Outsourcing Your HR Functions...

Barbara Weltman It’s hard to wear well all the hats of a small-business owner: head of marketing, chief financial officer, head of personnel, just to name a few. You can let someone else wear your head-of-personnel hat by out-sourcing this function.

Outsourcing options

There are various types of outsourcing companies you can turn to. The labels can be confusing – you may find that a company calling itself one thing may, in fact, be another once you explore the services it offers.

Human Resources Outsourcing (HRO) organization. These are companies that provide complete administrative services for your staff. They handle payroll and workers’ compensation insurance functions as well as providing important compensation services, such as succession planning, development of job descriptions and employment law compliance.

Professional Employment Organizations (PEOs).PEOs essentially lease employees and take on payroll and workers’ compensation functions. Some PEOs may also provide benefits and resources services. Cost: Typically 4% to 8% of each employee’s pretax salary per month.

Business process Outsourcing (BPO) services. BPOs use technology to handle various aspects of business, with outsourced HR functions being only one of them. Cost: Typically $75 to $130 per employee per month; there’s also an upfront setup cost.

Application Service Providers (ASPs). ASPs provide ongoing management of a customer’s needs, such as HR functions. Cost: Typically $75 to $130 per employee per month; there’s also an upfront setup cost.

What’s in it for you?

Many small-business owners like to retain control over all their business functions. But outsourcing personnel activities can provide a number of benefits:

Save time. Small-business owners can spend up to 25% of their time handling employee issues, time that could better be spent on other things.

Avoid employment-related liability. You practically have to be a labor lawyer to know whether you’re totally compliant with all employment law issues – small businesses are exempt from some laws but subject to others. In addition to federal rules, there are state laws to consider. Breaching employment laws can result in costly litigation against you.

Even if you use an HROs to help with employment questions, make sure you carry Employment Practices Liability Insurance ( EPLI) coverage for employment-related liability (the two charges most frequently levied against employers now are sexual discrimination and wrongful termination). Some HROs may offer this coverage as part of their HR package.

Reduction of vendors. You can eliminate some of the many vendors with which you may be dealing to handle your employment issues, such as payroll services and various insurance companies and agents; using an HRO means dealing with a single vendor.

Finding the right outsourcing service

Like any good shopper, you need to know exactly what you’re looking for and what you can afford. Ask questions and comparison shop before you decide the type of outsourcing alternative and the particular company to use.


  • IBM Global Services (www-1.ibm.com/services/feature/asp_hosting_services_041101.html
  • BPO services:

  • Hughes (www.hssworld.com/bpo/default.htm)
  • HROs:

  • Aon (www.aon.com/us/busi/hc_consulting/hr_outsourcing/default.jsp)

  • Instigate, Inc.(http://instigatesolutions.com/page2.html)

  • SpectrumHR, LLC (www.pncbank.com/smbiz/0,3810,501,00.html)
  • PEOs:

  • National Association of Professional Employer Organizations (www.napeo.org)
  • Caution: There have been cases of fraud involving some outsourcing services, where employers have been left holding the fag on unpaid employment taxes that the services had promised to pay on their behalf. Unless you are dealing with a well-known company, check the service you are considering with the Better Business Bureau (www.bbbonline.org).

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