentives, or discounts to health clubs and gyms. A healthy lifestyle in and out of the workplace can make significant, positive impacts on the utilization and expense of future health insurance premiums. In regards to safety and workers’ compensation, the HRO firm conducts routine safety walk-throughs, creates effective injury and illness prevention plans, and offers safety incentives to reduce the frequency of workplace injuries. These programs ultimately result in fewer workers’ compensation losses and more competitive insurance premiums.
A more efficient system
Finally, the HRO firm can manage routine HR tasks more efficiently as the talent and infrastructure are already in place. When a small business joins the HRO firm, they simply access these existing programs at reduced rates and a minimal time investment.
Our last post reviewed some of the economic indicators that are leaving economists guessing when we will pull out of the current recession. Overall, the indicators would support the premise that the weak economy is slowly strengthening, but the numbers are still mixed. Small businesses in particular are finding this transitional period as particularly challenging. Additionally, when we consider how deep the recession has been with over 7.2 million jobs lost since it began, it would be wise to assume that it might take another year or so before things are relatively back on track.
