In any company, no matter the size or the type of business conducted, the most valuable asset is people. With the right skills, attitude and motivation, people will drive profitability. So it stands to reason that recruiting, training and retaining the best people are high-priority items on business owners' agendas. These functions—along with payroll, benefits, maintaining employee records, and compliance with laws and regulations—are known as human resources (HR) management.
Unfortunately, HR management demands a lot of administrative time and resources. For small and mid-size businesses (SMBs), where owners and executives usually fill several roles, these demands often cause executives to have to choose between focusing their time and energy on HR or on ways to grow the business. It becomes a “catch-22” scenario, with negative outcomes accompanying either option. Without focusing on HR, the company will not have the right employee base to help it grow and become profitable. However, without focusing on growth strategies, a company will become stagnant, not be able to attract or retain great employees, and eventually may not be competitive enough to stay in business.
Solution
The best solution is to outsource one or more functions in the HR process. In a sense, it's like having an offsite HR department. The technology investments, as well as administrative and compliance burdens, become the responsibility of the outsourcing service provider. The HR strategies remain with the business owner.
Solution Advantages
Healthcare and Other Benefits Programs. Healthcare costs keep rising, making it cost-prohibitive for most SMBs to offer benefits programs (if any at all) that are competitive enough to attract and retain employees. An outsourcing service provider, however, has volume purchasing power that benefits each of its client companies.
Cost. The cost of performing administrative tasks, as well as the cost of investing in technology to make HR processes more efficient, is too costly for most SMBs. Studies reveal that those who make the investments usually fail in achieving a return on their investment. HR laws keep changing, and technology for HR functions keeps evolving; this results in continual investments every couple of years for software and/or hardware upgrades. It's a good strategy to transfer that burden to an outsourcer who can spread the cost among many clients instead of an SMB having to bear the burden alone.
Self-service. One of the innovations in HR functions in recent years is technology platforms that allow employees to enroll in benefits programs and access their benefits information over the Internet. By automating these functions, employees are more satisfied, and costs for the employer are lowered. Self-service platforms are cost-effective only on a large scale; thus, this innovative convenience is not possible for SMBs unless they access such a platform through an outsourcer's offering.
Liability Protection. It is particularly difficult for SMBs to manage employment liability issues arising from claims of discrimination, sexual harassment or wrongful termination because executives need to focus their attention on their customers and competitors instead of HR details. Yet, the liabilities inherent in not paying attention to these details can be dramatic. Some companies have found the cost of an outsourcer's HR services is paid for just in the money saved from employment claims. An HR outsourcing provider will not only relieve a company of the burden of paperwork associated with employment laws and regulations but also will keep its clients apprised of changes and new laws.
Staffing Issues. Conducting background checks is increasingly an important component of hiring. Online recruiting is another. Added to the usual array of staffing challenges (including career path planning, rewards and recognition, motivation and performance management, succession planning, ensuring optimum staffing levels as the business grows, training, and capturing/retaining knowledge of departing employees), SMB executives are faced with an uphill climb becoming steeper every day. The only viable solution is to outsource some or all HR functions.
Insights for SMBs
Outsourced HR services are almost always priced at a fee per employee. Thus, the more employees there are (and the more client companies an outsourcer services), the lower the rate could be. However, most SMBs do not have enough employees to be attractive to outsourcers who service large companies with thousands of employees.
SMBs should look to companies like ADP and Administaff. These are two leading companies (among others) that service as few as six employees in a company and provide excellent payroll and benefits programs as well as other services. One aspect of doing business with the type of outsourcer that services SMBs is that the client is likely to be offered “bundled” services. That is, the offer for services might include a combination of payroll and benefits (not just one of them), or recruiting and training, for example, or a bundling of 5-10 HR functions. Bundling keeps the pricing for services lower; so, although the SMB client may not opt to use all of the services in the package, it will still have to pay the package (bundled) price. Alternatively, some outsourcers offer a menu of services from which to select the functions that will be included in the bundle.
By Kathleen Goolsby
