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.

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.

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.

Telecommuting Statistics

• The number of Americans who worked from home or remotely at least one day per month for their employer (“employee telecommuters”) increased from approximately 12.4 million in 2006 to 17.2 million in 2008. A 39% 2 year increase and 74% increase since 2005. [1]
• In 2008, nearly nine out of 10 (87 percent) said they telecommuted from home, up from roughly three out of four in 2006. [2]
• Five million employees work from home most of the time, another seven million do so at least once a month. [3]
• 50 million U.S. workers (about 40% of the working population) could work from home at least part of the time yet, in 2008, only 2.5 million employees (not including the self-employed) considered home their primary place of business.[4]

There are numerous reasons why employees and their managers would take advantage of a telecommuting policy. However, with these benefits, come risks.

Pros of Telecommuting for Companies:
1.    Improves employee satisfaction.  People are tired of the rat race, eager to take control of their lives, and want to find a balance between work and life.  A growing number of employees would choose telecommuting over a pay raise.

2.    Reduces attrition. Losing a valued employee can cost an employer in the tens of thousands.  The annual cost of employee turnover in the United States is a staggering $5 trillion[5].

3.    Decreases unscheduled absences. A large percentage of employees who call in sick, really aren’t. They do so because of family issues, personal needs, and stress.  Unscheduled absences could cost employers’ thousands of dollars per employee/per year.

Cons of Telecommuting for Companies:
1.    Management mistrust. Most managers say they trust their employee, but a small percent say they’d like to be able to see them, just to be sure. Company culture must embrace the concept of telecommuting at all levels.

2.    It’s not for everyone. For some, social needs must be addressed. Telephone, email, instant messaging are a solution for some. Innovative answers such as virtual outings and online games can be creative resolutions.

3.    Career Visibility.  Successful telecommuting programs overcome the ‘out of sight, out of mind’ issue with performance-based measurement systems, productivity versus presenteeism attitudes. Telecommuters who maintain regular communications (telephone, email, instant chat, even the occasional face-to-face meeting) with traditional co-workers and managers find career impact is not an issue.

In our next post we will review the steps required to create a well-balanced and risk free telecommuting policy.

Sources:

[1] Telework Research Network, http://undress4success.com/research/people-telecommute/

[2] [3] Gartner Dataquest Telecommuting Forecast for 2009

[4] BrightHub, “Telecommuting Trends in the 2009 Economy”, August 11, 2009

[5] www.talentkeepers.com

1. Spreading yourself too thin.  We can all relate to trying to accomplish everything in a short window of time. However, trying to complete so many things at once can be an unrealistic expectation. Suggestion- Prioritize the tasks that must be completed everyday or hourly. When prioritizing your day, get the most important items done first. This will help you accomplish all of your assignments set aside for the day. You will also feel great satisfaction when tasks are accomplished. A key to prioritizing your day is to schedule some open-time for unforeseen deadlines that could shift your day.
2. Being afraid to delegate.  Delegating tasks that do not require your full attention is important in managing your time. I have heard many people say that it is easier to do it themselves. Well, this misconception can be overwhelming and stressful. Delegating allows for time to be freed up so that the most important items may be completed. Not delegating to trusted employees is, also, a missed opportunity for providing feedback and/or development for employees who you are grooming. In addition, the delegator does not have to lose full control of the tasks, since they can always review the assignment and make final edits prior to completion.
3. Not wanting to say “no” to requests. There is no way to say “yes” to every request while trying to manage your own responsibilities. Make a decision of what you must and want to do. Then say “no” to all other request. This will empower you to be the manager of your time, while not setting unrealistic expectations to you or the person that is requesting something from you.
4. Being tied to the phone.   There are many things that you can do to ensure that your time is not monopolized on the phone. You may have someone screen your calls, use a voicemail system when you don’t want to be disturbed, or schedule phone time to make/return calls.
5. Procrastinating.  There are a number of reasons why we procrastinate; we may feel like the assignment is so unpleasant that it is a chore or, the task is too large. Assignments that are unpleasant should be accomplished first; this will get them out of the way, so that you can spend time on tasks that are not boring. For larger tasks, dividing them into smaller pieces will help make it manageable. Also, remember to incorporate what you learned in steps 1-4. For example, after dividing the project into smaller pieces, allocate time on your schedule to work on the project, delegate portions of the assignment that you are comfortable with delegating, be prudent with your time by saying “no” to assignments that do not require your attention and watch the amount of time that you are spending on the phone.

Remember, managing your time is something that can be only mastered with practice and organization. It is important to reward yourself when you have reached milestones. You may define your milestones in many ways. One can be recognition for having more freed-up time then the previous week or that you trained an employee, because you delegated effectively.

How Does It Work?

HR Outsourcing is the practice of using outside experts to handle work that is normally performed by in-house staff and resources. Companies shift the responsibility of nonessential jobs that can be handled easily, and inexpensively, by off-site specialists in the areas of payroll, benefits, and other complex workplace regulations. It is common for small business to outsource their payroll processing, accounting, facilities management and many other important functions — often because they have no other choice. Many large companies turn to outsourcing to cut costs, while smaller ones may be looking to improve efficiencies or reduce liabilities. In response to these demands, entire industries have evolved to serve businesses’ outsourcing needs.

There are many reasons why a small businesses would outsource their human resource functions. These can include:

• Controlling expenditures
• Increasing efficiencies
• Gaining economies of scale
• Accessing more comprehensive benefit plans
• Reducing labor costs
• Reducing risks and exposures to governmental regulations
• Ability to focus internal resources on core business activities

“It is difficult for small businesses to manage all facets of human resource administration associated with their workforces,” said Lisa Rowan program manager for HR and talent management services for IDC. “There are an increasing number of options for comprehensive HR outsourcing services for the small market; the oldest of these is the professional employer organization (PEO) model, which actually is a precursor to and grandparent of HR business process outsourcing (BPO).”

The Value of Outsourcing HR

In a recent survey 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.

If you would like to investigate if HR Outsourcing is right for your company, please contact us for a complimentary HR Cost Analysis.

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.