The last thing you want to worry about when running a small business is the time-consuming tasks of payroll taxes, PTO policies, benefits administration, and other boring but important human resource functions. Yet, ignoring HR essentials can create a company culture that makes employee recruitment and retention harder and produces even more HR work. So, why not outsource it?
Since you’re reading this article, you’ve likely wondered if you can outsource some (or all) of your unproductive human resources tasks in a cost-effective and convenient way. The short answer is yes, it’s possible. We’ve covered the basics here.
What does it mean to outsource human resources?
You likely already outsource other areas of your small business, such as accounting, IT, marketing, etc. Outsourcing means hiring a company to do a function or job that you used to do (or could do) in-house.
In the case of HR outsourcing, you’re working with an outside company or expert to take over some or most of your HR functions, such as onboarding, payroll, and even workers’ compensation, background checks, and benefits packages. (Basically, as much or as little as you need.) An important distinction from other business areas you outsource is some HR needs are required, and not having policies in place could put your company at risk.
There are three main routes for HR outsourcing: hiring an HR consultant or using a “package“ service provider, such as an HRO (Human Resources Organization) or PEO (Professional Employment Organization). Note: Many HR consultants may also recommend HRO or PEO services, especially for small companies that are growing. We‘ll delve into the pluses and minuses of each in the next question.
What’s the difference between an HRO and PEO?
PEOs and HROs represent different legal arrangements for managing HR functions. Both will provide HR support and HR management for a broad range of needs. While there are some overlapping similarities, there are also a fair number of distinctions.
Let’s start with a PEO. A PEO uses a co-employment model. This means your employees will appear on the books of your PEO provider and not your company. This is all for legal and tax purposes. Before you go into panic (separate entity?), you still have control over your employees, such as who gets hired, fired, bonuses, and more. A big benefit is risk management— the PEO bears the entire legal and financial responsibility for your employment practices. (Can you feel the weight lift off your shoulders?) Because a PEO offers a bundle of services, they also offer special pricing for HR solutions such as payroll services and employee benefits (health insurance, vision/dental insurance, etc.). One limitation with a PEO is that the price advantages apply to their bundle of services.
Now to the HRO. An HRO does not co-employ, so your employees remain on your company’s books. This also means the business owner bears all the legal responsibility for its employment practices. If you only want to outsource one or two HR tasks, you have more flexibility with an HRO, adding extra functions you want (and whichever companies you want) whenever you want. The disadvantage is that an HRO is more of an integrated middleman and doesn’t offer special rates as you might see with a PEO.
What types of HR Services can be outsourced?
Whether you choose to hire an HR consultant, HRO, or PEO, working with a team that lives and breathes human resources may help you uncover functions you should be doing but may not be doing (because you didn’t even know about it). PEOs and HROs typically offer a full range of HR services. Some of the more common functions are listed below.
HR solutions
- Employee onboarding and off-boarding
- PTO / time-off policy development
- Performance management
- Employee handbook
- Employee HRIS platform (web and mobile)
Payroll
- Payroll processing
- Payroll reporting
- Time tracking
- Direct deposit
- Payroll withholding taxes
Employee benefits
- Health insurance
- Dental insurance
- Vision insurance
- 401K
Why would a company outsource human resources?
There are several reasons for HR outsourcing, but most of the reasons fall into three buckets:
- You (or your staff) are spending way too much time on HR stuff. And since you’re not in the human resources business, that means less time spent on growing the business.
- It’s hard to build an HR team. Hiring employees is arduous, especially during a tight labor market like we‘re seeing now. And if you're a small business, building an HR department doesn‘t make sense. Instead, your HR functions might be spread among many team members, making them hard to keep track of.
- You don’t know what you don’t know, and that’s stressful. Hiring and managing employees carry some risk, and offloading that risk may be a real stress reliever.
Is HR outsourcing a good idea?
If you answered yes to any of the reasons above, it might be time to start looking into HR outsourcing. Working with an HRO or PEO can often feel like hiring a part-time HR professional with many extra perks.
The top four reasons small business owners and startups choose to hire an HR outsourcing provider to manage their full-time and part-time employees include:
- Streamline their HR functions.
- Get an expert eye on HR policies and compliance
- Create happier employees (by removing administrative tasks from their plates and adding benefits that they want)
- Free up their time
Your time is already limited with managing the ins and outs of your business. Get some time back (and save some money) by outsourcing your unproductive HR tasks.
Is Decent PEO a good fit for your small business?
Decent is a lightweight PEO, perfectly sized for small businesses and startups that don’t want to build a large HR staff yet are burdened with the needs of HR administration, benefits administration, and maintaining a company culture where people want to work! Unlike other PEOs, we built our health plan from the ground up. It means no middleman (fees or inconveniences) and smoother processes, not to mention affordability like you’ve never seen before. Contact our sales team to learn more about our PEO services. Wonder how much you could save? Click here and get a rapid quote.
