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Outsource Your HR


A Human Resources (HR) department is a critical component of employee well-being in any business, no matter how small. Human Resources responsibilities include payroll, benefits, hiring, firing, and keeping up to date with state and federal tax laws.

Any mix-up concerning these issues can cause major legal problems for your business, as well as major employee dissatisfaction. But small businesses often don't have the staff or the budget to properly handle the nitty-gritty details of Human Resources. Because of this, more and more small businesses are beginning to outsource their HR needs. In fact, the HR outsourcing industry is expected to grow from $13.9 billion in 1999 to $37.7 billion in 2003, according to the market research firm Dataquest.

Today, HR outsourcing goes beyond just handling payroll and benefits. Deciding which HR functions to offload and which firm to outsource to can be quite a challenge. This buyer's guide will help you to easily navigate through the process.

What is HR outsourcing?

HR outsourcing services generally fall into four categories: PEOs, BPOs, ASPs, or e-services. The terms are used loosely, so a big tip is to know exactly what the outsourcing firm you are investigating offers, especially when it comes to employee liability.

A Professional Employer Organization (PEO) assumes full responsibility of your company's human resources administration. It becomes a co-employer of your company's workers by taking full legal responsibility of your employees, including having the final say in hiring, firing, and the amount of money employees make. The PEO and business owner become partners, essentially, with the PEO handling all the HR aspects and the business handling all other aspects of the company.

By proper definition, a service is only a PEO when it takes legal responsibility of employees. But take note--some HR outsourcing services like to use the recognized term "PEO" when they handle the primary aspects of HR like payroll and benefits, yet they do not take this legal partnership.

Business Process Outsourcing is a broad term referring to outsourcing in all fields, not just HR. A BPO differentiates itself by either putting in new technology or applying existing technology in a new way to improve a process.

Specifically in HR, a BPO would make sure a company's HR system is supported by the latest technologies, such as self-access and HR data warehousing.

Application service providers host software on the Web and rent it to users-some ASPs host HR software. Some are well-known packaged applications (People Soft) while others are customized HR software developed by the vendor. These software programs can manage payroll, benefits, and more.

E-services are those HR services that are Web-based. Both BPOs and ASPs are often referred to as e-services.

Who's who?
These services listed are fairly straightforward in their own right. But the confusion comes as these services increasingly cross over into other types of services, or shed some of the services for which they are known.

For example, some BPOs will take over legal responsibility in much the same way as PEOs, while others do not. And many ASPs/e-services will also consider themselves to be BPOs because they are implementing new technology by hosting software and allowing self-service for employers and employees.

So know these service terms, but don't get too sidetracked by the names when interviewing potential outsourcing firms. The key to hiring the right outsourcing firm is knowing what services your company needs and then find an outsourcing firm that can provide them.

What can you get?

When you outsource HR functions, some services go with the "all-or-nothing" approach, requiring that they handle all your HR functions or none at all. Others offer their services "a la carte," meaning you can pick and choose from the services they offer.

Typical services include:

Payroll administration: Produce checks, handle taxes, and deal with sick time and vacation time.

Employee benefits: Health, Medical, Life, 401(k) plans, cafeteria plans, etc.

HR management: Recruiting, hiring, and firing. Also background interviews, exit interviews, and wage reviews.

Risk management: Workers' compensation, dispute resolution, safety inspection, office policies and handbooks.

Some services are full-service and will provide these as well as additional services like on-call consultants, who will come in to train or even settle a dispute.

Online services tend to be limited in their offerings, but you'll get added options like Web access, which will allow you to view information (like benefits packages) and even make changes to such information online. Most will give you and your employees access to view their benefits plans, enroll in benefits, read policies, and make changes to current data.

Even PEOs that have survived off-line since the early 1980s are starting to offer online access for certain aspects of their service (like viewing benefits packages).

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