Outsourcing is a viable business management practice used by companies. Both small and large organizations are increasingly using this service for some human resource functions or all from a Professional Employer Organization (PEO).
The question of seeking PEO services is a puzzle for small and medium-sized businesses. Outsourcing is a big step to an organization’s growth, and resisting the move can be risky.
This post is a guide for you to weigh if PEO suits your business.
It is not a new practice for companies to contract services from external service vendors to perform in-house functions that are usually performed by a company. Some of the outsourced services are security, payroll, mailroom, data entry, and processing, among other services.
As an entrepreneur, employees are the most critical part of your business. Proper human resource management is crucial for your business to succeed.
For your valued employees to feel valued, the human resource department needs to be up to date and valid. The roles of human resources are overwhelming, complicated, and expensive for in-house.
More so, it may apply to small businesses, which is why they choose to subcontract the services.
The benefits of external assistance from companies that exclusively perform certain functions that were traditionally in their docket are now evident to HR professionals.
Why Companies Outsource
According to experts, any company considering outsourcing should think through its short or long-term goals. Below is a candid look into the reasons why companies outsource.
- To focus on business: Companies spend the time and resources saved focussing on their business.
- Cut on cost and increase in quality: Outsourcing companies believe that an external service provider can and will do better in providing HR functionalities and more cheaply than they do internally.
- Improved technology: A company may have fewer or no automated machines; thus, they choose to outsource from professional service providers of the same or companies with more sophisticated capabilities.
- Cope with Workload: Another reason why HR is outsourcing is that the workload is increasing, and there is no end in sight. According to a study by Olsten, eight in every ten respondents of HR (83%) agreed that workload has increased over time.
How to achieve Outsource Objectives
The responsibilities below will aid HR managers in creating and maintaining a positive, rewarding environment for employees.
To achieve these objectives, HR needs to do the following activities.
- Flexibility in balancing work to life
- Develop a culture of trust, fairness, and open communication in the organization initiated by company leaders
- Design meaningful work for each employee that brings satisfaction
- Commit to developing employees
- Offer attractive rewards better than organizations competing for like talents
- Create, stimulate a beautiful culture in the organization
- Encourage employees to take risks in decision making to develop the organization
- Provide an environment where employees have the opportunity to showcase their skills
- Avail the latest equipment and tools to maximize efficiency at work.
Risk management is a vital function that can help manage your company effectively with external HR providers.
Don’t operate without the guidance of HR specialists as it can expose your company to severe risks—in compliance and employment laws.
PEO provides the management and administration of HR functions through co-employment, meaning PEO assumes employer rights, responsibilities, and threats.
It is only possible if you establish long-term relationships with employees. An outsourced HR provider has specialized advantages of expertise in all HR functions.
Your PEO provider is likely to assign benefits specialists to carry out the following activities: coordinate retirement, health, and insurance packages.
They also hire workplace safety and risk experts and comply with safety standards and regulations. Small to medium businesses’ may not have the financial willpower to hire full-time talent in all HR functions.
HR tasks can be time-consuming, and complex and external services can save your company money. Your organization will save time by not hiring and training HR employees directly to perform duties.
A PEO provider should have trained HR experts who can handle duties competently, resulting in cost savings. Also, save you hiring expenses of temporary employees for short-term projects and also save costs on paying in-house HR staff.
Saves time Once an organization gets external HR functions done by professionals, it creates more time for the organization to focus more on strategies that bring growth and competition.
Peace of Mind. The state and federal regulations concerning employment regularly change. The most affected areas are retirement benefits, insurance claims, hiring, and firing regulations can be complicated and hectic to adhere to without proper guidance and understanding.
As a result, failure in one area can lead to massive financial consequences.
HR firms that take on responsibilities are professional; thus, they can keep up with the ever-changing labor and employment business rules and regulations, which gives you peace of mind.
Once you subcontract, the firm will work with you to review and remedy current labor practices to identify potential issues that put your business at risk.
Outsourcing improves efficiency. Bookkeepers or accountants are the key people who streamline financials in a business to avoid time wastage on those tasks.
It is the same situation with HR services that comply with audit concerns, handling issues with employees, better management, compensation strategies, and keeping employees engaged.
HR services need constant oversight because they are overwhelming and the backbone of a business. Outsourcing professional HR services will ensure that your business runs smoothly while your team concentrates on efficiency.
Outsourcing Provides Flexibility. You may need assistance if your business is going through changes. The main area being the HR to get off the ground.
Also, challenges in the industry like low turnover, low applicant levels, employee relations, you need more professional HR support to help you analyze and find solutions to these problems.
An in-house HR employee may need support from external HR professionals to help in more significant HR projects or activities. When you have external help in HR, you get flexibility and support that changes with the needs at your level.
Outsourcing Quality Services. When you decide to outsource HR services, make sure you subcontract from a firm with seasoned business experience also to receive high-quality services.
Reduce Risks Internal HR duties have risks like administering health and retirement benefits. PEO companies are more knowledgeable of HR laws and regulations, which can cushion a company from liability claims.
Increase Employee Productivity. External HR providers effectively monitor, analyze employee performance as well as implement changes to increase productivity. Give Superior Benefits Packages
Strengthen working relationships. The Human Capital Index measures a company’s Human Resource practices. It shows the strength of a relationship between a company’s effectiveness and the market value.
Good HR practices increase a company’s profits and productivity. PEO effectively handles all HR services, among other functions that help strengthen a company’s relationship with employees.
External HR service providers can handle functions like payroll processing, administration of insurance benefits, and also assist in fresh recruits and orienting employees.
More Reasons to Outsource
- Save money
- Focus on strategy
- Improve compliance
- Improve accuracy
- Lack of experience in house
- Make use of technological advancement
- Offer lacking services
Common Outsourcing Issues
It is prominent outsourcing that will bring changes to your organization. It is best not to overlook potential issues that can arise with HR subcontractors.
Clashes can happen between a company’s culture and the external firm providing services.
Take time to understand the firm you are seeking external services from and allow them to understand your organization’s culture in depth. Agree on how both parties will carry out the transition process; if they are to roll out the practice at once or in milestones.
This way, you can identify and modify the policies that are favorable to your business and what is not for you.
New Process adjustments
After an agreement on the terms and conditions with the service provider, you are set to begin working together. Communicating the latest developments to your employees and letting them understand their cooperation is essential.
As a result, the transition will be smooth, and the services will be initiated with ease.
Decision rights and authority
Make it clear who has power over what and which decisions are made by whom. Let there be a clear flow of energy to avoid confusion or internal disagreements and divisions.
Clarify what the service provider is in charge of to them and your employees.
The main reason as to why there are terms and conditions is for these exact reasons. Let both parties stick to what they signed up for, and work will flow smoothly.
How to communicate outsourcing to in-house employees?
- Be honest and communicate often
- Make an effort to pass information face-to-face.
- Be transparent
- Accommodate emotions carefully
- Understand your employees
- Let employees speak up freely.
What is the outsourcing process?
Outsourcing can be both foreign and domestic subcontracting and sometimes offshoring business services to a far country.
What are the common issues with outsourcing?
- Theoretical expectations by companies of how things will work out
- An organization’s culture and outsourcing challenges
- New process adjustments
- Rights for decisions and authority
It is difficult for a company to provide enhanced benefits packages, but HR providers have their back. Frank J. Castle is an outsourcing expert who believes subcontracting equalizes small and medium-sized organizations and Entrepreneurs who are growth-oriented to benefit greatly.
Employees are great beneficiaries, while entrepreneurs gain the freedom to focus.