By Tony Deblauwe
If you have been keeping up with trends in human resources,
you are aware that HR
outsourcing is becoming steadily more popular. According to a 2003 Conference
Board study, over 85% of large U.S. companies currently have at least one
major HR function managed by a third party. The more recent 2009 Hewitt
Associates survey reveals that employers are now 34% more likely to take
advantage of human resources outsourcing (HRO) than they were 2 years ago.
In 2006, the main focus was on talent management. Now, cost reduction is the driving factor behind employer decisions to hand processes over to specialist firms. This is true for startup businesses as well as established companies. Small to mid-sized employers use HRO in two distinct ways: Administrative tasks are subcontracted so that HR can focus on strategic planning. Specialized third party agencies are hired to deal with complex issues that a small HR department isn’t equipped to handle in-house.
Top 10 Areas Targeted
For Human Resources Outsourcing
1. Retirement Planning - 401(k) and pension plans
2. Stock Option Administration
3. Health & Welfare Benefits Management
4. Employee Training & Development
6. Policy and Handbook Creation/Updating
7. Compensation Program Planning
8. Human Resource Information System Implementation
10. Compliance & Risk Management
PEO - The New Face of
Human Resources Outsourcing
One of the most interesting trends in human resources is the development of Professional Employer Organization (PEO) relationships. When you sign up with a PEO, the organization becomes the employer of record for your workforce and you become the organization’s client. The concept of co-employment in its current form is less than 20 years old but has already gained a significant following.
PEO services typically bundle benefits management, workers’ comp, payroll, and HR functions under one outsourcing provider. Accounting and tax services are also included in some package deals. Employee leasing is a simplified form of PEO that can be used by businesses that do not want to outsource their entire HR process.
Pros and Cons of PEO
A Professional Employer Organization
offers several advantages for small/mid-sized businesses:
· Reduces time and money spent on administrative tasks
· Shifts many compliance and liability responsibilities to the PEO
· Offers access to the same benefits programs available to large employers
· Still allows the co-employer the autonomy to make important decisions
On the downside,
switching to a PEO can have a number of negative
consequences:
· Employees may respond poorly to being told they now work for an unfamiliar employer
· Small businesses may be required to observe laws targeted at larger employers (e.g. FMLA)
· A client could potentially be held liable for any discriminatory practices on the part of a PEO
· A PEO may suddenly go out of business if it has insufficient cash reserves
If you are considering HR outsourcing, take the time to investigate your potential business partner thoroughly. It can be difficult to disentangle your company once you integrate your HR processes with a third party. Always ask for a free trial period to allow a human resources outsourcing firm to prove its worth before you sign a contract.
