As a small business owner or executive, you need to guide your organization and employees through challenges. This requires constant adaptation. You may target areas of your operations that could be outsourced, giving your internal team more time and effort to focus on your core needs.
One area of potential outsourcing is HR. Your business objectives of HR outsourcing (HRO) may include shedding payroll duties. You may be responsible for this right now, causing unnecessary stress and anxiety. Outsourcing your payroll needs can provide you with time savings but also cost savings. The ROI you get will depend on which HRO option you choose. There are three common HRO solutions: payroll processor, Administrative Services Organization (ASO), and Professional Employer Organization (PEO).
HRO is the practice of removing common, mundane, and complex HR duties from your plate or your team's daily duties. Commonly outsourced HR tasks include:
The essence of HRO is providing your employees with more time to do what you really need them to do. With the right HRO partner, your complex and mundane tasks are completed with little or no work from your team.
When searching for the right HRO solution, you need to evaluate what you really want from the partnership. Depending on your business and the direction you're going, any of these three options might work for you. Some clearly have benefits that others do not.
A payroll processor is the entry into HRO for many small businesses. A payroll processor does exactly what it sounds like - they handle your payroll. Nothing more, nothing less.
The upside here is that you are getting payroll experts who can handle your payroll every time you pay your employees. The downside is that you still need to review the payroll every time, taking up some of your precious resources. Another downside is that the payroll processor cannot remit your payroll taxes - they can only calculate them. So you still need to remit your payroll taxes to the correct government agencies.
An ASO can handle your payroll, just like a payroll processor. But an ASO can go a step further.
When your business partners with an ASO, you may also have access to the following services:
While this will help many small businesses, an ASO is limited in the benefits it can provide to clients. For example, an ASO will be able to help you find workers' comp insurance, but they won't be able to get you a lower rate.
Building on what an ASO provides, PEOs offer a more comprehensive option for small businesses. A PEO can provide your business with the same services offered by a payroll processor and an ASO while providing you with additional support and cost-savings.
When you partner with a PEO, you enter a co-employment relationship. This allows your PEO to become the employer of record for your employees, while not taking away any of your rights to manage your company's day-to-day operations.
Through the co-employment relationship, a PEO can negotiate benefits at scale, passing cost savings onto their clients like you. Ultimately, a PEO offers small businesses similar services as an ASO but with expanded support and a much broader service offering.
One way a PEO provides support is through employee benefits. Like an ASO, your PEO will manage your employee benefits offerings, something that can help you attract top-talent. But PEOs go much further.
A PEO will also help you find the right plans for your company and help you save money while doing it. They do this by negotiating with insurance companies to offer Fortune 500 benefits at Fortune 500 prices, giving your employees the benefits they seek at costs you can afford. Because a PEO also manages your payroll, this makes for a seamless deduction process, calculating and remitting your employee's premiums.
Getting workers' comp insurance can be challenging for many small businesses. Depending on the number of claims your company has had in the past, your experience modifier, or e-mod rate, might be high. Finding quality and affordable workers' compensation insurance might seem impossible.
But with a PEO, you can join their workers' comp plan. This may help to reduce your premiums while also setting you up on a pay-as-you-go basis. A PEO will also manage your workers' comp claims, ensuring that only legitimate claims are approved.
There are countless administrative burdens to HR. One of the most time-consuming is tax remittance, a burden your PEO will take on.
Because your PEO manages your payroll, tax remittance is a natural task for them to take on. They will ensure the calculations are accurate and that the money gets to the right government agencies. Not only that, but your PEO may also assume partial liability for any mistakes.
Your business has several options when looking to outsource your HR needs. Ultimately, a PEO is the only HRO with a positive ROI.
Learn more about the differences between PEOs and payroll providers by downloading PEO vs. Payroll Services Provider.