Outsourcing HR: Advantages for Small Businesses

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1 Outsourcing HR: Advantages for Small Businesses Are you thinking about how to increase operational efficiency of the business or the HR department? Then this e- book is for you! Learn more about outsourcing and even more about HR service outsourcing. Advantages of the latter outlined in this e- book will guide you in decision making and partnering with the potential supplier.

2 1 In current financially- constraint times when the economy is still recovering from the financial crisis of 2007, more and more companies come to think about alternative and innovative ways to run their operations, while ensuring economic stability, strategic development, and market growth. One of the alternative ways of daily organizational management is outsourcing. Outsourcing is simply the contracting of a service provider either, on or off- site, who eases your workload and allows you to focus on core operations. This comes particularly in handy for Human Resources functions where there is always a large amount of paperwork to do. No wonder why The Human Resources Outsourcing and Professional Employer Organization (PEOs) industry is the fastest growing outsourcing sector after IT outsourcing. When you see your Human Resources department slowly turn into an administrative function, mainly handling employee payroll, tax filing, contracts, benefits and health administration, you are in a situation to analyze the true value of your HR department to the organization s bottom line. Calculate what you spend on payroll processing, tax filing, benefits, workers compensation and legal matters. Do the costs of maintaining the employees and running the operations overweight the revenue brought in, even if intangible? Do the employees feel engaged in their work and feel part of the success of the organization? There are many alarming questions to ask, which might eventually lead you to the decision to outsource HR services from a professional company. The basic services offered by HR outsourcing companies include: Ø Managing staffing requirements and organizational structuring Ø Recruitment Ø Employee orientation programs design and implementation Ø Employee and manager training Ø Department goals and strategies overseeing Ø Compensation and Benefits administration Ø Generic HR administration (e.g. payroll and personnel file management, tax and legal compliance, timekeeping solutions) Many PEOs work with a method of co- employment, which refers to working together with a client- company. The benefits of working with a professional service providing company in this aspect are numerous. Starting with recruitment of talented co- workers, retention of the latter, and increase of efficiency, HR outsourcing not only gives administrative advantages, but also supports the strategic goals of your HR. Let us now have a more precise look at the benefits you can reap from outsourcing your HR work. 1. HR Costs Reduction "Small employers typically don't have the resources to hire in- house experts on payroll tax and employment law compliance, although they are subject to most of the same laws and regulations as large employers. Outsourcing gives them access to that expertise at a fraction of the cost and helps them mitigate risk." - Pete Stoddard, PR Director, Ceridian

3 2 While big companies refer to the service mostly with the aim of cutting significant costs, small companies do not have the luxury to afford those costs in the first place. With ever- increasing non- revenue- generating back- office administration to be taken care of, cost cutting is the first and far most ranked as number one benefit of outsourcing HR. By saying HR costs here we understand employee salaries and benefits, office space and environment. Hardly any small company can afford these big costs. HR outsourcing lets you get the same level of service for less cost. Most companies see expenses decrease by around 20% in compensation payouts, up to 20% in employee benefits, and up to 10% in basic HR administrative functions, such as payroll and compensation. You can then use the savings to reinvest in core business activities that serve customers or drive revenues another benefit! 2. HR Technology Investments Avoidance Another cost- related benefit: avoiding additional investment in HR technologies. It will be much more difficult to persuade the management to invest in HR technology, sophisticated databases or existing software upgrades rather than a new marketing campaign. Most of the PEOs nowadays provide their own HR platform and continuously track the need of upgrades all included in the price. Having internet as primary driver of business world development, PEOs leverage the IT resources and provide HR services and applications through their web portal but customized to your needs. You can easily save on technology and educating people how to use the technology, while having access to your HR information 24/7. Many software programs also include automated employee self- service functions, allowing them to easily handle HR clerical work on their own. 3. HR strategy delivery HR Management is much more than recruitment and administration. When being a small company, you absolutely do not picture how HR can add to your long- term strategic planning, but trust us; this is the area that you do not want to omit. By freeing up resources with the help of outsourcing, including financial, human and operational, you can focus on more strategic projects and issues your HR practice should implement. For example, team building and corporate culture creation are the very strategic areas that are directly linked with other departments and influence your company s bottom line. This in its turn will greatly increase the motivation of your HR employees, having them feeling included in the game and not waiting on the bench to play. Additionally, neither the top management, nor the middle one will have to deal with administrative issues and spend time tracking the correctness and timely implementation. Core business functions and growth should always overweight the administrative routine works in focus! 4. HR services quality improvement

4 3 Ease the HR regulatory work of employees in your HR department, top and middle managers, as well as other cross- functional workers with the help of the systems and standardized procedures the outsourced company will bring in. A group that specializes in HR can assure you everything will be handled correctly. Doing this, you will greatly save time of IT and paperwork hassle for managers, as well as guarantee high motivation of all employees with high- quality HR service provision. 5. Risk Management Studies show that there is a direct correlation between economic downturns and increases in the number of employment- related lawsuits. Did you know that employment lawsuits have increased by 400% in the last 20 years? Were you aware that more than 90% of companies regardless of size seek outside advice on compliance? As scary as it sounds, this is totally normal given the fact that employee- related laws and regulations are always changing and being amended. Given the competitive outlook and continuous struggle for the place under the sun, companies hardly stay up- to- dated all the time. For specific types of businesses or industries, these functions can be too complex to be undertaken by a regular employee. So why not let the professional company manage legal documentation and compliance? By outsourcing to a service providing company you dramatically decrease the risk your company holds in case of wrongly formulated documents or in case of lawsuits claimed by employees. As skillful mediator, HR firms will maintain and audit your company policies, practices, files and records to ensure both parties interests are protected. Their role is to assist you in ensuring legal compliance with both Federal and State laws, and to support in the event of a lawsuit, while bearing a significant part of the risk of bankruptcy. 6. Knowledge Base Increase Companies also struggle with unlearning old information and learning new things. Bringing in and managing knowledge is another routine, yet very important objective for companies. While small companies are in constant need to expand their horizons and learn as many good case practices as possible, they practically do not have enough resources and time to look after this criterion. New skills and fresh insights are what you can get from your PEO firm without batting an eyelash. Skilled professionals who are focused specifically on HR will readily provide you with both implementation and coaching as to make your HR services and department overall more up- to- date, professional and 7. Efficiency Improvement efficient! PEO firms services let small companies enjoy the same economies of scale, efficiency, and expertise that large companies have. Taking over most of the administrative functions, the firms make you feel relieved from that burden and urge you to stress on more result- oriented efficiency- building activities like hiring more people, enhancing internal communication, investing in long- term projects, etc. that might

5 4 put you a step above competition. With guaranteed confidentiality, accuracy and quick response time, as well as dedicated work style to increase effectiveness of your workforce and efficiency of procedures, you can rest assured that outsourcing providers will streamline important HR functions while you are focused on maintaining the market niche of your company. 8. Employer Branding Awareness Recruitment is a long process itself that consumes a lot of energy and time on procedural work. It is one of the main areas of HR outsourcing and includes not only activities but also enhances the employer brand and general brand awareness of the client- company. From interview scheduling to background check, you will have a trusted partner that has all the processes polished and structured to be as efficient as possible. Additionally, they will ensure that you offer employees reasonably- priced employment packages and salary schemes aligned with market and worldwide developments, and in turn attract competent candidates and reduce turnover. 9. Employee Development and Performance Improvement HRO firms are exposed to numerous companies and have experience working in various industries. You can utilize this knowledge tank for your own employee development programs. Many companies will be eager to include employee career coaching and development in the package with general training and development service. Even if the staffing management is not outsourced, these activities will lead your in- house HR employees and managers to pay more serious attention to job descriptions and effective performance reviews and evaluations. Hence, you will build a stronger feeling of security and confidence among your employees. When outsourcing firms directly manage employee performance management, they periodically monitor employee performance and report findings to management. This reduces the workload of managers by minimizing the amount of administrative responsibilities they must focus on. 10. Management Training Delivery Rapidly changing employment legislation, tax laws, and benefits regulations always require the managerial apex to stay up- to- dated and on track. Besides direct training courses you can purchase from HR outsourcing companies, their involvement in your daily operations and communication with managers will broad the knowledge of the latter in HR and make them realize the importance of properly- run processes. Furthermore, they can take a step higher and undertake other

6 5 organizational development- related policy reviews and trainings, which is a must for every manager to master and lead his/her staff accordingly. The latter can include harassment, safety compliance, internal communications and other aspects of work environment. 11. Re- engineering Benefits Acceleration Re- engineering aims for improvements in performance- related critical success factors (CSFs) such as cost, quality, service, and speed. Due to non- core functions that eventually start taking center stage with organizational growth, business processes and systems become less efficient and less productive. By outsourcing those non- revenue- generating activities your company has an opportunity for smoother and more rapid implementation, as well as acceleration, of re- engineering strategies and change projects. 12. Increase in Productivity and Customer Service The outsourced companies may fairly be located in different time zones. This means that a lot can be accomplished overnight even if your business is closed. Additionally, by opening up to the external environment, both customers and potential job applicants can receive support and information based on their own time zones. You will benefit by increased customer and client satisfaction, as they will be serviced and provided information immediately, without having to wait when the business will open in your area. To summarize and make it more visual, here is a diagram of Top 10 Reasons to Outsource HR for you, retrieved from a recent study. HR outsourcing is such a big wave currently and in the future that more and more international companies that are high performers and market leaders in their industries use the service for their own benefits. According to another study, The HR Outsourcing Pulse Survey, conducted by the Institute for Corporate Productivity (i4cp) in April 2010, when considering whether to outsource human resource functions, high- performance organizations tend to look for solutions that will improve productivity above all other factors. Sixty- two percent say they do this to a high or very high extent, while only 47% of lower- performing organizations say the same. In addition, higher performers outsource HR functions to achieve better ROI (58%), compared to only 34% of lower performers.

7 6 Nevertheless, there are also reasons for precaution. It will be very unwise to blindly outsource all of the HR functions to an external company. One thing you cannot outsource at all is your basic HR leadership. Big companies should always retain somebody in- house, from a strategic perspective, in order to oversee corporate policy, decision- making and to manage the relationship with an HR outsourcer. In a small company, that point person may be the CEO. Large corporations need to appoint a dedicated HR professional to ensure that benefits such as reduced costs and regulatory compliance are managed. - Jennifer Perrier- Knox, senior research analyst, Info- Tech Research Group

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