What Can HR Outsourcing Companies Bring to Businesses Like Yours?

Once a company hires its first employee, it must comply with complex federal, state, and local employment-related rules and requirements. Company leaders also know that their employees are the backbone of their business. Supporting them with strong human resources services helps to maintain employee satisfaction and increase productivity.

Companies rely on HR to help with recruitment, onboarding, payroll administration, employee benefits administration, employee training and development, HR compliance support and performance management. In addition, HR helps companies stay up-to-date on technology and employment-related rules.

However, employing a full-service HR department isn't always viable for small and medium-sized businesses. Keeping experienced HR professionals on the payroll can be expensive. As a result, companies are seeking alternatives to handling these tasks in-house. And it has become increasingly more common to look to HR outsourcing companies for help.

There are a variety of outsourced HR service solutions. All help to relieve their client businesses of the burden of trying to handle HR functions on their own. However, these solutions have significant differences in their structures, scope of services offered, costs and flexibility.

This article provides guidance on choosing the type of HR outsourcing companies that will help to meet your specific needs.

Types of HR Outsourcing

There are three main types of HR outsourcing services: professional employer organizations (PEOs), human resources outsourcing providers (HROs) and administrative services organizations (ASOs). Although there are other ways to outsource HR functions, such as using payroll service providers, a comprehensive HR outsourcing system relies on PEOs, HROs and ASOs.

PEO

A PEO provides a full-service human resources outsourcing solution for companies that want to outsource most of their HR functions. When a PEO and a client business contract to work together, they are in co-employment relationship, and the PEO is generally the employer of record for payroll tax purposes. The PEO is responsible for calculating, withholding and remitting federal, state and local payroll taxes for the wages that is paid through its platform.

Services that PEOs typically provide include payroll services, benefits administration of PEO-sponsored benefits, workers’ compensation, recruitment tools, onboarding support, risk mitigation, HR administration and HR data analytics. PEOs also may provide greater access to a wider range of benefits than the business could access on its own.

HRO

Like a PEO, an HRO offers a wide range of HR outsourcing services. However, unlike a PEO, an HRO is not the co-employer and is not the employer of record. A business that works with an HRO generally can pick and choose the HR services it wants to outsource, selecting as few or as many as it needs.

Services offered by HROs include payroll processing, benefits administration, recruitment tools, training tools, talent management and HR compliance support.

ASO

With an ASO, as with an HRO, the business remains the employer of record. An ASO typically offers human resource outsourcing services such as payroll processing, an HR software solution, employee benefits administration, and HR expertise.

However, an ASO generally does not offer as broad a range of services as an HRO. In particular, an HRO typically provides recruitment and talent management support, while an ASO may not.

Comparison

Employer of record

A PEO becomes the employer of record for payroll tax purposes. The PEO is responsible for calculating, withholding and remitting federal, state and local payroll taxes for wages paid through its platform, administering PEO-sponsored benefits for the customer employees, providing workers’ compensation coverage and administering WC claims. With HROs and ASOs, the business remains the employer of record for its employees.

Scope of services

A PEO offers the broadest range of services, followed by an HRO, then an ASO. PEOs typically offer full-service comprehensive HR solutions, while HROs can offer businesses an a la carte selection. ASOs typically offer administrative support services only.

Employee benefits

A PEO generally provides access to premium benefits so their customers can offer employees a range of employee benefits. PEOs take on the task of benefits administration of its PEO-sponsored plans, and HROs offer benefits administration as a service that the business can select. HROs and ASOs may assist with benefits administration, but the business usually maintains more control over selecting and offering benefits.

Risk

A PEO, as the co-employer, helps mitigate certain risks for its client businesses. The PEO assumes responsibility for certain HR tasks as spelled out in the contract. With a PEO, HRO, and ASOs, the client business retains control over its workforce and complying with HR compliance.

Customization and flexibility

PEOs generally offer a standardized package of services. HRO solutions may offer more standardized packages or customizable options, depending on the provider and the client's requirements. They generally offer more flexibility than PEOs for selecting specific HR functions to outsource and for customizing services according to the client business's needs. ASOs may provide the most flexibility for client companies to choose specific services and tailor their HR solutions to meet their unique needs.

Size of businesses served

A PEO is often more suitable for a small or mid-sized business that may not have the resources or expertise to handle HR functions internally. An HRO solution can be tailored to businesses of various sizes, but is more commonly used by larger organizations that have specific HR needs or want to streamline certain processes. With an ASO, the client business remains responsible for recruiting and talent management, maintains full responsibility for HR compliance and requires in-house personnel to handle those functions.

To ensure you choose an outsourcing company that provides the HR functions you need, consider what tasks your current human resources staff lack the time or skills to handle. Use these gaps as your starting point to determine what you'll need an HR service to provide.

From there, the following steps can help you make a sound decision.

How to Evaluate HR Outsourcing Companies

To ensure you choose a company that provides the HR functions you need, consider what tasks your current HR staff lacks the time or skills to handle. Use these gaps as your starting list of what you'll need an HR service to provide.

From there, the following steps provide insight to help you toward a sound decision.

Factor in must-have specialty HR services

Some human resources outsourcing companies provide a wide range of services, from administrative tasks to payroll processing, employee benefits administration and talent management. Others are more narrowly focused, perhaps covering a number of essentials, like payroll services and tax administration. When you assess your HR needs, you might notice that certain aspects of your business require special expertise or attention. Maybe talent acquisition is an essential need for your growth in a difficult labor market. When you consider HR outsourcing, look at the full scope of needs and related services and solutions. Your business operations will most likely gain the most from a single HR outsourcing service that can meet all of your organization's objectives.

Review compliance services

Ask the outsourcing companies of interest about their security and privacy practices, including their data security policies. You should also ask if they have expertise in the applicable local, state and federal employment-related rules and requirements that may affect your business. If you operate in a highly regulated industry, consider a company that has expertise in the specific industry.

Examine data management and analytics

Being able to properly translate and use HR data is essential. A reliable small business HR outsourcing provider can provide you with workforce analytics and data-driven insights to help you make informed decisions.

Assess their reputation, reviews and track record

One of the best ways to weigh whether a company may be a good fit for you is to learn what companies like yours are saying about it. Do some research. Have they received any business awards or other accolades? Read online customer reviews, ask for recommendations, and check their success track record. When you see and hear good things repeatedly, move that service provider closer to the top of your list.

Evaluate scalability and flexibility

Include your company's growth plans in your decision-making process. Choose an HR outsourcing company that can meet your business's demands and keep up with steep growth if they need to. They should showcase their ability to adapt to your changing needs as you scale. Otherwise, mark them off your list.

Think about customer support

How attentive, astute and resourceful is the company's customer service? Slow response times and inexperienced customer service agents can make every HR function they handle for you sluggish. Dig into their customer support levels to ensure they meet your standards of excellence.

Weigh the pricing structure

Price, while not always the sole determinant in business decisions, is an important factor. Narrow your list by each company's standout features, impressive reputation, breadth of service, and customer support. Then, compare the pricing of your top HR outsourcing choices.

Keep in mind that a higher upfront cost might make sense if the service provider includes comprehensive services, extra training and robust client support.

Deciding on Outsourced HR Services

In your search to outsource HR with the right provider, you may find several promising candidates. But how can you decide for sure who to engage for the all-around HR support for your business? We recommend using a systematic approach.

An effective method for choosing between multiple top contenders is a scoring system. Objectively comparing each HR outsourcing company offers clarity regarding which ones best align with your organization's priorities. Five elements to include in your scoring sheet are:

• Cultural fit. How do each company's core values and mission align with yours? A strong cultural fit may facilitate better communication, smoother collaboration and higher satisfaction.
• Price vs. service. What breadth of service does each company provide for their pricing? Don't get hung up on a dollar amount alone. Consider the overall value and return on investment (ROI) each option brings to the table.
• Company demo. Demos are illuminating and should carry a lot of weight in your decision. A quality demo can tip the scales, as can the company's ability to show they understand and can address your needs.
• Compatibility with current systems. Your current tech stack integration capabilities with HR outsourcing company's platforms and HR software. If it doesn't, you will inevitably need more resources to complete tasks, which can decrease employee productivity. Companies that mesh well with your current operational processes should be at the top your list.
• Expertise and specialization. An HR outsourced provider with relevant expertise may give you a competitive edge and strengthen your risk management objectives. If your business needs specialized services, the companies offering those should be the ones you consider most seriously.

Record your findings on your scorecard and weigh them based on your company's unique requirements. Tally them up for the data you need to make an objective, informed decision.

Outsourcing HR with TriNet

Whether you're outsourcing limited HR functions like payroll processing and benefits administration or comprehensive HR services outsourcing, there are advantages abound. Consider it a strategic move to strengthen your culture, increase employee satisfaction and free up time to focus on building your business.

If you're looking for an outsourced HR provider, TriNet offers several advantages. From our full-service HR solution that includes 24/7 customer support, payroll processing, benefits administration, expertise and more. Reach out today so we can help you with the increasing pressures of complex HR administration and its ongoing tasks.

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

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