Why are Human Resource Outsourcing (HRO) and Professional Employer Organization (PEO) a $51 billion + industry? Why are there are over 700 HR Outsourcing/PEOs working in all 50 states? Why have 50,000+ small and mid-sized business organizations bought into the concept?
Are the business owners who are into human resource outsourcing just not bright?
ARE THEY WASTING THEIR MONEY? All HR Outsourcing services have the task of selling to the small and medium business market. They sell a turnkey system of human resources that includes all or part of:
Payroll + Job Costing +Worker's Compensation +OSHA Regulation +Benefits + Ancillary BenefitsHuman Resources Administration +Regulatory Compliance
PEOs contractually assume substantial responsibilities and risks through the establishment of a co-employer relationship with workers. Simply stated PEOs mitigate a client company's risk. Does HR Outsourcing sell their services? la carte. When you start looking at the reasons a PEO could be bad for a business the list ends up being short. On most surveys, you find three main reasons that people list as potential hazards.
1. Loss of loyalty from employees = everyone entering into a PEO arrangement seems to have this initial concern - the answer is that PEOs are a co-employer of record for administrative purposes only. You're still the boss. If you do not like them, you terminate the agreement.
2. Loss of control of major issues that could face my company = the fear may exist, but fortunately, this objection is not real. The only control question is one regarding gain. You gain control of your costs and found someone else to do the paperwork, AND you will spend more time with your employees because of it. A PEO relationship allows companies to gain more control.
3. Cost = there is confusion in this area. The reason for the confusion is very simple. Entrepreneurial schools, business schools, and most other schools don't train people in this area. Literally, it is left out of the general education curriculum for business people. I went to Ernst & Young to get an answer. It has to do with the definition of, and understanding the term "Payroll Burden." Payroll Burden is ALL those things you spend on, or in support of employees that contribute to overall costs. Business people do not know what they are spending now. A lot of things get left out or counted incorrectly. Business owners currently use hard costs like FICA, SUTA, etc. as a number plus a guesstimate on the soft costs, or they use hard cost plus SBA numbers (which is better). The fact remains - the typical business does not actually know their magic number. As a result, when an HR Outsourcing/PEO company says any number, there is no data to compare it to. This means the cost can SEEM high, when it may be the same or even lower. The answer is a soft cost analysis, which most companies now have that helps the business owner discover exactly what they are spending, so they have that comparison. Historically, that payroll burden percentage as part of payroll can have a swing of 1 to 3 percent. It may be a good idea just to talk with an industry consultant to get that number. It sure would help with planning, and it's generally free. Key Point: PEOs take the variable cost of having employees, and make it a "fixed cost" - how does one measure the importance of that, in today's world? When you look at a PEO's or HR Outsourcing company's ability to deliver:
Regulatory compliance, Payroll, 401(k), Medical plans, Plans administration, Dental, Vision, Human resource consulting, Better cash flow, Predictability of employee costs, Mitigate risk,
And the list goes on... There is not a bigger bargain on the planet. Plus, clients get focused on core competencies in driving more dollars to the bottom line. This equals more profit. Finally, there is also the fact that most businesses can't afford the type of personnel that an HR Outsourcing/PEO company has. The talent pool within HR Outsourcing/PEOs is staggering. The benefits experts, human-resource experts, legal experts, payroll experts, tax and compliance experts, and safety experts could make you drool in envy.
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Author's Bio: 

A trained Data Analyst currently working at Perfect Data Entry. Having an industry working experience of 3+ years in Data Science. Has Knowledge and working experience of outsourcing data entry services