When payroll started to become yet another full-time job for Jeanne Duval, co-owner and controller of River Crest Design Build, Annapolis, Md., she decided to outsource the function. Not long after, the $6 million, 33-employee company began outsourcing its human resources and other administrative tasks. “It's made our company more professional,” Duval says, “and it helps me sleep better at night.”
“We outsourced right from the beginning,” says Jason Tardiff, who began Sun-Ray Builders, Hooksett, N.H., three years ago. At first he thought that his $500,000, 10-employee business was too small to need human resources help. But now he says, “If we didn't have it, who knows how many things we'd be doing incorrectly? Just having a handbook made the gray areas black and white.”
Human resource outsourcing is a great way for smaller businesses —in particular, those with fewer than 100 employees — to get professional help with a smorgasbord of human resource tasks, such as recruiting, hiring and firing, background interviews, benefits, workers' compensation, dispute resolution, and employee handbooks, at a reasonable cost. It's a nearly $40 billion industry and growing, so there are hundreds of options.
Look for a company that offers component choice as well as a total package; you don't want more services than you need. Make sure the company is knowledgeable about your state and local laws — and will keep you informed. Think about the kind of relationship you want with an outside company that has access to your records. In general, there are three types of HR outsourcing services:
PEOs (professional employer organizations) handle all HR needs and take legal responsibility for employees. Essentially a PEO is a co-employer in your business; it can hire and fire, and can determine salaries.
BPO (business process outsourcing) is a broad term that covers outsourcing of a variety of business processes including admin, accounting, sales and marketing, and HR. BPO companies focus on supporting business functions with the latest technology.
ASPs (application service providers) host software on the Web — some of it HR software — and rent it to users.
Often, ASPs and BPOs are called “E-services,” a reference to any Web-based HR service.
Why not just hire someone in-house? “To have someone so current with laws, who we can get quick access to, we'd have to pay at least $70,000, and they would constantly have to go to school to stay up-to-date,” says Duval, who chose Paychex, after using that company for payroll.
Duval and Tardiff both use Paychex HR Premier Service ( www.paychex.com), which includes payroll services as well as comprehensive human resource management services — everything from creating an employee handbook to 401(k) record keeping, state unemployment insurance administration, employee assistance programs, flexible spending and health savings accounts, training and compliance manuals, in-house seminars, and regular visits from a company representative.
There is an upfront cost based on company size, and then a per-employee cost. Duval says she pays $7.50 per person per biweekly pay period (totaling just under $6,000 a year), and that it's well worth it. Tardiff agrees: “What it costs me versus the amount of time it takes me to do these things is worth it. They keep track of hours, vacation, etc. You don't have to worry about any of it.”