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Why should my company outsource HR?
“Why would I want to outsource HR?” I've been asked this a lot over the last 20 years --- and while it's hard to consolidate, here are 10 reasons why.
“Why would I want to outsource HR?” I can’t tell you how many times I’ve answered this question over the last 20 years. The most surprising thing? Most business owners don’t understand what’s involved with outsourcing – it’s like “HR” is some mystical acronym with no meaning.
While I’m not going to spend the rest of this article explaining what “HR” is, I am going to give you my top 10 reasons of why you should consider outsourcing.
1. ROI. As a CEO, numbers and percentages speak to me. A study released in 2019 showed that the annual return on investment of outsourcing to a PEO (Professional Employer Organization) is 27.2% in cost savings alone. This study also supported previous findings that PEO clients have lower employee turnover and higher revenue growth than their non-outsourcing counterparts. Would you like to increase profitability? Outsource HR.
2. Quicker response time. PEOs are staffed with certified experts in each major area of HR (payroll, workers’ comp, risk management, benefits, and human resources) who consult companies across a variety of industries. Those experts have the background to know how to handle even the most complex of situations. And when they come across a situation they’ve never personally experienced before, they have a team of certified experts that can be used to bounce ideas off each other to give you an appropriate solution. In other words, outsourcing your HR helps you maximize productivity.
Outsourcing your HR doesn't mean sending it offshores --- it means utilizing a company staffed with certified HR professionals to handle the employee administration side of your business.3. Cost savings. Numbers guy chiming in again: when broken down by an hourly rate and compared to what you would be paying for a full-time, benefited employee(s), outsourcing HR is significantly cheaper. An outsourced option also means your in-house contact person can do a quick review of the work done by the PEO and then move onto the next project. Your staff spends less time doing transactional HR and gets more business-related projects done (with fewer employees) because of the shift in duties.
4. Time savings. While this could be lumped into cost savings, it deserves its own bullet to point out the significant time savings in not having to spend hours looking up employment laws and not having to answer employee questions about paychecks or benefits or time off balances. You (or your employees) can simply contact the PEO rep or log into the web-based application to answer their questions themselves. They’ll love having answers available 24/7 and you’ll love not being interrupted.
5. Uninterrupted results: When an internal employee leaves the company or is out sick or on vacation, priorities have to shift to deal with the interruption of daily operations. However, when you outsource HR, you don’t have to worry about an integral HR task being delayed because you still have an entire HR team for your support.
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- Study: The ROI of Using a PEO
6. Retraining not needed. When employee turnover happens within a big, in-house HR team, you’re hiring and training and then paying for the new employee to get up to speed on the intricacies of your company. When you outsource HR, the administrative operations are much easier to transition in times of turnover. Why? Because your company’s information is already mapped out for the PEO’s team servicing your company. Ultimately, this lowers your labor costs.
7. Better benefits. While this is especially true for smaller companies, even larger companies can appreciate having a wide variety of benefits to offer their employees. What sweetens the deal is these benefits are available at economies-of-scale pricing, and that makes you a more attractive employer to help with your recruiting and retention efforts.
8. Better technology. It gets expensive to invest in the latest high-efficiency HR tool like applicant tracking or performance management, and it’s hard to find time to even consider the options. Outsourcing to the right PEO will provide you with a suite of HR tools that not only make your life as an employer easier, they provide meaningful metrics and are fully-integrated from all available platforms.
9. Unemployment support. If you’ve never had to fight a frivolous unemployment claim, consider yourself lucky. PEOs are your best ally to provide you with the resources and support for a difficult termination. They’ll also ensure you have appropriate documentation to defend your case in a potential unemployment claim.
10. Compliance. Staying up-to-date with all the federal, state, and local employment laws that apply to your business is a full-time job. While it seems laws are regularly being updated or changed, there are existing laws that may not apply to you now but will as your company grows. How do you stay on top of it all? Outsource to somebody whose job is to be in-the-know. You’ll also discover a sense of relief knowing the fiduciary responsibility falls on the PEO, which reduces your overall liability.
At the end of the day, outsourcing your HR helps you increase profitability, maximize productivity, save time, reduce liability, and lower your labor costs. But not all PEOs are created equal. Be sure to do your due diligence when considering options to ensure your company gets the right level of service and resources it needs.