Posts Tagged ‘employee administration’

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Administrative Services Outsourcing (ASO) – A Flexible HR Service Option

Thursday, March 4th, 2010

Human Resources OutsourcingOur last post discussed the concept of “Co-employment” and the role of a Professional Employer Organization. Today we will look at an alternative to co-employment – the ASO.

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.

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Posted in Outsourcing, PEO/Co-employment | No Comments »

PEOs Help Streamline Operations and Simplify Complex HR Administration

Thursday, January 14th, 2010

We continue our discussion on how Human Resources Outsourcing firms and Professional Employer Organizations can significantly reduce the labor costs for small and mid-sized employers. Last post discussed the concept of economies-of-scale. Today we will look at how PEOs can streamline the HR processes within an organization, and reduce redundant employment administration.

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.

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Three Employment Priorities in a Slowly Recovering Economy

Thursday, January 7th, 2010

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.

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.

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Key Human Resources Outsourcing Drivers

Monday, December 21st, 2009

As we complete a turbulent 2009 , small employers are looking for ways to reign in costs and prepare for recovery in 2010. One of the hottest trends in the small business environment today is Human Resources Outsourcing.  According to Hewitt Associations, a world-wide provider of HR consulting services and research data, the most common reason for engaging an HR Outsourcing firm is to reduce overhead. This is accomplished by accessing the HRO firms’ economies-of-scale in areas such as insurance products, HRIS infrastructure, or payroll systems.

Size Counts.

Economies of scale are the primary method through which an HRO firm can reduce a business’ operational costs. By pooling hundreds, and even thousands of businesses, HRO firms aggregate health benefit plans, retirement plans, workers’ compensation insurance, and legal expertise. Additionally, they can manage routine HR tasks more efficiently as the talent and infrastructure is already in place. When a small business joins the HRO firm, they simple access these existing programs at reduced rates and a minimal time investment. They can jump onto the HRO’s programs and platforms with little start-up time or expense, and can hit the ground running.

Other reasons to outsource human resources include:

  • Access to outside expertise
  • Improving service quality
  • Ability to focus on core expertise
  • High cost of remaining up-to-date with rapidly changing environments
  • Eliminate high volume of low-value transactional activities
  • Reduce Management distractions away from core business
  • Leverage existing staff to focus on key competencies
  • Reduce transaction costs

The HR Outsourcing R.O.I.

Studies indicate that once HR operations are outsourced, many companies show a strong return on investment. IDC, a global provider of market intelligence, conducted a survey of American executives and reported that almost 85 percent of the respondents saved as much as they spent on outsourcing. Over a quarter reported a savings of twice as much. And the savings, according to nearly 95 percent of the respondents, went toward operational performance and innovation.

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Government Announces Plans to Crackdown on Illegal Independent Contractor Usage

Monday, December 7th, 2009

If you are like most employers, the chances are you use Independent Contractors. Employers engage the services of Independent Contractors (IC’s) instead of employees for numerous reasons. Mostly, to save money on a range of employment costs, such as:

  • federal and state tax,
  • workers compensation insurance,
  • unemployment insurance,
  • employee benefits,
  • overtime, vacation and sick pay.

However, now more than ever, employers must be aware that federal and state lawmakers are beginning to crack down on employers who hire ICs that do not meet the strict IRS requirements.

What are the guidelines to be an Independent Contractor?

The following are excerpts from the IRS website, Section 762 – Independent Contractor vs. Employee:

  • Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means.
  • Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:
  1. The extent to which the worker has unreimbursed business expenses
  2. The extent of the worker’s investment in the facilities used in performing services
  3. The extent to which the worker makes his or her services available to the relevant market
  4. How the business pays the worker, and
  5. The extent to which the worker can realize a profit or incur a loss
  • Type of Relationship covers facts that show how the parties perceive their relationship. This includes:
  • Written contracts describing the relationship the parties intended to create
  • The extent to which the worker is available to perform services for other, similar businesses
  • Whether the business provides the worker with employee–type benefits, such as insurance, a pension plan, vacation pay, or sick pay
  • The permanency of the relationship, and
  • The extent to which services performed by the worker are a key aspect of the regular business of the company

Government crack-down

As the government is looking for ways to bring in revenue in a down-economy, they are paying serious attention to the losses incurred by the usage of ICs. Reports estimate the misuse of ICs lowers income tax revenues by about $4.7 billion annually. In Illinois, for example, the  University of Missouri–Kansas City Department of Economics estimates that from 2001 through 2005, the state lost $124.7 million PER YEAR year in income taxes as a result of IC misclassification by employers.

In August, Congress began reviewing several bills that tighten restrictions on the use of ICs and exact tougher penalties on employers who bend the rules. The IRS also announced plans to randomly audit six thousand businesses nationwide to curb abuse.

Don’t take shortcuts

If your company engages the use of ICs, don’t let the lure of bypassing a few tax and insurance dollars distract you from the real-life risks at hand. You should take the time to seriously review your IC relationships and determine if they do, in fact, match the IRS guidelines. If you are uncertain where to begin, there are professional human resource outsourcing and consulting firms that specialize in these employment relationships and can guide you to make the right decision for your company.

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Posted in Employment Laws, Outsourcing, Payroll and Tax | No Comments »

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