Guiding The Growth Of Your Business

The Benefits Of Outsourcing Human Resource Functions

Many small- and medium-sized businesses are finding themselves caught in a “Catch 22” situation:  The more their businesses grow and prosper, the less time they spend actually running the company.  Why?  Because as the number of employees in a business increases, employers must spend as many as 20 hours each week dealing with personnel issues. 

Achieving success in any business requires a relentless focus on the basics:  the core products or services, customers, distribution channels, competitors and the bottom line.  Human resources and administrative functions—such as hiring and firing workers, payroll, taxes, health benefits, workers’ compensation insurance and dealing with the ever-increasing number of state and federal compliance regulations—can easily distract a business owner’s focus.  Many smaller businesses do not have the internal resources to manage these human resources and administrative responsibilities effectively and keep their core businesses on track.  Ultimately, this can significantly hinder a company’s growth potential and hurt profitability. 

Contracting with a Professional Employer Organization (PEO) to handle all of the human resource functions is a viable solution.  A growing trend in business today, PEOs are full-service human resources organizations that manage the day-to-day human resources and administrative functions of small- and medium-sized companies.  PEOs establish a co-employer relationship with their clients and contractually assume certain employer responsibilities and employment-related liabilities. 

As a co-employer, a PEO provides a fully accessible off-site human resource department. By partnering with its clients, a PEO can provide businesses with Fortune 500-style benefits and greater levels of human resource expertise than they could afford by themselves.

The Power Of Volume

It is no secret that large corporations enjoy greater purchasing power than smaller companies.  Small companies can be especially hard hit in the areas of employee health benefits and workers’ compensation insurance.  By teaming with a PEO, small- and medium-sized companies are able to benefit from the PEO’s negotiating power. 

The use of PEOs is a growing trend in business today.  PEOs are growing at a rate of more than 25% annually, and most analysts predict that this rate will continue for the next five to ten years.  There are several reasons for the increasing popularity of PEOs:

• Employment litigation.  It’s a fact of business life:  Even the best-run companies are vulnerable to employment-related lawsuits and the damage awards that can result. 

Employers recognize the need to take proactive steps to decrease the risk of litigation.  Some PEOs are now offering their clients Employment Practices Liability Insurance (EPLI) to alleviate potential employment-related problems and provide insurance protection should claims occur.  Additionally, most PEOs provide comprehensive training to clients to help reduce the risk of lawsuits and to help them recognize relevant laws and employees’ rights and responsibilities under the law.

• Regulatory Compliance.  In the past several decades, the United States has seen a significant increase in employment-related regulations and federal employment practices laws, including the Americans with Disabilities Act and the Family and Medical Leave Act.  Add these to the mix of state and local employment laws and the result is a minefield for the unprotected business owner. 
   

• Attracting And Retaining Quality Employees.  As business owners know only too well, the days of employees remaining with one company for many years are gone.  Smaller businesses are at a distinct disadvantage in attracting the best-qualified workers, since they usually are unable to offer comprehensive benefit packages at an affordable cost.  By contracting with a PEO, these same companies are usually able to upgrade their policies, provide greater benefits and add new benefits that previously were unavailable to them because of their size.  Comprehensive benefit packages, including 401(k) plans, extensive medical benefits and Employee Assistance Programs, are also a valuable tool in recruiting and retaining skilled employees.

Clearly, there are many benefits in hiring a PEO.  The most difficult decision will be which PEO to choose.  A business should conduct a thorough background check of a PEO before entering into any agreement, and look for answers to the following questions:

• How long has the PEO been in business and does it provide references?

• Does the PEO have a stable financial history?  Are the benefit plans offered properly funded and backed by reputable insurance companies?

• Does the PEO have a license if it operates in a state with licensing laws?

Professional Employer Organizations can be a valuable resource to business owners.  They present business owners with an option to deal with day-to-day administrative challenges while remaining firmly focused on core business functions.  Not only do they provide solutions to administrative challenges and enable businesses to move closer to strategic goals, they also give the business owner peace of mind.
 

Extensis is the leading New Jersey based Professional Employer Organization. We work with our clients to craft the RIGHT HR solution for their business. We work with them to manage their total labor costs, year over year. HR planning is more than a rate chart, it requires experience and the flexibility that Extensis can provide your business.

For more information, go to www.extensispeo.com, or call 888-473-6398.