Strengtening your core
When outsourcing HR makes sense
Does your company have a dedicated human resources department that handles the myriad of issues involved in the business of employment? If your company is small or mid-sized, odds are the answer is no. Many franchisees, especially hands-on operators of a limited number of stores, wind up taking on the HR duties themselves, and that means payroll, accounting, regulatory compliance, employee benefits, hiring, firing and a whole host of other complicated issues that professionals in the field spend years learning.
It’s doable, sure, but it takes a lot of doing. According to the U.S. Small Business Administration, the average small-business owner spends up to 25 percent of his or her time handling employee-related HR paperwork. That’s a big chunk of time to focus on something other than core business. Wouldn’t you rather run your company instead of spending time becoming an expert in the many facets of HR?
That’s why many small- to mid-sized companies choose to outsource some or all of their HR functions, says Kristi Hagan, president of Ahead Human Resources, a Louisville, KY-based franchise that offers the gamut of HR services to employers.
“Business owners often want, and need, to focus their time and energy on their core business and not on the business of employment,” says Hagan. “As companies grow, owners often don’t have the necessary human resource training, payroll and accounting skills, knowledge of regulatory compliance, or backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer.”
If you’ve looked into outsourcing HR, you’ve likely come across the term “Professional Employer Organization,” or PEO. You can expect a PEO to act as a sort of satellite office of your company, performing and managing HR functions for the employees it hires on your behalf, including staffing, employee relations, payroll and benefits. These comprehensive HR services typically cost around $100 per employee per month.
Along with taking those duties off your shoulders, PEOs have the added benefit of making your company part of a larger group that includes all the companies it serves. This strength-in-numbers approach benefits you when the PEO negotiates services like benefit plans and health insurance. In that pool, bigger fish get better rates.
As a result, you can afford to offer employees benefits like 401(k) retirement plans, a pre-tax Section 125 cafeteria plan, a choice of bigger or better benefits tailored to the employee’s individual needs, professional claims processing and assistance, a regularly updated employee manual, direct deposit to savings and checking accounts, and low interest loans from credit union membership.
Some companies don’t need all of those services and choose instead to outsource specific HR tasks, says Steve Sanders, vice president of franchising for TRC Staffing. TRC strictly focuses on recruiting and hiring.
“We handle that flood of resumes so the employer doesn’t have to,” Sanders explains. “We’ll interview candidates and either hire them outright or come back to the employer with a list of three or four candidates whose qualifications most closely match the job description and requirements.”
That way, employers only talk to the top candidates for the job, instead of wading through the masses.
The most important part of this process, Sanders says, is TRC’s close communication with the employer.
“A good job description is vital to finding the best person for that job,” he says. “We’ll sit down with employers and talk about the skills and education candidates need to have, but we also talk about corporate culture. That’s just as important—finding someone who will really fit it.”
TRC also provides temp-to-hire services, in which it keeps a pool of resumes of people who are interested in temporary jobs that might lead to employment.
Other HR tasks that are typically outsourced are payroll and specialized, one-time services like writing employee manuals and handbooks.
When deciding to outsource HR—or any portion of your business, for that matter—keep in mind that this new company becomes, in effect, an extension of your own business. The right fit is paramount. If you have a laid back, progressive culture, you might want to shy away from a conservative HR firm. The reason is simple: They’ll be doing your hiring. Make sure the company taking over your HR understands your corporate culture well enough to place the right people within it.