Four Options for Handling Your HR and How to Decide Which One is Right for Your Business

Business owners know the importance of HR and the crucial role an HR team plays in management, employee engagement, recruitment, and job satisfaction. It's a necessary part of the business process.

However, they might not be aware of the many options out there for managing a human resources department. The question is whether it makes more sense to keep HR and workforce management in house vs. outsource.

This article will walk you through some of these HR solutions and outline the advantages and disadvantages of each. We'll also provide practical tips on how to decide which option is best for your business and your workforce.

HR option #1: Handling human resources yourself

Many business owners start their journey as an employer by handling HR themselves or by having a member of their team—such as an office manager or in-house accountant—handle basic HR tasks like payroll and new employee paperwork.

Advantages

• Greater control. If you have the time and desire to be involved in the HR aspect of your business, then handling basic HR duties in-house can satisfy your need for control.
• A cheaper alternative for start-ups and small businesses. Doing HR yourself or assigning it to someone whom you already are paying can save resources, at least in the short-term. If your business is very small and you plan to keep it that way, this may be a viable option for you.

Disadvantages

• Takes the business focus away from the company’s core responsibilities. Most business owners do not start a company because they are passionate about HR. For the sake of efficiency, your focus should be on the big picture, not on managing HR.
• Difficult to scale. An employer with a handful of employees might be able to maintain control over the company’s HR needs. That changes when business starts booming and they then have more employees and more issues than they are prepared to handle. Business growth is the goal of most businesses and it's important to keep scalability in mind for strategic planning purposes.
• Compliance risk. Employment-related rules and requirements that affects small and midsize businesses (SMBs) is constantly changing. This makes workplace compliance difficult even with an HR team. Penalties for non-compliance can include hefty fines, lawsuits and even criminal charges.
• Limited expertise. We can all agree that HR is a difficult topic to master. For example, are you on top of the constant changes to the Affordable Care Act? Do you know what to do if one of your employees files a sexual harassment claim against their manager? Do you know what may be needed for HR policies or an employee handbook—or even why you need them? Designating someone in house to “pinch hit” on HR serves as a band-aid, at best. A lack of expertise could create expensive problems.

HR option #2: Hire an in-house HR team

Another option is to go beyond option #1 and to keep HR in-house by hiring someone with skills, training and experience in HR (or a team of HR professionals) who works for your company and focuses strictly on your HR needs.

Advantages

• Satisfies any desire for control. As with option #1, if a business owner really wants tight control over their HR, this is one way to keep it.
• May make sense for larger companies. For companies with hundreds of employees who are growing out of their SMB phase, it may very well make good business sense, from a cost-benefit point of view, to create an in-house HR department.
• Cohesive company culture. Having an in-house HR department, especially staffed with existing employees, supports that the HR team truly understands company culture. Because they are in-office, they can be connected with organizational culture in real time.

Disadvantages

• Can be pricey. An experienced and knowledgeable HR professional or a team of HR professionals does not come cheap when you’re solely responsible for their compensation. It takes a certain level of revenue to justify this option.
• Still takes the business focus away from the company’s core responsibilities. In-house HR means more employees—and managing more employees usually results in less time focusing on your core business.

HR option #3: Outsourcing HR to multiple vendors

If you’ve decided against handling HR in house, then the clear choice is to outsource. Outsourcing HR presents two options, which we’ll discuss in the remainder of this article. The first outsourcing option is to hire multiple vendors to fulfill your HR needs.

This means one vendor for payroll outsourcing, one vendor for benefits, maybe another to help with compliance and so on.

Advantages

• Helps with scalability. This option can be more scalable than having in-house HR because you won’t have to worry about staffing and integrating your HR outsourcing companies while you’re busy running your business.
• Helps in mitigating risk. Hiring professional vendors for your HR needs allows you to tap into HR expertise that you might not get from handling HR in-house.
• Flexibility to choose the features you need. Hiring multiple vendors may make it easier to select—and pay for—only the services you absolutely need.
• Cost. By choosing only the features you need, this option can help optimize operation costs while enhancing organizational development overall.

Disadvantages of outsourcing HR to multiple vendors

• Multiple vendors still create additional work. Just as overseeing an in-house HR team means more work for you, having to juggle different HR service providers can be cumbersome. It can also cost time and money to research and select multiple vendors, as well as monitor their performance and manage agreement renewals.
• May not understand your business. Each vendor might be expert at handling a particular HR function. None of them, however, may understand the particular needs of SMBs or of companies in your industry.

HR option #4: Hiring a PEO as a single-vendor solution

A professional employer organization (PEO) is a comprehensive-vendor solution that provides SMBs with human resources services such as payroll processing, payroll tax administration, employee benefits, workers’ compensation and HR expertise. When working with a PEO for HR services, your company enters into a co-employment relationship.

Under a co-employment business model, certain responsibilities are contractually allocated between the PEO and its clients. This model allows the clients’ employees to receive the full benefit of the PEO’s services, software systems and expertise.

Advantages of outsourcing to a PEO

• Flexible, scalable. A comprehensive PEO can help your business scale. For instance, TriNet provides a full-service HR solution that includes an HR platform to handle as few as one and as many as 1,000 or more employees. A PEO can also provide employees with access to employee benefits that are similar to big companies to promote talent acquisition and improve employee retention. It also features the ability to include additional value-added services as your business grows.
• Access to “big company” benefits and experience. With access to more premium benefit options for employees and their families, PEO clients can help you attract top talent in a competitive job market. It can also help with retention. A PEO can help you access benefits so you can offer to your employees:
  • Healthcare benefits.
  • Retirement benefits, including 401(k) plans.
  • Additional value-added benefits such as wellness plans, pet insurance and perks.
• HR expertise. Another major advantage of engaging with certain PEOs, like TriNet, is it affords the employer assistance with individual HR questions, needs and changes of their employees. An HR expert can help provide best practices on difficult employment-related questions including things like benefits, performance concerns and best practices for leadership. They can also help provide best practices on harassment claims, creating or updating your employee handbook, and keeping you abreast of constantly changing federal, state and local employment rules and requirements that affect your business.
• Ongoing HR compliance support. The modern employer is responsible for maintaining compliance with thousands of employer-related rules and requirements. The right PEO can help you mitigate the risk involved with this overwhelming task by providing you with tools such as workplace safety and harassment-prevention guidance, employment practices liability insurance and guidance on compliance with the Affordable Care Act. This is one of the many ways that HR support services can free you up to manage the day to day business operations.
• Improves workplace efficiency. By automating essential HR processes like training and development, a PEO can significantly help improve workplace productivity. Self-serve portals and mobile apps give employees convenient access to information and enables them to enter their own information for various functions. Employees are then able to focus on high level tasks without having to worry about menial, but necessary labor.
• Cost-effective. If what you're looking for is a comprehensive solution including an HR platform for human resource management, a PEO can be a cost-effective solution. Paying for services individually can quickly add up and the costs of a professional in-house HR department can be astronomical. In contrast, HR outsourcing costs can provide an excellent return on investment.

What to look for when selecting a PEO

No two PEOs are the same. If you decide that the PEO option is right for your business, it’s important to perform your due diligence before selecting a PEO.

Here are some things to consider:

• What products or services are included?
• Does the pricing make sense? In the PEO market, a price that looks too good to be true probably is. Low initial introductory rates may increase within a short period of time. Find out what the pricing is based on. Consider what services you’d like to invest in and shift to a PEO. Weigh the cost of working with the PEO against how much it would cost you—in money, time and possibly disastrous HR mistakes—to try to perform HR tasks internally. When it comes to PEOs, the cheapest option frequently isn’t the best one.
• Verify their accreditation. PEOs are part of a regulated industry. Organizations such as the Employer Services Assurance Corporation and National Association of Professional Employer Organizations monitor PEOs for adherence to important financial, ethical and operational standards.
• Geographical coverage. Be sure to confirm the PEO can serve your business in all cities, states and jurisdictions where you have employees.
• Hire a PEO that understands your industry.
• Understand the transition process. Does the transition process involve staff training? What are the expectations for you as a client?
• Look for enterprise-level employee benefit options. Employees need a PEO that provides access to top provider network and modern administration systems.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

This post may contain hyperlinks to websites operated by parties other than TriNet. Such hyperlinks are provided for reference only. TriNet does not control such websites and is not responsible for their content. Inclusion of such hyperlinks on TriNet.com does not necessarily imply any endorsement of the material on such websites or association with their operators.