As much as some in the HR community may worry outsourcing HR duties could lead to less job opportunities for HR pros, that’s just not the case. Outsourcing doesn’t necessarily mean off-shoring, and Professional Employment Organizations (PEOs,) in the US need employees. For many small and large corporations, outsourcing time consuming and often expensive HR functions can end up being a wise choice. In fact, in a survey by Next Level HR Solutions, of 125 large organizations, 85% said they had gotten everything they wanted out of their PEO. 89% said they were content with outsourcing their HR needs. Of course outsourcing isn’t for everyone, but it’s good to know whether or not it’s right for your organization. I’ve compiled a list of signals that outsourcing your HR functions, may be the right choice.
1. Your HR costs are, or will be, 15% or more of total payroll.
According to Julie Sloan in her article for Fortune Small Business Cure your HR Ills, she explains that the most expensive third party HR firm you are ever going to hire, is about 15% the total cost of payroll. Depending on your needs, you can get some PEOs for significantly less, down to under 3% of your total payroll. When you take into account the labor that goes into performing essential, but not profit earning duties, the cost of HR can really add up. If it ends up costing you over 15% of the total payroll costs to accomplish necessary HR functions and compliance, it might make sense to hire a PEO.
2. If you feel you can’t keep up with industry labor laws.
A report by ADP Research Institute, Competition, Cost Control & Compliance Strategies to Navigate a Changing HR World, attempts to touch on the subject of compliance. The report states that “50% of companies expressed a lack of confidence in their ability to keep up with their regulatory requirements.” If you feel your company is at risk of a law-suit because you can’t keep up with all of the ever-changing legal requirements HR must implement, and train employees in, perhaps you should consider outsourcing HR. The price of HRO continues to decline when you factor in compliance and liability issues.
3. You can’t afford to keep up with the constantly changing IT needs associated with HR.
As I’ve mentioned countless times before in this blog, HR and technology go hand in hand. As a result, the costs associated with keeping HR software and other technology current, can be fairly high. Some businesses simply don’t have it in their budget to be constantly updating and changing their technology. Purchasing the necessary software to perform HR properly, is just one more cost you can reduce or even eliminate with HRO.
Everyone wants their business to succeed, and as a result sometimes we have to admit we need help from an organization outside of our own. HRO has been shown to reduce overall HR costs by 15%-20%, Brian Andrew claims in his article, HR Outsourcing Can Boost Savings and Service for ASTD (American Society for Training & Development.) If it makes financial or legal sense to hire a PEO, then you should highly consider it. Many organizations save money, and provide better services by doing so. As far as HR pros are concerned, look at the growing numbers of PEOs (they’re expected to grow by 16% a year, according to the same ADP report mentioned above,) as an opportunity, not a threat.