Human Resources Outsourcing and Professional Employer Organizations (PEOs) are becoming increasingly popular in today’s difficult and complex business environment. In states where businesses have been more adversely affected by the economy, and where labor laws are particularly more complex, such as California, HR Outsourcing arrangements are growing rapidly.
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.