Human resources management is an important, but complex, function for any company, and one that many opt to outsource. Most companies that outsource human resources functions do so by joining a professional employer organization, or PEO. More than just a payroll processor, a PEO handles everything from hiring and onboarding employees to managing benefits, developing training programs and overseeing compliance with employment rules and regulations. Although outsourcing HR might not be right for all businesses, there are some significant advantages to doing so, especially when it comes to saving time and money.
Outsourcing Reduces Costs
One of the biggest advantages to outsourcing HR functions is the fact that it can save your company money. Cost savings come from several areas, including:
Spending less on salaries. The average human resources manager earns more than N9,500,000 per year, plus benefits. Depending on the size of the HR department, a small to medium-size business can easily spend thousands of millions of naira on HR staff. Outsourcing those jobs to a PEO can significantly reduce that expense.
Reduced costs for benefits, as the PEO can negotiate better rates for a large pool of clients. Smaller businesses can get rates usually reserved for large companies with bigger staffs.
Reduced costs for hiring and training. Research from the Society of Human Resource Management found that it costs an average of N1,200,000 to hire an employee, and more than N360,000 to train him. A PEO not only helps ensure that businesses hire the right people to reduce turnover and associated expenses, but also has the resources in place to cut the costs of hiring.
Avoiding penalties from noncompliance with employment laws and regulations.
Spending less time on HR functions frees up time to spend on strategic sales and growth goals, increasing revenues. Research shows that despite working an average of 50 hours or more per week, business owners only spend about 30 percent of that time on actual business functions. The rest of their time is spent on administrative and other tasks that don’t contribute to revenue.
Investing in a PEO to handle HR functions, therefore, can produce a return on investment that far outweighs the cost of the service.
Inexperience Leads to Mistakes
As mentioned previously, outsourcing the HR department frees up your time to focus on other priorities. If you are like many small business owners, you’re handling human resources yourself, which can take a great deal of time away from other important tasks. In fact, one survey indicated that 81 percent of small business owners handle HR on their own – and more than 30 percent weren’t sure they were doing everything correctly.
Managing employees today is complex and requires specialized knowledge to avoid running afoul of the law. Most small business owners simply don’t have that knowledge, and thus make mistakes with payroll, don’t maintain the proper paperwork on employees or don’t have effective policies for managing staff in place. Not only do these gaps in knowledge create risk for the company and cost money, they also mean that business owners spend more time than necessary on these tasks.
By outsourcing human resources, that time can be devoted to other functions that are more beneficial to building the business. Instead of spending time on paperwork or dealing with payroll and benefits issues, you can work on setting goals, developing a strategic plan, marketing and selling, all of which will ultimately bring in more revenue.
Outsourcing HR Functions Improves Hiring
Not only does working with a PEO mean that it costs less to hire staff, it also typically means hiring better staff. As more job seekers look for opportunities that not only pay well, but also offer a comprehensive benefits package, some companies report losing out on top talent because they can’t compete with other companies. In fact, 22 percent of small businesses in one survey reported losing out on talent because they couldn’t match a competitor’s compensation and benefits package. With a PEO, it’s possible to offer more attractive benefits packages, including insurance and training opportunities.
Outsourcing HR services also streamlines the hiring process. A PEO will help you develop an efficient hiring process and ensure that every aspect is designed to attract top talent, from the initial job description to the interview process. Some HR firms will even manage the early stages of recruitment and hiring for you, so you only need to become involved once the pool of applicants has been whittled down to the most promising candidates.
Once people are hired, a PEO can also help with the onboarding process. Surveys indicate that when a company has a defined and consistent onboarding process, employees are more likely to assimilate into the company culture faster and more successfully. This helps people hit the ground running and contributes to lower rates of turnover. And once employees are established, a PEO can help with the monitoring of employee performance, freeing up time and offering objective insights.
Outsourcing Improves Compliance
Ensuring compliance is one of the major functions of any HR department, and it’s a multifaceted and complex job. Employment and wage laws are changing all the time, and companies must adhere to not only federal rules, but also state, county and local regulations regarding employment. That’s not even considering the fact that some companies have union and industry regulations to adhere to, which only complicate matters. Failing to comply with these rules can have serious financial consequences – but turning to the experts helps prevent that.
Outsourcing HR services also helps ensure that your employee management practices are within the scope of the law. When handling employee issues, such as harassment claims, discipline and termination, companies have to comply with specific standards and laws, and failing to do so could leave you vulnerable to lawsuits and fines. A PEO will help you handle these issues, making sure policies are fair, legal and clear, and that any actions you take are within the scope of current laws.
Offer Better Benefits
Many small businesses struggle to offer comprehensive benefits to their employees because of the cost and the complexities of managing health insurance, voluntary contribution programs (such as retirement plans or health savings accounts), employee assistance programs and more.
Generally speaking, robust benefits packages are associated with large companies that can afford to invest, but joining an employee organization gives smaller companies access to more options that they wouldn’t otherwise have access to. In fact, some companies opt to limit their human resource management outsourcing to benefits only, for the purpose of offering more attractive plans to recruit top talent.
Improved benefits from outsourcing extend beyond providing more options, as well. PEOs are expert benefits managers and can help answer questions and provide information to your employees that you might not be able to do efficiently. For example, instead of requiring employees to fill out paper forms for benefits enrollment, an outsourcing company is likely to have an online portal where employees can easily enroll, saving you and your staff from becoming bogged down in paperwork. Again, you and your managers will spend less time on administrative tasks, and more time on your business.