As we continue to face an uncertain future, one thing is for certain – employers must remain focused on cost-containment and improving efficiencies. One way employers are addressing these employment challenges is through Human Resources Outsourcing.

How Does HR Outsourcing Work?

Like any outsourcing relationship, human resources outsourcing is the practice of using an outside expert to manage the day-to-day administration of non-essential employment tasks. Off-site specialists handle the non-core activities related to employment administration, payroll, benefits, taxes and workers’ compensation insurance. and other complex workplace regulations.

Primary Reasons to Outsource

There are many reasons why small companies outsource their HR functions. These can include:

• Reducing employment cost and expenditures by accessing the HRO firm’s economies-of-scale
• Increasing corporate efficiencies
• Accessing more comprehensive and competitive health insurance plans
• Reducing risks and exposures related to governmental regulations
• Focusing internal resources on core business activities

The Value of Outsourcing HR

In a survey conducted by the Society for Human Resource Management, or SHRM, professionals in the industry were asked their opinions on HR outsourcing, and the majority listed “saving money” as the No. 1 reason. However, other reasons for outsourcing included:

• Focusing on strategy
• Improving compliance
• Improving accuracy
• Lack of in-house experience
• Taking advantage of technological advances
• Offering services they could not offer.

In that same SHRM report, HR professionals said the top function outsourced was 401k administration, along with training, health care and employee benefits administration, payroll, staffing, background checks, recruitment and policy writing.

Once HR and other operations are outsourced, many companies are showing a strong return on investment, according to a recent survey of American executives. A survey of executives at the IDC Midwest Conference showed nearly 85 percent of the respondents saved as much as they spent on outsourcing, with 26.4 percent reporting a savings of twice as much. And the savings, according to nearly 95 percent of the respondents, went toward operational performance and innovation, which improved shareholder value.

To investigate if HR Outsourcing is right for your company, please contact us for a complimentary HR Cost Analysis.

Consider the following criteria when selecting a provider:

Years in Business
PEO firms, and many HR firms, are entrusted to pay payroll, taxes and insurance premiums. Look for a firm that has strong financial credentials, long-term banking relationships and the ability to prove taxes and insurance premiums have been paid timely.

Proven Service Track Record
Stable finances and longevity does not necessarily equate to good human resource practices or customer service. The HRO firm must have a strong team of licensed human resources professionals with a proven track record of assisting clients in all areas of regulatory compliance, safety and benefits.

Size and Diversity of Client Base
The ideal HRO firm will have a large and diverse client base, serving a wide range of industries. The diversification insulates the firm from fluctuations within a particular market and dilutes the risk over many industries. Diversification can take the form of industry, size of employee base, and geographic location. A large, diversified base of clients also adds to the depth of experience of the firm and their ability to service your particular business.

Local Market Presence
Many labor and tax laws vary from state to state. Look for a firm that has expertise in the state in which you do business, and has strong relationships with local vendors and insurance companies. For California employers, this is particularly critical as California regulations differ greatly from federal guidelines. Additionally, a local corporate office will ensure quicker response time and on-site presence.

Flexibility in Service Offering
Many HR firms take the “one size fits all” approach by requiring clients to take all the services offered, from payroll and insurance, to benefits and training. It is important to look for a vendor that is flexible in their offering and is able to customize an HR solution to match your company’s individual needs.

High-Touch Service Model
Many HRO firms follow a high-tech/low-touch approach with services provided primarily through on-line self-service platforms. While this is attractive to many employers, look for a firm that is also available for on-site appearances. It is crucial for the HRO firm to have a qualified team available to meet live with your staff, whether for benefits open enrollment, claims investigations, employee relations, or manager training seminars.

CPEhr: An HR Outsourcing leader for close to 30 years.

Headquartered in Los Angeles, Human Resources Outsourcing firm CPEhr is one of California’s leading Professional Employer Organizations. Founded in 1982, CPEhr has assisted hundreds of clients understand and comply with California’s complex regulatory and insurance systems.

CPEhr began as a small payroll and HR provider, with 10 corporate employees. Over the past two-and-a-half decades, CPEhr has grown to employ close to 90 corporate professionals in the areas of Employment Administration, Labor Law Compliance, Management Training, Safety and Risk Management, Employee Benefits, Retirement Planning, Payroll and Accounting. CPEhr services 15,000 employees at over 300 client locations nationwide.

CPEhr offers a flexible HR Outsourcing solution, wherein you can select from three programs, based on your company’s needs:

• A PEO Solution offers the ultimate in employer service and protection. CPEhr creates a “Co-Employment” relationship in which they share the employment liability and administration with you.
• An HRP Solution offers the complete range of services offered under the PEO, without creating a Co-Employment relationship.
• The HRO Solution enables you to pick-and-chose the exact services needed, in a completely customized relationship.

If you are researching PEO or HRO vendors, contact CPEhr to request a quote for our services.

Administrative Services Outsourcing (ASO)

There has been a growing interest in offering non-PEO services in recent years. Known as ASO (Administrative Services Outsourcing), this service model offers clients a full range of human resources consulting, insurance administration and payroll services, without requiring the establishment of a co-employment relationship. An ASO relationship is also more commonly known as Human Resources Outsourcing.

Our firm began offering ASO services approximately five years ago, after our sales force experienced challenges to selling co-employment. In some cases, the reasons were tangible concerns, such as a risky blue collar operation with bad losses which was declined workers’ coverage through the PEO, or a small employer with minimum-wage employees that did not meet our minimum contribution levels for health insurance, or a long-term broker relationship which dashed the sales process.

In other cases, the objections were less tangible, but just as real. Prospects could not completely grasp the co-employment concept, felt they would be losing control over their employees, or simply looked at the PEO industry with suspicion. Insurance agents, fearful of losing a commission, didn’t help the sale either.

Recognizing the value proposition a PEO offers to small business, but fearful that the co-employment requirements could hinder sales, we adopted a more flexible, customized approach to selling human resource services. The philosophy was simple – if we already had the in-house experts available to provide a valuable service to a business, why should we force the PEO box – and possibly lose a deal – if the co-employment relationship did not work for a particular prospect?

Full service HR in a flexible environment

In an ASO relationship, clients can either maintain their existing benefits and workers’ compensation insurance plans, or the PEO shops their insurances on the open market. The win-win is obvious – clients maintain control of their own plans, and other concerns about co-employment can be avoided. At the same time, they still gain access to virtually all the PEO’s services. For the PEO, it can charge administration fees commensurate with the services provided, and maintain broader “golden handcuffs”.

The multi-service approach offers the PEO sales staff greater flexibility when consulting and packaging HR outsourcing services. It also promotes a more customer-centric sales approach, as the sales consultant can walk into a first sales call with no preconceived end-game or one-size-fits-all philosophy.

Particularly in today’s volatile economy, many small employers are hesitant to engage in complex, long-term financial arrangements. By its very nature, co-employment is a more involved relationship that is hard to enter, and even more difficult to break. The current economic climate is another reason ASO may be considered a more attractive option for a businesses looking for HR support.

Keep your HR options open

If you are considering using an outside service to assist you with your Human Resources management, take some time to investigate the benefits of both ASO and co-employment. Chances are, one of them will work for your organization, and  you’ll be on your way to simplifying your business operations, reducing your HR risks, and cutting employment overhead.

Co-Employment

Co-Employment is the relationship created between a PEO and its clients, wherein the PEO assists its clients in reducing the risks and responsibilities of being an employer. Co-Employment is defined as the contractual allocation and sharing of employer responsibilities between the PEO and the client. The PEO assumes the role of the Administrative Employer and is recognized as the legal Employer-of-Record. The PEO takes on numerous administrative, and strategic, functions for their clients. These functions include:

• Paying the Employees and Filing Payroll Taxes
• Issuing Workers’ Compensation Insurance Coverage
• Providing Employee Health Insurance Coverages
• Training Management and Staff
• Implementing Risk Management and Safety Plans
• Providing Employment Consulting and Compliance
• Managing Administrative Human Resource Functions

The client maintains the role as the Administrative Employer and continues to manage and oversee all day-to-day activities relating to their internal operations. They provide worksite employees with the tools, instruments and place to work, and continue to oversee the hiring, firing, establishment of wages, and direction of the workforce. The PEO assists in ensuring that worksite employees are provided with a worksite that is safe, conducive to productivity, and operated in compliance with employment laws and regulations. In addition, the PEO provides worksite employees with workers’ compensation insurance, unemployment insurance, and a broad range of employee benefits programs.

Removing Distractions and Reducing Overhead

By providing these services, PEOs enable their clients to concentrate on their core business without the challenges and distractions associated with the “business of employment.” As a result, PEOs enhance the profitability of their client companies. The PEO’s economies-of-scale enables each client company to lower employment costs and increase the business’s bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. Costs related to the monitoring of, and compliance with, employment laws are reduced, as are the often significant costs of failure to comply with such laws. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line.

In our next post, we will discuss an alternative to co-employment, known as “ASO” – Administrative Services Only. Most of the same services, without creating a co-employment relationship.

HR Solutions

Upon entering the HR Outsourcing relationship with the practice, a CPEhr Human Resources Specialist immediately began to review their policies and employee documentation. Many gaps in employment protocol were identified. An array of new employment forms were created, compliant procedures were implemented and new guidelines were put into practice. The Director and Office Manager received training on proper employee review and termination procedures, and their designated HR Specialist was invited to attend exit interviews and assist in the termination process.

“I have run the office for more than a decade,” says the Director, “But knowing CPEhr is here to guide me through all employee matter offers tremendous peace of mind. Now, instead of being distracted by minor personnel issues, I can focus on the practice. CPEhr has truly become our partner.”

The most critical assistance occurred when the practice decided to outsource their billing function and to layoff the entire department. CPEhr assigned several HR staff to assist in the layoffs, with proper termination procedures, protocol and severance packages that were in the best interest of both the practice and the employees. The Director sums up the incident succinctly: “We could never have done this on our own.”

Real Results

Since joining CPEhr, he feels that the day-to-day protection he experiences in the area of employment exposures is immeasurable. “I now have tremendous peace of mind. CPEhr has become our ‘go-to resource.’ Without this type of relationship we end up making our own decisions, without proper knowledge of the law, and will ultimately make a mistake. You think you can use common sense, but common sense and the law rarely match!”

The Director says the benefits of CPEhr were immediately realized, as the new systems and processes were implemented and functioning within 30-60 days. “I recognize the reality that as the practice grows. So too would the need to hire an HR Manager. However, by outsourcing to CPEhr , we don’t need to spend the money on another hire and can use those funds to invest back into patient care and clinical research.”

Company Background

This medical practice was founded in 1980 with the mission to provide the highest quality health care combined with clinical research and education. It is currently one of the few cardiovascular practices in the country that balances private practice with academic medicine, and runs one of the world’s largest cardiac transplant programs. They currently employ over 30 employees, but are opening two more locations and are expecting to significantly grow their employee base in the coming months.

It was obvious to the Executive Director of this prestigous medical practice that his time would be best spent on providing superior patient care and conducting scientific research. Managing employee issues should have been the last thing on his mind. Unfortunately, it wasn’t.

Business Challenges

As the practice grew in size and prestige, the Director recognized the critical role Human Resources played in his practice. “We do not have a dedicated HR staff,” he explains, “But I understand that human resources can’t be put on the back burner. HR is still a critical part of our practice.” With the lack of sufficient internal HR resources they struggled to standardize employee practices and stay abreast of changing employment regulations. While the Director and his Office Manager continued to personally handle the employee relations, an incident pushed them to consider outsourcing their human resources to a professional firm.

An argument ensued between two front office staff, and the altercation ended with one employee threatening to physically harm the other. The event was witnessed and the employee was let go. A short time later she sued the practice for race discrimination. Even though, at the time, the Director was sure he was doing the right thing, he ended up in an 8 month lawsuit with the EEOC that cost him hundreds of hours of time and distracted him considerably from running the practice. While he ultimately won the case, he realized it was time to work with human resource professionals. He needed a firm who would help him structure an HR system to prevent this from recurring, and to take over the administration of a lawsuit if one ever occurred again in the future.

“As our firm continues to grow and we open new offices, managing the staff in multiple worksites is only going to become more complicated,” he says. He invited CPEhr to present their outsourcing HR solution, and quickly engaged their services.

Our next post will review the HR solutions implemented by CPEhr.

Surveys support the need for management training.

Ken Blanchard Companies recently conducted a poll of over 1,700 executives and managers in their “2009 Corporate Issues Survey”. In the survey, the executives were posed the question, amongst others: “What tactics will your firm implement to cope in a down economy?” The overwhelming response by close to 2/3 of respondents was “Invest in productivity and performance maximizing strategies”.  These businesses recognize that the most promising way to weather tough economic times is to have skilled talent help grow the organization. Additionally, numerous surveys directly link employee training with lower turnover, lower accidents, and increased performance and productivity. Successful companies embrace training as a central part of their philosophy.

Outsourcing training to a Professional Employer Organization

According to the American Society of Training and Development (ASTD) over $134 billion was spent on employee learning and development in 2008. In their 2009 State of the Industry Report, the ASTD reveals that over $45 billion was allocated to external services such as workshops, vendors and external events. Businesses recognize the value of accessing external resources to train and develop their staff, as opposed to creating and implementing these programs internally.

A Professional Employer Organization offers a wide range of employee training and management development courses, often built into their standard services, or for an additional nominal fee. This training goes  hand-in-hand with additional Human Resources support services, to round out a company’s corporate policies to ensure a safe, compliant, and positive work environment.

Robust Course Offering

PEOs offer a complete range of training, but the most common ones appear below. CPEhr provides over 40 customizable trainings that can be delivered via the internet, or live, on-site at the client’s workplace.

Courses typically offered can include:

•    Sexual Harassment    •    Workplace Safety   •    FMLA    •    Interviewing Skills   •    Progressive Steps of Discipline    •    Motivating Employees   •    Performance Appraisals    •    Effective Communication Skills   •    Principles of Time Management    •    Diversity in the Workplace   •    Preventing and Defusing Violence    •    Customer Service Training   •    Effective Business Writing    •    Managing Difficult Employees

FREE Webinar on the Value of Training

If you like to learn more about the benefits of training for your organization, please join on THIS THURSDAY, January 21, 2010 for a free webinar: The Business Value of Training. Register here.

Streamlining Operations.

PEOs can help small employers stabilize operating costs is through streamlining their internal administrative operations. By joining a PEO, businesses are able to combine multiple vendors under one roof, thereby eliminating the need to maintain relationships with multiple vendors.

A full-service PEO can provide all of the following services, often at a reduced cost:

1. Payroll processing
2. Tax services
3. Governmental form submissions
4. Safety consulting
5. Assistance with labor law compliance
6. Creating and reviewing employee handbooks & policies
7. Health insurance plans & administration
8. 401 (k) and Cafeteria 125 Plans
9. Workers’ Compensation insurance
10. Management Training
11. Recruiting services
12. Assistance with unemployment administration

Eliminate Multiple “Point People”
From the personnel and management perspective, these services result in a reduction of duplicated efforts between departments and enables them focus their time on core business functions. Often, only one “point person” is required within the client’s organization, replacing multiple positions in multiple departments.

Some companies experience such a drastic reduction in administrative functions they are able to reduce headcount. Others find more valuable, revenue-generating tasks for these employees to fill. The most successful companies will be those that focus on the core business rather than spend money and use staff resources to manage non-revenue generating tasks, such as benefits and retirement plans administration, managing HR compliance regulations, or processing payroll and taxes.

From the business-owners’ perspective, reports indicate that once HR and other operations are outsourced, employers are better positioned to focus on their core operations.

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.

Despite the uncertainty, businesses should take stock of what is required to succeed and use this time to prepare them for the bumpy road ahead as the economy slowly recovers. When considering the future, small businesses should focus on three key employment strategies in 2010: stabilizing operating costs, reducing employment risks, and enhancing overall employee performance.

Stabilizing operating expenses.

Following dismal sales in 2009, employers will be looking to reduce unnecessary expenditures and maintain a lower operating budget until revenues increase. While there are hundreds of areas to be considered, employment costs typically account for the single highest percentage of overall operating expenses in a business. These expenses include both hard and soft costs. Beyond payroll and tax overhead, hard costs are related to health insurance premiums, workers’ compensation, recruiting fees, payroll processing and legal fees. Soft costs include employment administration, management time, employee reviews and compliance. Reducing these employment costs can significantly impact an employer’s bottom line.

Reducing employment risks.

There is a direct correlation between an increase in employment related lawsuits and difficult economic periods. Employers should beware that a downturn in the economy is often accompanied by an uptick in employment litigation.  As such, employers should prepare themselves by reviewing and training managers on termination policies, updating their forms and policies, and ensuring compliance with payroll-related labor laws and regulations. As the economy strengthens, employers may begin to rehire lost personnel. They should review proper interviewing techniques, update their employee handbooks, and have new-hire packets and offer letters reviewed for compliance.

Enhancing employee performance.

Even as companies begin hiring again, it will take some time before the workforce is back to pre-recession levels. What this means for the average business is that managers are trying to maximize productivity with a smaller workforce. The inevitable result is a more stressful work environment as both employees and management struggle to find a healthy balance of productivity despite the decreased manpower. Employers will be required to find new ways of incentivizing, motivating and training their workforce to maintain a positive attitude while managing increased workloads.

Employers that proactively pursue these three employment priorities will be a strong position to weather the uncertain economic times that lie ahead.