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Outsourcing human resources

Sarah Sommers

Let’s assess your HR IQ! See how you do on the following true or false HR Quiz:

1. I should file my employees’ I-9s with their personnel files.

2. Exempt employees are paid overtime.

3. Employers must have a probationary period for all new employees.

4. Safety committees are required in Nevada for companies that have 25 or more employees.

5. All exempt employees are salaried.

(You’ll find the answers at the end of this article.)

Confused? Not sure how to best go about navigating the ever changing world of human resources laws and regulations? Worried about compliance, but would rather be spending that time and energy on your core business strategies? These are the critical reasons why companies are looking to outsource their human resources.

Human resource departments typically are responsible for ensuring overall compliance as it relates to payroll, employment and labor practices, hiring, training and retention practices, benefit administration, training and development. For many small businesses, it makes financial sense to outsource these functions. Companies that outsource benefit from a team of HR professionals dedicated to their company’s needs including, peace of mind knowing that you are in compliance with applicable state and federal labor laws and for a price that is often much less than hiring a person with an equal level of expertise and experience. In addition to a great team of HR professionals, you also benefit from a cutting edge HR and payroll technology system that allows for both an employee and employer interface. Let’s look at the benefits that come from outsourcing your human resources.

Employee satisfaction, development and productivity

The goal of any HR department is to provide a friendly and rewarding workplace for all employees that supports the overall mission and objectives of the company. It can take more than a competitive wage and great benefits to attract and retain employees. But attracting and retaining great employees doesn’t necessarily have to cost more money either! The greatest retention and productivity tool is ensuring job satisfaction. Established job descriptions, outlining clear expectations and strategic performance reviews are invaluable in creating a positive working environment. An outsourced HR team will strategically work with a company to monitor and implement these processes noting overall improvements from years past and developing training areas as needed.

Employees also favor engaging in conversation with a third party regarding personal matters, health benefits and concerns regarding management. This supports management greatly offering them more time to work on performance and management and in some cases can reduce liability related to discrimination cases. Providing additional support through open enrollment as well as administering the benefits year round is a tremendous asset that your company can provide to your employees.

Cost savings

According to the Small Business Administration, small-business owners spend 20 to 40 percent of their time performing “non-productive” tasks. Human resource administrative functions generally do not generate revenue, and many small businesses today simply cannot afford managers dedicated strictly to HR. One way for small business owners to overcome these statistics is to outsource some or all of their HR operations. The cost of outsourcing your HR often times is less than the cost to recruit, interview, hire and train and HR manager to then perform those same functions for your company. Determine how much you are spending today on such activities, who is currently performing your HR duties? Could that individual bring more to the bottom line of your company focusing their time and attention on other activities? Outsourcing your HR services can create revenue in that key employees can go back to focusing on their primary job duties.

Compliance/risk management

According to the IRS, 40 percent of small businesses pay an average penalty of $845 per year for late or incorrect filings. Are you one of those companies? The No. 1 reason companies outsource their payroll and/or HR is to reduce liability exposure. Your company’s size, staffing ratios and core business objectives may make completing payroll tax forms, staying current with changing laws in 50 states and managing human resource investigation or issues cost prohibitive. However, if those tasks and requirements go unmanned or are managed by an individual without knowledge or expertise in human resources, you could be creating legal liability for your company that can be harmful to both your bottom line as well as your reputation.

Technology

Many companies already outsource their payroll to one of the many payroll providers. Further automation of your HR functions through an HRIS platform can help save money, reduce errors, increase security, increase productivity and likely improve employee satisfaction. With an integrated platform and employer and employee interface capabilities, employees can view their payroll records, personal files, benefit information and training resources 24/7. You can manage your group benefit open enrollment with such a platform, allow employees to update their personal information, W-4 and other functions that would otherwise required pulling a paper file and maintaining those changes and records manually. Time keeping interfaces also provide for accuracy in both time and attendance records as well as payroll. Internet hosted HR technology provides information and services to both the client and their employees that is just a click or email away.

When shopping to outsource your human resources, a couple of things can help you select the best provider for your needs and budget. Determine what HR tasks and requirements you are currently doing and the cost of doing those tasks in house. If possible, analyze how well those tasks are being performed because the liability associated with an error may increase your costs significantly. You can then shop for providers that provide the services you are looking to outsource and compare the cost of outsourcing with the cost of internal management of those functions, keeping in mind that you will have to look at whether the level of expertise being offered both internally and externally is comparable. You may find that a slight increase to outsource is a cost benefit in the long run if it provides for better overall compliance, risk reduction, higher employee morale and increased productivity.

If you are looking to increase your profits, reduce liabilities, implement strategic objectives, focus on your employees and reduce workload for some of your staff members, look to outsourcing your human resources department. It can be a successful solution for small to mid-sized companies in any industry.

And the answers to the questions above: 1. False; 2. False; 3. False; 4. True; 5. True.

Sarah Sommers is the chief executive officer of Solutions At Work, a human resources consulting firm in Reno. Contact her at 775-827-9675 or by email at sarah@mysolutionsatwork.com.