As we enter the current recession, more
and more firms are being faced with
the unfortunate prospect of having to downsize. Not generally viewed as contributing directly to a company’s bottom line,
the HR department is often one of the first
areas to experience the hatchet. If this happens, who will perform the company’s vital
HR functions? One option is to outsource
these tasks.
“Human Resources Outsourcing (HRO)
enables small to midsize businesses to continue offering the same services to their
employees,” says Rob Wilson, President of
Employco Group. “Additionally, outsourcing
has the added benefit of futher reducing a
company’s operating expenses.”
Smart Business talked to Wilson about
what an HRO can provide to businesses trying to stay afloat in tough economic times.
Why does an HRO make sense?
Whether a company has its own HR department or these functions are being performed
by an office manager, outsourcing some of
these important activities can be extremely
efficient from a cost standpoint. By utilizing
an HRO, a company will get the benefit of
expertise from a variety of on-staff professionals who are knowledgeable and completely up to speed on the latest regulatory
laws, federal requirements and ever-changing
issues that directly affect the bottom line.
Is this country in a recession?
Yes, and as a result companies are being
pressured by their shareholders to cut costs
wherever possible.
So how can a company efficiently reduce its
bottom line during a recession?
By outsourcing to an HRO to reduce
human resources and employee benefit
expenses.
In the wake of downsizing, businesses
often overlook the importance of retaining
their key employees. One of the added benefits of an HRO is that it allows the small to
midsize firm to provide benefits and services
typically only found at Fortune 500 companies, thereby making it a competitive employer and maximizing its employee retention.
Can a small company without an HR department succeed strictly by using an HRO?
Yes. Many firms are using an HRO organization like Employco Group and do not have
an internal HR department at all. Company
size ranges from a handful of employees to
as large as $8 to $9 million in payroll
expense. These companies have office personnel performing a variety of customer
service tasks, but the HRO handles all of
their HR needs. One of Employco’s clients
reported that it replaced between one-and-a-half to two full-time HR employees, which
translated to a savings of $100,000 to
$130,000 a year in expenses.
Are there specific benefits an HRO can provide?
A typical small to midsize company offers
medical, possibly dental and $10,000 to
$15,000 in life insurance (which barely covers funeral costs). Larger firms provide their
employees with a greater variety of options,
usually offering a mixture of company-paid
versus voluntary benefits including long-term and/or short-term disability, increased
life insurance, as well as 401(k) and 529
plans (college savings plans). Not surprisingly, many small- to medium-size businesses
cannot offer these types of saving vehicles.
A recent Kaiser Family Foundation Health
Study indicated that an overwhelming number of small businesses don’t offer flexible
spending accounts or even the pre-tax premium option. This last option is very frequently offered by large companies and functions like this: if the monthly health insurance
premium for an employee is $1,000 a month
and the employer pays 50 percent, the
employee can make his or her $500 a month
payment using pre-tax dollars instead of
after-tax dollars, thereby avoiding being
taxed on this amount annually.
Flexible spending accounts are another
benefit commonly offered by large companies but typically not by anyone else. Both
the employer and employee save payroll tax
dollars by utilizing flexible spending
accounts, which apply pre-tax dollars
toward employee-chosen benefits (including
deductible payments, adult and child day
care, eye/vision care and more). By using
this vehicle, the company and the employee
both save a considerable amount of money.
Plus, through the HRO, the company is buying its insurance in volume at a reduced rate.
By choosing an HRO, a small to midsize
company can offer the same breadth and
depth of benefits to its employees that are
provided by the large firms. Additionally, an
HRO can provide employees with discounts
on home and auto insurance, free checking
accounts and a credit union.
This can directly affect employee retention. With an HRO, an employee no longer
has to join a large company in order to
obtain great benefits.
Can a company set up an HRO even after
downsizing?
Yes, a company can contract an HRO at
any time. After HR downsizing, an HRO is
particularly beneficial. Regulatory issues will
not go away and an HRO provides the
expertise to handle these critical issues.
ROB WILSON is President of Employco Group. He can be contacted at (630) 286-7345 or [email protected].