About HR Outsourcing and PEOs

HR Outsourcing

Small Business Human Resources Consulting, HR Outsourcing, Professional Employer Organizations, and Employee Leasing Services are all becoming increasingly popular in today's complex business environment. In states where labor laws are particularly complex, such as California, Employee Leasing, HR Outsourcing and Human Resources Consulting arrangements are growing rapidly.

Outsourcing is the practice of using an outside specialist to handle work that is normally performed by in-house staff and resources. 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. In response, entire industries have evolved to serve companie's outsourcing needs.

There are many benefits to small business outsourcing human resource functions. These can include controlling expenses, increasing efficiency, gaining economies of scale, accessing larger corporate benefits, reduce labor costs, reduce risk and exposure to governmental regulations, and the ability to focus internal resources on the core business activities.

Benefits of HR Outsourcing

Human Resources Outsourcing, Employee Leasing, HR Consulting and PEOs have become a popular trend for small businesses looking for an ROI on their Human Resources function. This is accomplished by allowing companies to shift responsibility of nonessential jobs that can be handled easily, and inexpensively, by off-site experts in the area of payroll, benefits, and other complex workplace regulations. 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. Other reasons for outsourcing included, in order, focusing on strategy, improving compliance, improving accuracy, lacking experience in-house, taking advantage of technological advances, and 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. The 2006 survey of executives at the IDC Midwest Conference in Chicago 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.

It is apparent that many organizations today are making the decision to outsource. In today's global marketplace outsourcing has made itself accessible to many organizations on a National and International level. Outsourcing is successful in increasing product quality and/or substantially lowering firm and consumer costs (e.g., increases the quality to cost ratio). Because outsourcing allows for lower costs, even if quality reduces slightly or not at all, productivity increases, which benefits the economy in aggregate.

PEO and Employee Leasing

A Professional Employer Organization, or PEO, also known as an Employee Leasing Company, is a firm that specializes in managing all the responsibilities relating to employees. From HR, payroll, worker's compensation insurance and benefits, an Employee Leasing Company or PEO becomes the legal employer of the worksite employees and becomes the Administrative Employer.

Particularly in California, where governmental regulations weigh heavily on California small business owners, more companies are turning to California employee leasing companies, California PEOs and California Professional Employer Organizations. A California Employee Leasing Company will legally hire a company's current employees, thereby making the PEO the "employer of record" for taxation and insurance purposes. The employees are then “leased” back to the client under a co-employment arrangement. The California PEO assumes responsibility for all payroll obligations and tax filings, worker's compensation insurance, health benefits, as well as all the associated administrative paperwork.

California Employee Leasing Companies for small business is a more cost-effective means to access health care and other benefits for their employees. By contracting out all responsibilities related to its human resources policies and state laws, the company using the California PEOs offsets a great amount of employment risk.

The small business need for human resources and HR Outsourcing makes California Employee Leasing Companies a perfect solution for small businesses. In fact, most employee leasing companies and PEOs target companies that have fewer than 100 employees; the average client of a NAPEO member has 17 employees.

A PEO arrangement is often the only way a small business can offer benefits like health insurance, dental and vision care, life insurance, and retirement saving plans like 401(k)s, Section 125 cafeteria plans (flexible spending accounts for healthcare and childcare). Most small businesses could neither afford nor manage these benefits on their own.

And finally, most PEOs and employee leasing companies market themselves as strategic HR consultants. The PEO typically monitors employment laws and requires the cooperation of their clients with the adherence to employment laws and compliant policies and procedures.