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.

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.

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.

What is an Experience Modification, and why should I care?

The Experience Modification (or Ex Mod) is a factor calculated by the Workers’ Compensation Insurance Rating Bureau (WCIRB) based on an individual company’s loss history. This factor, indicated by a percentage that is applied to the insurance rates, will decrease with a favorable loss history, or increase bad loss history. All companies begin with a 100% Ex Mod. So, in simple terms, the more injuries you have, the higher your Ex Mod rate, the more premium you pay. The fewer injuries, the lower your Ex Mod, the less premium you will pay.

So let us go back to our friend, Warehouse A, whom we discussed in last post. After multiple injuries, their Ex Mod jumped from 100% to 125%. So, despite writing the same cheap deal in Year Two ($92,000 of base premiums), their net premium jumped to $115,000 ($92,000 X 1.25).

IN THE MEANTIME, Warehouse B did not spend as much time as Warehouse A shopping for insurance. They ended up with the slightly more expensive deal, paying $100,000 in base premiums. However, the management of Warehouse B took safety seriously. They did not just try to satisfy the minimum OSHA requirements. Rather, they invested a few thousand dollars in new safety equipment, training videos, and incentivizing the warehouse manager to create and manage a safety plan. From their efforts they only sustained a few minor injuries over the course of the year.

The result? Their Ex Mod dropped from 100% to 82% due to their favorable history. Despite keeping their same, slightly more “expensive” plan with a base premium of $100,000 as they had the previous year, their net premium plummeted to $82,000 ($100,000 X .82), due to their excellent loss history.

In Summary:

After 2 years, Warehouse A, who spent hours upon hours searching for the best rate in town failed to take safety seriously and ended up with an annual Workers’ Compensation premium of $115,000. Warehouse B, who took the time and a little money to invest in safety programs, garnered a premium of only $82,000, a whopping one year savings of $33,000 less than their friend!

Now I ask you, are  you still wondering if investing in safety pays??

Creating A Safety Plan

If you are ready to invest in a safety plan, let us know. Our Safety Team has years of experience and can get you up and running in a matter of days. Learn more about our Risk Management and Human Resource Consulting services.

With such a fluid economic environment, we have been trying to stay on top of the current trends, statistics and data as they apply to the recession and businesses in the marketplace. We first released the whitepaper in January, as retailers released their dismal December sales report. It was then that the severity recession really hit everyone hard. In March, the whitepaper was updated again to reflect new unemployment figures, home sales and other economic indicators. Once again, as the economy continues to evolve, we updated the whitepaper to reflect the newest figures, as of May 31, 2009.

The whitepaper reviews the critical business concerns facing employers during a recession, and the five key areas on which they must focus to dig out of difficult economic times. They are:

1. Stabilizing operating expenses increases company value and calms corporate anxiety.
2. Streamlining operations reduces unnecessary overhead and cuts wasteful spending.
3. Lowering insurance premiums reduces overhead and expenses.
4. Minimizing employment risks reduces the potential of lawsuits and complaints to the federal and state agencies, and the resultant legal fees and judgments.
5. Training and motivating staff increases employee morale and improves productivity.

The whitepaper reviews the role HR Outsourcing firms play in a recession to help small and mid-sized employers address these concerns. By accessing the HRO firm’s economies-of-scale, established systems, and HR expertise, employers are able to cut their adminstrative overhead and gain more contol over their operations.

Please download our HR Outsourcing Whitepaper here to learn more about this growing and vibrant industry.