Texas HR Outsourcing Report

Texas HR Outsourcing Report

G&A Partners: Texas HR Outsourcing Report Executive Summary This report will inform business owners and professionals about the benefits associated with HR outsourcing. It will provide insight into current outsourcing trends in businesses as well as business owners and professionals views on HR outsourcing. The key findings are as follows: There is a need for HR outsourcing in growing businesses. These growing companies know that they need an HR solution, but perhaps think there is a diminished benefit for smaller companies to outsource or do not know how to recognize quality HR. Growing companies are looking for a cheaper and more efficient way to accomplish in-house HR functions. These growing businesses lack the motivation to adopt an HR outsourcing solution despite knowing that they could benefit from doing so. Methodology The Texas HR Outsourcing Survey was distributed via email to more than 20,000 business owners and professionals, and 191 participated in the study. Because of the large number of respondents who participated in this survey, we are 99 percent confident that the responses of the population to the survey questions would be +/- 10 percent from the figures stated herein. Demographics The majority of respondents are business owners (68 percent). The largest factions of respondents are in business consulting or professional services (23 percent), construction (16 percent) and other, which includes real estate, insurance and maintenance (19 percent). The vast majority of respondents (94 percent) are from companies based in Texas. Other states represented are California, Illinois, Massachusetts, Nevada, New Jersey, South Carolina and Tennessee. Almost half of all respondents employ between five and 49 employees (47 percent), and about a quarter have less than five employees (26 percent). Eleven percent are from companies that have between 50 and 99 employees, and 17 percent are from companies with more than 100 employees. 1

Current HR Status: Activities, Satisfaction & Concerns HR Activities The survey results indicate that respondents from all company sizes and industries represented tend to handle all HR activities in-house with the exception of tax compliance, which 48 percent of respondents keep in-house and 49 percent outsource. Satisfaction Overall, 40 percent of respondents reported no points of dissatisfaction with their company s current ability to manage administrative tasks. Of those, 45 percent are from companies with five to 49 employees, 32 percent are from companies with less than five employees and 16 percent are from companies with more than 100 employees. Of those 2

who reported dissatisfaction, 23 percent were dissatisfied with recruiting, followed by benefits administration and training (14 percent each). Forty-three percent of all respondents indicated that they are satisfied with the current quality of benefits provided by their company; 18 percent are extremely satisfied, 27 percent are neither satisfied nor dissatisfied and only 12 percent are dissatisfied or extremely dissatisfied. Of those who are dissatisfied or extremely dissatisfied, 35 percent are from companies with less than five employees. More Value with Outsourcing The vast majority of all respondents (89 percent), representing companies of all sizes and all reported industries, indicated that they believe an HR outsourcing company provides more value to its clients by offering a wider range of related services. Of those, 29 percent are from companies with less than five employees, 49 percent are from companies with five to 49 employees and 11 percent each are from companies that have between 50 and 99 employees and companies with more than 100 employees. This suggests that these respondents know that an HR outsourcing company can provide better services than their companies can in-house, but that they have not yet found a centralized server that can provide a complete suite of higher quality HR services. 3

In-house or Outsource? Approximately 58 percent of all respondents reported that it is better to keep certain HR activities in-house rather than outsource them. Of those, 25 percent are from companies with less than five employees, 45 percent are from companies with five to 49 employees, 12 percent are from companies that have between 50 and 99 employees and 18 percent are from companies with more than 100 employees. Following that trend, about half of all respondents (44 percent) report that their companies are not considering outsourcing any administrative activities in 2007. Of those, 31 percent are from companies with less than five employees, and 40 percent are from companies with five to 49 employees. Only 10 percent are from companies with between 50 and 99 employees, and just 19 percent are from companies with more than 100 employees. Of those who are considering outsourcing activities this year, 29 percent are considering outsourcing tax compliance, 24 percent are considering outsourcing payroll and 23 percent are considering outsourcing background screening. 4

Concerns The largest faction of respondents (18 percent) is not concerned with any administrative activities. Of those, 37 percent are from companies with less than five employees, and 43 percent are from companies with five to 49 employees. Only 6 percent are from companies that have between 50 and 99 employees, and 14 percent are from companies with more than 100 employees. Of those concerned with administrative activities, 11 percent are concerned with recruiting, 8 percent with benefits administration and 7 percent each with background screening and safety. 5

What About Retention? When it comes to recruiting and retention, a large majority of respondents (62 percent) are concerned with finding good talent. This is the top concern for respondents from companies of all sizes and industries. Other concerns include competing with larger and better-known companies for the same talent pool (20 percent), younger workers with unreasonable demands (11 percent), older workers transferring out of the workforce (4 percent) and the need for international workers (2 percent). The greatest number of respondents (20 percent) indicated that compensation would primarily help them retain talent, followed by working environment (18 percent), developing skilled management and leadership (16 percent), growth opportunities (14 percent), meaningful work (13 percent), recognition (9 percent), benefits (8 percent) and expanding skill base (2 percent). Benefits of HR Outsourcing Competitive Advantage According a 2007 HR trends forecast, U.S.-based companies are predicted to further their HR outsourcing strategies in order to remain competitive amid a tightening labor supply in the U.S. 1 Small and medium-sized companies are expected to increase their adoption of HR outsourcing. Furthermore, research by the Society for Human Resource Management (SHRM) indicates that these small to mid-sized companies will experience cost savings and 1 Miller, Stephen. Trends in the Outsourcing, Shared Service and Offshoring Markets. SHRM.org, January 2007. 6

improved quality through the expertise of HR vendors, scalability of resources and economies of scale. 2 Cost Savings Outsourcing HR activities can result in savings from capital, labor and operating costs. According to a research report by Cornell University and Gevity Institute, small businesses can achieve 22 percent higher revenue growth, 23 percent faster profit growth and 67 percent lower employee turnover when using an effective HR management system. 3 In fact, businesses can anticipate instant savings in overall HR spending anywhere from 10 to 15 percent depending on how much of the total HR function is outsourced. 4 With the cost savings that HR outsourcing can provide, companies are able to afford better benefits for their employees benefits that are a major tool for recruiting and retaining top talent. HR vendors expertise allows them to provide HR services more effectively and more efficiently than internal resources, resulting in a decreased administrative burden for companies and more time to focus on strategic issues and core activities. Higher-Quality HR Companies can choose which HR provider they want to supply their HR services, so they are able to select the vendor they feel can provide the highest level of expertise and quality. Because these HR providers have experience and expertise, the quality of the HR services offered will be greater than a company s in-house services. 5 HR services will naturally be better than in-house activities when they are outsourced to an HR provider that specializes in supplying those services. However, the quality of those services varies among professional employment organizations (PEOs). For example, when compared to other PEOs, G&A Partners is a better choice for Texas-based companies because they are a Texas-based PEO with extensive knowledge of Texas tax statutes, pace of business and other factors integral to a business success in the state. Diminished Compliance and Liability Risks When outsourcing, much of the burden of risks and liabilities associated with compliance and other regulatory issues is shifted to the outsourcing provider instead of remaining the company s responsibility. 6 Outsourcing providers protect companies from both internal human errors, such as being caught unaware of a new personnel documentation requirement, and outside risks, such as a work-related injury, by handling many functions associated with those risks and liabilities including workers compensation and taxes. Outsourcing companies have full knowledge of workers compensation and the associated financial liabilities. They also have the ability to handle both state and federal taxes, 2 Weatherly, Leslie. (2005, September). HR outsourcing: Reaping strategic value for your organization. SHRM Research Quarterly, 3. 3 Cornell University and Gevity Institute s May 2006 Human Resource Management Practices and Firm Performance in Small Businesses. 4 Kurzner, Larry. Mid-Market HR Outsourcing: Making the Case. SHRM.org, February 2006. 5 Belcourt, M. (2006, June). Outsourcing The benefits and the risks. Human Resource Management Review, 16, 2, 269-279. 6 Cooke, F. L., Shen, J., & McBride, A. (2005, Winter). Outsourcing HR as a competitive strategy? A literature review and an assessment of implications. Human Resource Management, 44, 4, 413-432. 7

which is a significant burden for most companies because of the frequent changes made to tax codes. Conclusion Our research shows that there is a necessity for HR outsourcing in growing businesses and that these growing companies are aware of this need. However, most growing companies are not taking advantage of HR outsourcing, perhaps because they think there is a diminished benefit for smaller companies to outsource because they do not know what to look for in quality HR. While these growing companies are looking for a cheaper and more efficient way to accomplish their in-house HR functions, they lack the motivation or willingness to adopt an HR outsourcing solution despite knowing that they could benefit from doing so. In the coming months, G&A Partners will release other white papers covering topics that include: How to choose an HRO partner that complements your business How to grade HROs when you re ready to start evaluating The top five signs you should run - not walk - away from an HRO proposal About G&A Partners G&A Partners provides businesses with a full range of human resources, administrative, risk management and financial & accounting services. We work in tandem with our valued clients to position them for optimal growth. G&A handles administrative headaches and provides its clients with the most valuable commodity of all time to grow. 8