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Outsourcing Your Human Resources

Adapted from content excerpted from the American Express® OPEN Small Business Network

For many small business owners, dealing with the multitude of employer responsibilities - from creating competitive benefits packages to complying with ever-changing government regulations - can be a significant hassle. Unlike large businesses, smaller firms often cannot afford to run a dedicated human resources department to deal with these issues. As a result, the responsibility often falls to the owner, who may have neither the time nor the experience to handle these tasks effectively.

One increasingly popular option for small businesses is to outsource HR responsibilities to a Professional Employer Organization (PEO). These firms are essentially human resources specialists who can provide a variety of support functions without huge overhead. They typically offer a number of HR-oriented services, including benefits, government compliance, employer liability management, payroll and employment administration, employee recruitment, and training and development.

In order to provide these services, the PEO must enter into a co-employment relationship with the business and its employees. This contractual relationship allows the PEO to assume or share many employer responsibilities and risks. The PEO takes on the business of employment administration, leaving the business owner free to concentrate on productive ways to improve his or her bottom line.

PEO Services

PEO services typically cover a range of HR functions, including:

  • Benefit Management - PEOs use economies of scale to provide strong benefit plans at competitive rates, a significant inducement for attracting and retaining key employees. This can allow a small business to offer benefits that they might not otherwise be able to afford, such as medical, dental, vision, disability, life insurance, educational reimbursement and employee assistance plans.

  • Government Compliance - A PEO can help your business keep current with the ever-changing alphabet soup of employment-related government regulations.

  • Employer Liability Management -- A PEO can effectively manage your employer obligations, resulting in lower risk and reduced liability to your valuable business. A PEO can assist with workers' compensation coverage and claim resolution, safety reviews and policy development, unemployment claims, employee handbooks, personnel guides, termination assistance and much more.

  • Payroll & Employment Administration - PEOs can legally take on the responsibility of payroll, payroll taxes, garnishments, quarterly reports, employment verification and human resource management reports. By using a PEO for these responsibilities, you will have more time to devote to your business.

  • Recruiting & Selection - Many PEOs can create job descriptions, write and place ads, review resumes, test and interview job candidates, and conduct background checks.

  • Training & Development - A good PEO can analyze your training needs, then provide the right courses to improve employee performance and productivity.

Choosing the Right PEO for Your Business

As with any outsourcing contract, it pays to consider several PEO vendors in order to find the one that meets the needs of your business. Some of the factors you might want to consider include:

  • What will it cost? Find out what services the PEO offers and whether or not those services are included in the base price or cost extra.

  • Is the PEO financially strong? Check out the credentials of the companies you review. Are their finances in order? Choose a PEO as you would a banker. You are looking for a stable, well-run company with whom you feel secure.

  • Establish credibility. Has the PEO been in business very long? Do they have a good reputation? How are they regarded within their own industry?

  • Ask questions about customer service. How are their services implemented? Who will assist you when you have questions? Obtain the results of customer service surveys, if they have them.

  • What technological capabilities do they have? Technology has become one of the most important aspects of doing business in America today. Are they current with the latest technology? Do they have online capabilities that will enable you to interact with them at your convenience?

  • Ask for referrals from current and former clients. Find out the good and the not-so-good about each PEO.


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