When it comes to Human Resources Outsourcing (HRO), nearly all U.S. companies have embraced the concept of outsourcing their payroll, which is the easiest and most obvious portion of HR & Employee Administration to assign to an outsourced vendor. It’s also the bare-minimum activity to outsource. Both ADP and Paychex are large, well-known providers that come to mind for companies wishing to outsource their payroll only.
Since the mid-1980s, the HRO landscape has changed dramatically. There are new options for outsourcing that go far beyond merely processing payroll in order to assist companies, particularly small and medium size businesses (SMBs), with the wide responsibilities of being an employer.
As a result, Payroll Processing is now at one end of the HRO spectrum. At the opposite end is to outsource as much as possible by teaming up with a Professional Employer Organization (PEO). An in-between model is to choose an Administrative Services Organization (ASO). This discussion of the pros and cons of HRO will focus on SMBs and their options to utilize either a PEO or an ASO to improve company processes and efficiency.
Pros of HR Outsourcing
You can focus on what you do best
Chances are, you didn’t go into business because you love HR and Employee Administration. But, you did have a great idea for a product or service. And because you couldn’t man every task of running your business all on your own, you hired employees. That’s great — America thanks you for being an employer!
When you hired your very first W2 employee, you took on responsibilities for HR and Employee Administration. These responsibilities, and the liabilities that come with them, consume the limited resources of time and money. And they’re not fun, either. They are likely outside your area of expertise, and as an SMB, you are not large enough to justify forming an HR department to deal with the headaches in the same way a large company can.
Partnering with the right HRO company can greatly advance your ability to run a thriving business. HR and Employee Administration can be overwhelming for SMBs; outsourcing your HR will free up your time and energy as a business owner/executive to focus on the core competencies and goals of your company. HRO providers will manage your HR and Employee Administration much more efficiently and cost-effectively than you can hope to on your own. With a PEO or ASO, you will be able to save money while helping your company reach its goals.
You’ll be able to attract and retain top talent
One of the biggest advantages of outsourcing your HR is being able to attract top employees to your SMB. Most people prefer to work for a small company, but they dislike having to say goodbye to the strong HR support that usually comes from a large company’s HR department. By utilizing HRO, you can mimic the same HR support that your employees thought was only possible at a large company. Moreover, by utilizing a PEO, you can offer the same employee benefits that are generally available only to large-company employees. As a result, your company becomes the employer of choice. Moreover, with a designated HRO company handling your employees’ payroll, benefits, and other HR functions, employee issues can be handled quickly and there will be reduced chances of “blow-ups” that result in costly lawsuits.
You can reduce your liability as a business owner
It has never been as difficult to run a company as it is right now. There is a growing burden of government compliance. And when it comes to litigation, the courts favor employees over employers. In addition to this dangerous world of compliance and litigation, employers are facing a changing environment of diverse, mobile workforces that are often spread out in multiple states. By teaming up with an expert HRO company, especially a PEO where they’re taking on most of your employer responsibilities through a co-employer agreement, you will be able to eliminate most of your employer liability exposure.
Cons of HR Outsourcing
Good news: Most of the cons of HRO are actually just perceived cons that come from misunderstanding what the service entails. Here are a few examples of what our clients initially worry about.
You could possibly lose control of your business
Most business owners and C-level executives are afraid of losing control of their business when they consider relinquishing some of their employer responsibilities to an HR outsourcer. This notion is inaccurate, as our clients find that they actually have more time to craft their company culture and shape the policies and procedures that make their business successful. HR outsourcing is a means to help business owners and executives take control of their business without the menial and mundane HR-related tasks slowing them down.
You might lose your employees’ loyalty
Another perceived drawback to utilizing an HRO company is that your employees might become confused as to whom they are really working for. In reality, this is never really the case. In fact, employees will appreciate their employer even more for bringing in the HRO company. They understand that working with a third party means they’re gaining several benefits and advantages they would have missed out on otherwise, and in turn, our clients actually increase employee loyalty.
You could partner with a bad fit or a financially weak HRO Company
This pitfall, unfortunately, is very real. Because you are partnering with another company to take care of your employees, the success of your SMB could become vulnerable if you don’t choose a good match. For example, if the HRO company you decide to work with isn’t financially strong, it can be a disaster. If you choose a PEO that goes out of business, you could be required to pay your employees’ wages and any taxes that company didn’t pay out—even if you had already paid the PEO the money to cover these expenses.
At HRO2GO, we pre-select the strongest HRO companies. We work with reputable, financially stable companies, so you can be confident that the provider we match you with will be strong, dependable, and viable for the long term. We have helped more than 2,000 clients find the right HRO company for their needs. To discuss how we can help your business succeed, please contact us for a free consultation.