Introduction
A Human Resources (HR) department is a critical component of employee well-being in any business, no matter how small. Human Resource responsibilities include payroll, benefits, hiring, firing, and keeping up to date with state and federal tax laws.
 

Any misunderstanding concerning these issues can cause major legal problems for your business, as well as major employee dissatisfaction. But small businesses often don't have the staff or the budget to properly handle the fundamentals of Human Resources. Because of this, more and more small businesses are beginning to outsource their HR needs.
 

Today, HR outsourcing goes beyond just handling payroll and benefits. Deciding which HR functions to outsource and which firm to outsource to can be quite a challenge. This guide will help you to easily navigate through the process.

What is HR Outsourcing?
HR outsourcing services generally fall into two categories: full outsourcing or partial outsourcing:

Full Outsourcing
A professional Employer Organization (PEO) assumes full responsibility of your company's human resource administration. It becomes a co-employer of your company's workers by taking full legal responsibility of your employees, including having the final say in hiring, firing, and employee compensation. The PEO and business owner become partners, essentially, with the PEO handling all the HR aspects and the business handling all other aspects of the company.
 

By proper definition, a service is only a PEO when it takes legal responsibility of employees. But take note--some HR outsourcing services like to use the recognized term "PEO" when they handle the primary aspects of HR like payroll and benefits, yet they do not take this legal partnership.
 

Sikich Total Outsourcing

Partial Outsourcing
When you outsource HR functions, some services go with the "all-or-nothing" approach, requiring that they handle all your HR functions or none at all. Others offer their services "a la carte," meaning you can pick and choose from the services they offer.

Typical services include:

Some services are full-service and will provide these as well as additional services like on-call consultants, who will come in to train or even settle a dispute.

Sikich Partial Outsourcing

Should you consider outsourcing?
If you have fewer than 100 employees, the answer is yes. At this size, you often don't have the resources for an in-house HR staff, so outsourcing is just right for you. You don't have to worry about managing all the details that are so critical to HR in your business, and most small-business owners just don't have the skills and experience to do so. Remember, HR functions must be handled correctly as close to 100 percent of the time as possible; slip-ups can cause your business major problems.

If you have at least 12 employees, consider a PEO. Most PEOs only take on businesses with at least a dozen employees. Get recommendations and references for PEOs, and consider one that is part of the NAPEO (National Association of Professional Employment Organizations). The NAPEO is committed to educating PEOs. If a PEO is a member, it's a good sign that they are committed to being the best in the field.

If you're uncertain about outsourcing everything but know you don't have the staff or experience to keep it in-house, try outsourcing only certain parts, such as payroll and benefits. 
 
Whatever you decide, make sure to keep your employees in the loop. They will appreciate knowing that you are seeking the most affordable solution for the business while doing your best to meet their needs.


What to Look for in a PEO

Expertise
Make sure the PEO is qualified in the area where the most expertise is needed. PEOs tend to have specialized HR expertise in different areas. For example, if you are concerned with Workmans Compensation issues and providing a safe environment, look for a PEO with expertise in this area to develop policies and create an internal safety committee.

Credentials
Check to see if the PEO is a member of NAPEO, which trains and educates PEOs. Request client and professional references. Review the PEO’s administrative and risk management services. Does the staff possess relevant professional designations?
 

People
Assess your workplace to determine your HR and risk management needs. Meet the people who will be serving you.

Stability
Check the PEO’s financial background and ask for bank and credit references. Ask for proof that payroll taxes and insurance premiums have been paid.

Insurance
Understand how the employee benefits are funded. Are they full insured or partially self-funded? Who is the third party administrator or carrier?

Terms & Conditions
Determine if the benefits being offered fit the needs of your employees. Review the service agreement carefully. Are responsibilities and liabilities clearly stated? What guarantees are provided? What provisions exist to allow for cancellation?