| uo;ve heard the news about outsourcing Human | | | | without the PEO. |
| Resources functions and have wondered if it’s | | | | What are the risks of HRO? |
| all just hype. While there is a certain amount of | | | | Companies should be very aware of their tax status in |
| marketing hype in the messages about HR outsourcing | | | | every tax jurisdiction where they do business. Kris |
| (HRO), the numbers reveal that it is a market reality | | | | Svindland of HROplus cautions that not-for-profit |
| that is here to stay. A 2004 survey conducted by The | | | | entities that are not currently paying state |
| Conference Board revealed that HR outsourcing was | | | | unemployment taxes will have to pay these taxes |
| no longer a trend, but had become the normal way | | | | under a PEO model (because the PEO is the |
| companies do business, according to the author of the | | | | employer of record). |
| study, David Dell (Tom Anderson, Outsorcery. | | | | As with any vendor relationship, there is a chance that |
| Employee Benefit News, June 2004). Consulting firm | | | | the arrangement will not be satisfactory for any |
| Nelson-Hall estimates that HRO revenue for just one | | | | number of reasons. End-to-end HRO arrangements |
| segment of the market (midmarket firmsthose with | | | | can be difficult to reverse if the PEO does not work |
| 2,500 to 10,000 employees) is projected to grow from | | | | out. Employers must protect themselves by |
| $600 million in 2005, to $1.5 billion by 2010, a growth of | | | | performing due diligence on vendors. |
| more than 100 percent (Fay Hansen, Midsize | | | | The company culture might not be amenable to |
| employers in sweet spot for end-to-end HRO. | | | | outsourcing, which could cause problems throughout |
| Workforce Management 2/12/07). A more recent | | | | the process. Employers should look at their track |
| study found that 2.5 million employees are currently | | | | record of success with major change initiatives and |
| supported by some form of HRO, with contract values | | | | should consider the level of HR control historically |
| exceeding $15 billion, with lots of market room for | | | | present in each department or division. If departments |
| growth (EquaTerra Taking the Pulse of | | | | are accustomed to a great deal of control, they might |
| Today’s Human Resources Outsourcing | | | | perceive HRO as a threat to that autonomy. |
| Market, April 2007 PDF.) | | | | Employers should work with a consultant or with the |
| If you are beginning to ask whether HRO is right for | | | | PEO itself to mitigate such concerns. |
| your company, you will soon discover that the more | | | | Moreover, companies that have outsourced several |
| you learn, the more questions you have. This article | | | | HR services are struggling to realize the benefits they |
| gives general answers to many frequently asked | | | | expected or were sold, according to a survey by |
| questions. For answers tailored to your | | | | EquaTerra, an HRO consulting firm. EquaTerra reports |
| business’s reality, contact Workforce Solutions, | | | | that the service providers and the market are still |
| a full service PEO, for a free consultation, or a third | | | | maturing, so there is some concern [
] that the |
| party consultant specializing in PEOs, such as | | | | value delivered is not enough given the cost and |
| EquaTerra or HROplus. | | | | complexity inherent in larger HRO efforts. Despite |
| What is HRO? | | | | these struggles, however, EquaTerra concludes that |
| A common industry acronym, HRO stands for Human | | | | HRO is still more successful at cutting employment |
| Resources outsourcing, and refers to the practice of | | | | administration costs than when cuts are attempted in |
| contracting with a service provider to handle functions | | | | house. (EquaTerra Taking the Pulse of |
| of an HR department that are currently handled | | | | Today’s Human Resources Outsourcing |
| in-house. HRO arrangements can be simple, involving | | | | Market, April 2007 PDF.) |
| single processes such as payroll, or complex | | | | How should I evaluate and select a provider? |
| end-to-end agreements that affect every aspect of | | | | According to the National Association of Professional |
| human capital management. | | | | Employer Organizations (NAPEO), there are |
| What is a PEO? | | | | approximately 700 organizations providing HRO |
| A Professional Employer Organization (PEO) is an HR | | | | services as PEOs, a number not including ASOs and |
| service provider with a very important difference: your | | | | other vendors who do not provide services under the |
| employees are paid under the PEO’s tax | | | | co-employment model. Having so many choices is |
| identification number, making the PEO the employer of | | | | good for the marketplace and for consumers of |
| record. This arrangement is sometimes referred to as | | | | services, but it means that selecting just one vendor |
| co-employment because your employees’ jobs, | | | | can be a daunting task. Here are some tips that should |
| locations, and pay rates do not change, but for | | | | make that selection process easier: |
| bookkeeping and tax purposes, the PEO is the | | | | Bring in a third party. Specialized consultants and |
| employer. 2-3 million people in the U.S. are currently | | | | firms, such as HROplus in New Hampshire, can get to |
| employed in a co-employment arrangement ( | | | | know your business and its culture and needs and help |
| Seems like a hassle; why bother with a PEO | | | | select a PEO that is the best fit. Kristian Svindland, vice |
| co-employment? | | | | president of HROplus, reports that his firm has contact |
| The PEO model offers several advantages, the most | | | | with or has done business with more than 200 PEOs; |
| significant being economies of scale. For example, | | | | such expertise can save you a lot of time when it |
| because your employees become part of a larger | | | | comes to due diligence. |
| pool of employees that include the PEO’s other | | | | Use a proposal process. Rather than simply |
| clients, your company can now negotiate lower group | | | | checking online for PEOs in your area and then |
| insurance rates for which you might not have qualified | | | | contacting them, generate and publicize a request for |
| in the past. (If benefits administration is part of the | | | | proposals (RFP) that spells out your needs and |
| agreement with the PEO, this negotiation is handled by | | | | expectations. The range of quality displayed by the |
| the PEO.) | | | | proposals you receive may surprise you. |
| Do state and federal tax agencies recognize PEOs as | | | | Check vendor references. Your RFP should ask |
| the employer? | | | | vendors to submit a list of clients and contacts with |
| Yes. Some states regulate PEOs differently, but all | | | | their proposals. Spend the time to thoroughly check the |
| states and the federal government recognize the PEO | | | | references of the top proposals. |
| as the employer and as the entity that is rightfully | | | | Talk to colleagues at other organizations about |
| withholding and paying taxes on behalf of your | | | | their vendor search and HRO experiences. |
| employees. Government agencies also recognize the | | | | Ask difficult questions. The information you get is |
| PEO as the employer for Workers’ | | | | only as thorough as the questions you ask. One HR |
| Compensation insurance and claims purposes. | | | | manager suggested you ask these questions:o Ask |
| What is an ASO? | | | | about historical increases in costo Ask about |
| An Administrative Services Organization (ASO) is | | | | implementation support and how they will convert |
| similar to a PEO, but employees are not paid under the | | | | existing contracts and historical datao Ask references |
| ASO’s tax ID number. ASOs offer access | | | | what they would have done differently and what |
| to their licensed or proprietary Human Resources | | | | were the big surpriseso What were the |
| Information System (HRIS), process payroll, manage | | | | references’ objectives in going to HRO, and |
| workers’ compensation and unemployment | | | | have they been satisfied?o What has been the |
| claims, like a PEO. ASOs are more effective, | | | | references’ experience in cost and service? |
| however, than PEOs at offering assistance and | | | | (How to Maximize
HRFocus, April 2007) |
| counseling in the soft side of HR, such as | | | | If I work with a PEO, what will my HR department or |
| conflict resolution, employee handbooks, strategic | | | | employees do? |
| counseling, and new-hire policies. (Kristian Svindland, | | | | One of the primary benefits of HRO is the freedom it |
| HR Outsourcing Trends and Tribulations. NH | | | | offers in how you utilize existing HR employees. |
| Business Magazine, May 2007). | | | | Because you determine which services to outsource, |
| What are shared services? | | | | you can make as many or as few changes to HR |
| Shared services is yet another HRO model. | | | | employees’ roles as your business needs |
| Rather than outsourcing services to a vendor, that | | | | dictate. They can be reassigned to strategic HR |
| management and delivery of HR functions to various | | | | initiatives, repurposed for other tasks, or can be let go |
| cost centers is standardized and consolidated. | | | | to cut costs. Kristian Svindland, vice president of |
| What are the key drivers and advantages of HRO? | | | | HROplus, a PEO consulting firm, recommends that |
| Saving money is the primary driver. Businesses are | | | | businesses with 50 or more employees hire and train |
| finding that third party service providers can handle the | | | | an HR specialist to manage the soft side of HR: |
| transactional elements of HR more efficiently than | | | | conflict resolution, recruitment, hiring, training, and so on. |
| internal HR departments, and the economy of scale | | | | With transactional functions outsourced, the HR |
| offered by PEOs brings additional savings. Moreover, | | | | manager will be able to focus on more strategic |
| employers can consolidate vendors. Instead of the | | | | aspects of HR. |
| need for a payroll provider, benefits administrator, | | | | Moreover, outsourced services need oversight. |
| COBRA administration, workers’ compensation | | | | Vendors can make mistakes, and some are even |
| coverage, and risk management compliance, all of | | | | unscrupulous. HR’s role can become one of |
| these functions can be outsourced to ASOs or | | | | training and supervising the vendor, maintaining a |
| PEOs. (Kristian Svindland, HR Outsourcing | | | | company presence in the relationship between the |
| Trends and Tribulations. NH Business Magazine, | | | | PEOs and employees, if desired. Indeed, the |
| May 2007). Companies that do so can refocus their | | | | EquaTerra survey found that, when expected benefits |
| energies on strategic initiatives and HR functions rather | | | | of HRO were not achieved, companies spread the |
| than processing paperwork and data entry. | | | | blame between their own HR departments and the |
| Organizations also turn to HRO to leverage the | | | | outsourcing vendor. One respondent insisted, No |
| vendor’s skill sets and specialized | | | | matter who is doing the outsourced work, they need |
| employeestalent they may not have in-house. | | | | to be carefully managed. Unfortunately, over time, the |
| These are advantages for the employer. What about | | | | individuals who have the knowledge of the now |
| my employees? | | | | outsourced task will turn over and the knowledge |
| Your employees benefit from a PEO arrangement as | | | | needed to ensure that all tasks are carefully done will |
| their job security increases with the decrease in your | | | | not be replaced (EquaTerra Taking the Pulse of |
| employment costs. PEOs can handle employee | | | | Today’s Human Resources Outsourcing |
| administration more efficiently, allowing you to funnel | | | | Market, April 2007 PDF). |
| the saved money into salary increases, if desired. | | | | More Questions and Answers |
| Employees also benefit from the very large purchasing | | | | These are just some of the most common questions |
| power of the PEO, which can result in expanded | | | | that employers have as they begin to evaluate HRO. |
| benefits packages that may not have been an option | | | | |