Human Resources Can Cost Your Small Business Big: Here’s 7 Areas Where Outsourcing Will Help

By PrismHR

Running a small to midsize business (SMB) isn’t easy. Among today’s biggest stressors, small business owners rank the cost of health care, tax compliance, government regulations, and finding qualified employees within their top ten challenges. 

And when it comes to managing these complex, Human Resources (HR) functions in-house, the time, cost and potential risk add up fast. Ernst & Young found the average, single HR task or entry of data costs businesses $4.39 to complete, with a seemingly simple I-9 processing coming in at $8.32. Some benefits management tasks, like obtaining and providing plan changes to employees, can average as high as $18.47 per task. Those costs are particularly draining for small businesses.    

But there is a better, more cost-effective way for SMBs to face – and overcome – the hurdles of HR.

Whether its benefits, tax and compliance, or hiring and retention, outsourcing HR functions reduces the time, complexity, cost and risk for your business. It’s a cost-effective way to provide your employees with the level of quality, choice, service and expertise they expect from today’s employer. All while protecting your company from both current and future risk – and the associated, often crippling expense.

Outsourcing gives you the freedom to get back to what brought you to where you are in the first place: the unmatched challenge and unique satisfaction that only running and growing a small business can provide.

Here are seven areas your business would benefit from outsourcing to the experts:

1. Human Resources Management: More Time to Grow Your Business

Small businesses often apply the “roll up your sleeves and do it yourself” mentality to the management of HR programs. Many companies rely on core leaders, as well as untrained, in-house employees to take on these tasks outside of their core job responsibilities. It may seem like a temporary fix, but can quickly prove to be an unsustainable solution.

Inhouse HR management by untrained employees takes away time and focus from critical business goals – with a high risk for error in a highly regulated, complicated and ever-changing discipline. Not to mention a tremendous loss of productivity. A recent small business survey found that nearly a third of businesses spend a quarter of their work time managing employee-related tasks. And while 83 percent believe spending time on HR and workforce issues is a good investment, just under 40 percent feel they spend too much time managing it on their own.

When small to midsize businesses outsource HR management (especially core functions like payroll, benefits, hiring and compliance) to the experts, they gain back the time they’ve been spending piecing together programs, along with the ability to focus more fully again on product development, sales and revenue.

One report found that SMBs that outsourced their HR management needs to a Professional Employer Organization (PEO) specifically, they experienced a return-on-investment of 27.2% (in cost savings alone), were 50% less likely to go out of business, and grew at a faster rate (7-9% on average) than their non-HR outsourcing competitors. They also averaged 5% overall higher business revenues. 


RELATED: What’s a Professional Employer Organization (PEO)?


2. Business Laws, Regulation and Compliance: Less Risk, Less Potential Fines

When it comes to following local, state and federal employment and tax laws, there’s no room for misinterpretation. Mistakes are easily made and the results are costly. The National Association of Small Businesses (NSBA) found that one in ten small businesses are fined for regulatory noncompliance each year, with the average fine coming in at $30,000.

Even something as seemingly simple as classifying employees to the IRS can become costly. The U. S. Dept. of Labor can impose fines, penalties and payment of back wages for up to three years for misclassifications and inadequate recordkeeping.

Outsourcing compliance to an expert keeps your business accurately informed, adherent with current laws and regulations, and free from crippling mistakes. It also keeps your employees safe and well cared for in their work environment – leading to higher overall satisfaction. One added bonus of working with a PEO for your compliance outsourcing is that your business will be covered under the PEO’s workers’ compensation policy. 

3. Payroll: Greater Accuracy, Speed and Reporting

Administering payroll in-house can be tedious and costly. If left open to error, it can easily snowball into larger, more complicated tax issues for an organization, including risk of penalties for underpaying or not paying payroll taxes. Small businesses trying to manage payroll on their own are more prone to common mistakes like missing deadlines, inaccurate record keeping and data entry, miscalculating overtime pay, as well as mishandling garnishments, levies and child support. In addition, small businesses often don’t have a back-up solution or software in place to handle data loss or other unforeseen mishaps.

Outsourcing payroll (driven by a solution that utilizes today’s best technology) will immediately give your organization the ability to focus less administratively, and more strategically. With the peace of mind that your company payroll is handled accurately, on time, and in accordance with the law, every time, is a tremendous asset. Plus, knowing you have the automated reporting capabilities you’ll need already in place come tax time is invaluable.

4. Benefits: Better Access, Choice and Flexibility

Increasingly, when it comes to recruiting, retention and employee satisfaction, benefits matter. Glassdoor found that job seekers classify benefits as a top factor they look for in job descriptions, second only to salary. And the Society of Human Resources Management (SHRM) reports that “organizations that use benefits as a strategic tool for recruiting and retaining talent reported better overall company performance, and above-average effectiveness in recruitment and retention compared with organizations that did not.”

But how’s a small to midsize business to compete with the big employers’ expensive, flashy benefits packages? With the help of an outsourced HR benefits solution. When a company partners with a PEO for their benefits, they become part of a larger consortium of “buyers” and with that, gain greater access to more diverse, health and retirement benefits options. They also experience better negotiating and buying power, and lower overall costs. In a recent survey of small to midsize businesses utilizing a PEO for benefits outsourcing, 63% found benefits costs to be lower than buying on their own.

5. New Employee Onboarding: More Comprehensive, Optimized and Automated Processes

For many small businesses, having a formal onboarding process is a luxury, or simply, a pieced-together program that can last a week or two. Crossing off a new employee orientation from the list is one thing, but a thorough, layered onboarding process is another.

Companies recognize they could and should be doing more. A recent Gallup poll shows that a mere 12% of organizations feel they do a great job at onboarding. And with 20% of staff turnover occurring in the first 45 days of employment (and replacement costing tens of thousands of dollars per lost employee – or up to one and a half to two times an employee’s annual salary), a strong onboarding process is a sound investment.

When onboarding is outsourced and supported by the right technology and level of automation, it can lead to more productive, efficient, and satisfied employees. And employees who stay with their employer much longer as a result.

6. Hiring and Retention: Increased Competitive Edge to Attract and Keep the Best Employees

Small to midsize businesses struggle to recruit and retain employees against their larger competitors. Knowing where, how and when to place the right job ads, as well as how to select and prioritize candidates is a complex process, and a battle often won by larger employers with bigger recruiting staff and deeper resources. Additionally, keeping employees from leaving to go to a larger competitor for higher salaries, greater career development, and advancement is a major challenge.

In a recent Work Institute Retention study, the number one reason employees reported leaving their job was because of career development. And a LinkedIn Workplace Learning Report revealed that 94% of employees would stay at a company longer if it invested in their development.

Outsourcing talent management (everything that goes into successfully recruiting and retaining employees) will enable your business to utilize the best available technologies and expert strategies to hire better employees, keep them longer, and ensure they’re getting the ongoing development, feedback and advancement they want from their employer.

7.Centralized, Online HR Program Access: Streamlined Employee and Management Experience

In today’s digital, consumer-driven world, employees expect to be able to manage their work life online in the same way they manage their life outside of work online.   Completing and submitting HR-related paperwork, viewing payroll records, enrolling in and managing benefits, as well as accessing tools related to all aspects of talent management are fast becoming the norm.

HR management is being transformed by current technologies, including cloud-based software that enables companies to centralize their offerings and allows managers to oversee programs online in one place, from any device. Meanwhile, employees can access their individual HR needs anytime, from any device. This technology makes for greater accuracy, efficiency and savings. In a recent CareerBuilder survey, 93% of companies who utilize some level of automation and HR technology saved time and increased efficiency, 67% saved money and resources, 71% improved the candidate experience, and 60% improved the employee experience.

Outsourcing in any of these core areas can help lower and prevent costs, up your business’s competitive edge, and improve the employee experience. With that, you are given more time and control to focus on what matters most. 

When HR functions are outsourced cost-effectively, to the right experts who can help manage these tasks with the best supporting technology available, you’re providing your employees with what they want and need most today, so they won’t leave you for another company tomorrow. And that higher employee satisfaction, efficiency and retention will provide greater fuel for driving your business’s overall growth.


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