Here’s HR advice since ‘zors’ hands are tied
In this nebulous era of joint-employer, the Affordable Care Act, new wage laws and extreme hiring difficulties, human resources has become difficult to manage. So it’s no surprise franchises large and small and across all industries are outsourcing HR functions.
Adam Robinson, CEO at hiring software provider Hireology, said new franchisees like the slew of post-corporate baby-boomers are especially primed to outsource HR as it’s one of the few business functions that doesn’t come in the welcome package.
“Franchisees are licensing a brand and a system of operation; that’s what they buy into and most brands provide a system for everything,” said Robinson. “Then it’s like, ‘Oh, by the way, you have to keep this thing staffed, and we can’t help you with that. And it will be 70 percent of your cost structure, and you’ve never done it before.’ ”
Many experts recommend outsourcing HR, so as to not directly touch employees like this.
Two words explain why franchisors are staying away from HR these days: joint employer. Various court cases and National Labor Relations Board decisions aim to hold franchisors as jointly responsible for their franchisees’ employees, making outsourcing HR attractive from a legal standpoint.
Some 86 cases against McDonald’s for various alleged employment infractions brought about since 2012 are the most watched. And a landmark case decided in August that named Browning-Ferris Industries a joint employer for vague “reserved authority” and “unexercised control” reasons—that is, having the ability to dictate employee relations or mandating the use of a third-party service— can lead to joint-employer status.
While the cases and appeals grind toward unknown resolutions, franchisors have been frantically putting up walls while making sure franchisees are handling employment matters wisely.
“There’s an overall heightened awareness that they need to take these types of matters seriously. And franchisors need to get engaged and get the right best practices to them from someone other than the franchisor,” said Tom Posey, a partner at Faegre Baker Daniels who represents employers in labor matters.
All that makes outsourcing a logical path, but since circumspect franchisors can’t do much by way of advising, it’s up to franchisees to determine what to outsource. Typically, that’s a financial decision for smaller operators.
Payroll, benefits and time-and-labor functions are often the first things to go as the benefits of handling them in-house rarely outweigh the risks. And as hiring becomes a difficult undertaking, franchisees are outsourcing all hiring functions as well.
For Hireology clients, the franchisor works with staff to inform the system without getting legally too close to actual hiring and firing decisions. “We have data and profiles on all of the roles at the brands that we work with,” said Robinson. “So we are starting with the baseline set of data and tools to get the franchise 80 percent of the way there right out of the box.”
Then there is Snagajob, which specializes in hourly workers. CEO Peter Harrison said the company places some 4 million hourly workers a month by giving franchisees tools to get aggressive with the talent search. “I think employers are realizing that they have to move a lot faster,” said Harrison, who said they’re able to do so because the company marries the employer base and the candidate pool.
“If the company is looking for a crew position, they don’t have to wait. They can see who’s applied in the last 24 hours and reach out to them,” said Harrison.
The company also provides connections to payroll processors, benefits and immigration verification of prospective employees. It’s one of a smorgasbord of companies that cover all things paper-related for a business owner, giving franchisees that much-needed HR support that the franchisor just can’t give.
For an additional layer of protection between franchisees and employees, larger operators are increasingly turning to professional employer organizations (PEO). Until recently, these co-employment organizations only worked with large, white-collar businesses with thousands of employees. Now, operators big and small can take advantage of all the services a typical HR outsourcing firm can provide with the additional perk of co-employer status.
Pros and cons of PEOs
Infiniti HR division Vice President Daniel Mormino said using one of the many PEO services out there is a good way to unload even more complexity such as employer insurance, and focus on profit generation instead of employment matters.
“That kind of control is counterproductive to the landscape we’re in,” said Mormino. “If you’re 100 percent successful—congratulations, there is no additional revenue” from your smart HR practices. “If you’re the least bit non-compliant—congratulations, you’re liable.”
Under a PEO, all payments, benefits and other HR complexities are handled by the PEO, not the worksite operator, which makes any employment dispute very difficult to frame under joint-employer rules. “The NLRB would have to claim that you’re a joint employer with a co-employer, in which you’re not the source of the wage at the same time. That’s a hard argument,” said Mormino.
And for those operators large enough to employ an HR staff, they can save money on insurance by outsourcing to a PEO to take advantage of the bargaining clout on the various mandatory state insurance requirements.
Of course, advocates of in-house human resources staff might counter they can put their own cultural stamp on their workforce.
Mormino said aside from the protections and cutting out complexities, the number one benefit of a PEO is simplifying matters for a sale. “Franchisees that have been successful want to package it up and sell and expand into different ventures. What a great opportunity to say you don’t have that direct employer liability on your books,” said Mormino.