The benefits to a small business of outsourcing human resources are well established. From improving efficiency to ensuring compliance with employment laws, working with a PEO can save your business time, money, and a lot of headaches.
However, deciding to work with a Professional Employer Organization (PEO) is only the first step. There are a number of important details to consider before you move forward, not the least of which is choosing the right company to work with. If you’ve decided that human resource outsourcing is the right choice for your company, use this guide to help you handle the transition the right way.
Choosing the Right Company
A smooth transition to handling HR outside of the company relies in large part on choosing the right company. Typically, most HR outsourcing is done through a PEO. Depending on the company and your needs, you can outsource all of your employee management functions, including payroll, benefits, employee management, and risk management, or pick and choose between options. For instance, you may wish to keep employee management functions like hiring and firing in-house, while shifting payroll and benefits administration to a PEO.
While pricing for a PEO varies according to the level of service you need, the size of your company, and other factors, you can typically expect to spend anywhere from $20 to $200 per employee per month, or 4 percent to 8 percent of each employee’s annual salary. However, price is not the only consideration. Experience in your field, the availability of competitive benefits, and recommendations and referrals from other companies should also influence your decision.
Communicating to Employees
Once you have chosen a PEO, communicating the changes to your employees is the next important step. In some cases, if the PEO is going to serve as your HR department, then it becomes a “co-employer,” meaning that employees will need to work with the PEO for any questions related to payroll, benefits, or other HR issues.
However, even if your PEO is only handling specific tasks, it’s important to tell your staff about the arrangement and what it means to them. When major functions like HR are outsourced, employees may feel uneasy about certain aspects of the arrangement (for instance, they may be concerned about security or who they should talk to if they have questions, or whether they will be able to get answers quickly) and it’s up to you to ease their concerns and explain the benefits of the arrangement. Stressing how working with the PEO will streamline certain functions and allow them access to a wider array of benefits at more affordable rates, and how it will solve problems that have occurred in the past will help to settle employees.
Above all, when discussing human resource outsourcing with your staff, be sure to stress transparency at all stages of the process. Provide reassurance that not only are you still in charge of the day-to-day functions of the company, but also that you and the PEO are committed to maintaining employee privacy and that the service benefits far outweigh any possible drawbacks to working with an outside contractor.
Manage the Transition Carefully
Successfully transitioning to a PEO arrangement requires more than just good communication. It’s important that you understand the contract with the PEO, and meet obligations before rolling out the co-employment agreement. For example, many PEOs require clients to provide an upfront advance of payroll and insurance premiums before the contract begins, meaning that some companies may be required to pay as much as 200 percent of their payroll and benefits expenses in a single period. As this can cause significant cash flow issues for a small business, it’s important to plan and understand the requirements in advance to avoid unpleasant surprises.
Work with your PEO to develop a transition plan to ensure that your employees do not experience disruptions to their pay and benefits once the PEO relationship begins. Have paperwork prepared prior to enrollment dates, offer information sessions and updates on where things are and what is happening when. When choosing a PEO, look for one that offers a comprehensive onboarding process and a team to help ensure the transition is a smooth one.
Maintaining the Relationship
Getting the most from your PEO relationship doesn’t mean simply passing off tasks and going about your day. As with any investment, outsourcing success relies on setting goals and measuring the results. Setting quantitative goals — such as reducing the budget, improving payroll accuracy, or reducing health insurance costs — allows you to measure the actual value of the PEO and creates accountability. Regularly measure and assess your progress, and make changes or adjustment as necessary to ensure you are getting the most value from your PEO relationship, while still maintaining employee morale and satisfaction.
Outsourcing HR functions involves a lot of moving parts, but the ultimate benefits make the work worthwhile. To learn more about how a PEO can help your organization, check out National PEO.