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Is HR Outsourcing a Good Idea for Your Small Business?

Is HR Outsourcing a Good Idea for Your Small Business?

If you are a small business owner, there are never enough hours in the day. Sales need to close, employees need to be paid, taxes need to be filed – and other issues pop up all the time, like the key employee who took another job with a better benefits package, or the fine you just received for noncompliance in the workplace.

There are a few ways to reduce your HR tasks. You could hire a full-time HR manager — or you could outsource your HR department by engaging in a relationship with a professional employer organization (PEO). Your PEO would handle all the “business of HR,” including payroll processing, tax filings, large company benefit plans and benefits administration, workplace compliance, risk mitigation, onboarding, and training, which would free you up to manage business operations and your employees.

To help you decide whether or not outsourcing your company’s HR is the best option for you, consider these five critical questions.

Would You Like to Pay Less for Competitive Employee Benefits?

One of the factors in determining health insurance rates is the number of employees covered by the plan. Large employers can negotiate cost-effective arrangements with insurance companies and other benefits providers, but small businesses simply don’t have that buying power.

As a small business, you’ll have a better chance of reducing your insurance rates if you partner with a PEO. This one of the most significant advantages PEOs can provide for small and medium-sized businesses. PEOs can leverage their buying power to negotiate better pricing and pass the savings on to their clients.

Is Employee Turnover a Concern?

Several factors contribute to employee turnover, but a big one is health insurance. Your employees want the security of knowing that they and their families will receive the best possible medical care in the event of an illness or accident and won’t go bankrupt paying the medical bills. Small and medium-sized businesses must be able to offer competitively priced health insurance so that they can compete with large companies in the hiring and retention of top talent. According to a recent study by noted economists Laurie Bassi and Dan McMurrer and published by National Association for Professional Employer Organizations (NAPEO), “Small businesses that use PEOs have 10 to 14 percent lower employee turnover and are 50 percent less likely to go out of business”.

Is Compliance with Workplace Laws and Regulations a Headache for You?

Keeping up with HR-related laws and regulations for workplace compliance can be a full-time job, especially for employers with staff in multiple states.

For example, most states mandate some time off for employees to go to the polls. New York requires two hours, Kentucky requires four, but New Jersey has no formal policy at all. Most states require employers to post these protections for employees before an election. If you fail to comply with this or any other state or federal regulation, you risk penalties, fines, or even a lawsuit if an employee files a complaint. It’s a tricky business, but a PEO partner has experts on staff who can help you maintain compliance. As part of the contract, the PEO takes on the liability for non-compliance fines.

Have You Had to Litigate an Employee Termination?

Litigation is a nightmare, but one way to protect yourself is to have an employee handbook, spelling out all procedures, practices, and expectations. Though not a contract, it is essentially an agreement between employee and employer. When given the handbook during the onboarding process, the employee essentially agrees to abide by company policies. This helps mitigate risk factors that generate lawsuits.

It can be a daunting and expensive task to build an employee handbook from scratch, but a PEO can customize one to your business. This is such an important document, so it pays to have certified HR experts to assist you.

If you do face litigation, Employment Practices Liability Insurance (EPLI) gives your business coverage against employment-related lawsuits such as sexual harassment, wrongful termination, breach of contract, discrimination, or other employee-related issues. All employers, regardless of size, must carry EPLI. PEOs can offer EPLI at reasonable rates to provide protection against costly litigation. Your PEO partner can also provide you with fast, accurate answers to employment-related questions as well as legal advice from labor attorneys.

Do You Sometimes Have to “Fix” Paychecks?

Your employees expect and deserve to be paid accurately and on time. PEOs handle all aspects of payroll processing, including time and attendance, taxation, deductions, and reporting. They are equipped to address any payroll issues — including “fixes” — for your employees promptly.

PEOs are also responsible for ensuring federal, state, and local compliance when it comes to payroll. If there is a fine or penalty due to negligence, the PEO, by contract, is held accountable. To reduce risk, clients should ensure they partner with a PEO that is an IRS Certified Professional Employer Organization (CPEO) and is accredited by the Employer Services Assurance Corporation (ESAC).

Freedom to Focus on Your Business

If you have a small to medium size business, you probably don’t have the resources to hire a human resource director, an employee benefits manager, a risk manager, a payroll processor, or a retirement plan specialist, but that is where a PEO can help. If you’re looking into outsourcing, you will find that there is no one-size-fits-all PEO. Be diligent in making your selection and ask questions about the pricing model and the level of service provided. Don’t forget to ask for references and verify CPEO and ESAC certifications to safeguard your business financially. There is always the potential for a PEO that meets your business requirements, today and as you grow.


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by Andrew Lubash // Andrew Lubash is the CEO of PrestigePEO. He serves as Chair of the National Association of Professional Employer Organizations (NAPEO). Mr. Lubash is a regular speaker for organizations such as the Institute for Financial Planning, The National Association of Health Underwriters, and the American Society for Certified Public Accountants.

Opinions expressed by contributors are their own.