Focus On What You Do Best — Why it’s Time to Outsource HR

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HR can take up a lot of time for small businesses and startups. Here’s why outsourcing HR may be a great solution for your business and how to vet HR services.

HR can take up a lot of time for small businesses and startups, and you may have found it’s more complex than you expected. From learning how to hire an employee to navigating legal compliance, a small business may not have the time to research their state’s employee regulations. Outsourcing HR is a great solution if you don’t want to hire a dedicated PR team.

4 Signs your business should outsource HR immediately 

1. HR is taking up too much of your time

Most startups or small businesses can’t afford to spend an hour a week on payroll processing or other HR duties. As your business scales, you’ll have to spend even more time wrestling with invoices, paychecks, benefits, and leave. On top of that, you have to constantly research federal and state laws, as they change often. The government won’t take ignorance as a defense.

Instead of running the HR department by yourself, outsource it to an agency that can run that area of your business while you focus on expansion and maintaining company culture.

2. You struggle to attract talent due to a poor benefits package

Small companies may not have the time to research the number of available benefit packages available to employees. What results is a workforce that isn’t aware of what their benefits cover or a team that can’t locate the optimal personalized package. 56% of workers stay at a company for the benefits package their employer offers, and 46% say it influences their job selection.

When you outsource HR, you gain access to benefits that are comparable to what a larger company may offer. With these benefits, you’ll attract higher-quality employees.

3. Employees need more HR-related support

Perhaps your employees are increasingly asking for support that you aren’t qualified to give. For example, you’re in the middle of an employee-on-employee dispute, are having a dispute, or one of your workers needs bereavement leave. If you don’t have knowledge on how to deescalate the situation, you may make it worse or cause employees to quit, complain, or sue.

Outsourcing your HR means you have experts on hand who can handle these issues without hurt feelings or a possible legal issue. If a legal issue does occur, they can manage PR.

4. You can afford another solution

As you scale your business, you’ll start to see more cash on hand. Unless you put your earnings back into your company, you’ll be taxed heavily for it, so why not hire an employee that can keep the cash rolling in? While hiring an in-house team can be expensive, a PEO costs between 2-12% of wages, which can be incredibly affordable for small businesses and startups. 

ASOs (Administrative Service Organizations) HRO (Human Resources Outsourcing) are often cheaper than hiring in-house, as well, but it depends on the package you buy.

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What’s a PEO (Professional Employer Organization)?

A PEO is a company that handles HR on your behalf. This includes benefits, compliance, and worker’s compensation. PEOs generally act as a co-employer for your workers, meaning they can offer you liability protection, strategic expertise, and a hand-off approach to HR.

There are also other outsourcing options other than PEOs. For example, ASOs and HROs, but they won’t provide the amount of benefits PEOs do, as ASOs and HROs offer specific services.

PEO vs. HRO vs. ASO — What is best for your business?

ASOs offer payroll, HR, and compliance but can’t co-employ your workers and don’t provide benefits or workers’ comp. HROs also offer flexible services to support your HR needs, but they operate differently than a PEO. If you want a service that aids in employment, avoid ASOs. 

PEO — Co-employment relationships

PEO’s become a co-employer, which means you transfer your employment liability over to the agency. Using a PEO absolves you of most of the responsibility surrounding the employment process, and they also cover the administrative burden inherent in the employer role. The business retains complete control over its process but receives direction and management.

PEO’s are typically a lower cost option for businesses who have few employees, as it allows them to gain access to affordable insurance and benefits they otherwise could get. As a rule, a PEO is sponsored by an insurance provider and can offer the best price for your employees.

Choose a PEO if you want an affordable turn-key solution for your HR needs.

HRO — A flexible solution

HRO’s are coordinators and managers of specific HR functions. The biggest difference between a PEO and HRO is how flexible each solution is. PEO’s are given as-is, which is beneficial for businesses that are looking for a bundled HR solution. HROs are offered on a flexible basis, and a company is free to pick and choose what service they need, for how long, and at any time.

Your HR strategy may not include benefits administration, so you can remove it and focus on payroll and employee services. By doing this, you can make your monthly bill smaller, but you’ll gain back liability in those areas. It’s common for bigger businesses to outsource some services to an HRO to fill in gaps of knowledge present in their in-house staff and maintain compliance.

Choose an HRO if you need guidance, an organizational strategy, or flexibility.

ASO — A flexible solution

ASO’s are nearly identical to PEOs but lack the co-employment relationship. Therefore, an ASO can handle payroll, tax compliance, insurance administrative services, and some human resource processes. Similar to PEO’s, they offer a bundled suite but lack the flexibility of an HRO. Many businesses want to use ASO’s because the co-employer relationship isn’t present.

Some companies are worried that the co-employment relationship will cause them to lose their employer of record status, although that isn’t always true. A valid reason to switch to an ASO is because you’re already happy with your current benefits or have a low employee turnover.

Choose ASO’s if you don’t want a co-employer relationship and have a great benefits provider.

Why choose a PEO instead of an HRO or ASO?

PEOs are considered the “entire package” option and can benefit your team in more ways than one. If you use an HRO and don’t have an in-house team, you’ll need to also pay another service to act as a co-employer. If you need to transition away from an ASO, you may find it stressful to onboard a new in-house HR team. PEOs handle all of these aspects painlessly.

Removes culpability

The co-employer relationship removes you from culpability. If a PEO is audited or is accused of unlawful dealing, you will not receive a fine, a court appearance, or jail time on their behalf. However, if you provide a PEO with incorrect employment information, then you’ll still be liable.

Lower taxes and SUTA rate

You’ll say goodbye to annual worker’s comp audits and premium deposits, which affect your bottom line and disrupt your business’s ability to scale. You’ll also stay under the PEO’s SUTA (State Unemployment Tax) rate, which is often much lower than a startup rate. If you have a high employee turnover, your business will greatly benefit from the lower SUTA rate.

Inexpensive option to HROs, ASOs, and in-house HR

Using a PEO will reduce the cost of doing business and free your management team of administrative work that bogs down productivity and efficiency. They’re often the most inexpensive and accessible option. Plus, a PEO will give you total peace of mind.

Final thoughts

While we concluded that a PEO would likely suit your company’s needs, an HRO and ASO can still benefit your team greatly if you’re already established but need some extra help. Don’t waste your own time, money, and happiness; outsource your HR team to scale your business.

If you’re adding an HR service, you may benefit from a financial statement analysis. HR can be costly if you don’t know how much you want to spend or can spend. To keep HR working for your business long-term, you need to manage costs in other areas, like online marketing.

Rupert Jones
Rupert Jones
Rupert Jones is a financial independence geek who strongly believes in the power of networking. He spends his time helping people leverage secrets of financial wealth and processes to achieve financial freedom.
Posted in Management