When should you outsource HR functions as opposed to keeping them in-house?
Here are five signs that it is time to outsource payroll:
1. You Have No HR Team
Many tiny companies don't have an HR team. Instead, payroll is done by the receptionist, the office manager, or, worst of all, the owner. If you are doing your own payroll, that is several hours a week you are not spending on revenue-generating tasks.
Delegating payroll to administrative staff is better, but they are still distracted from their primary duties. Outsourcing payroll helps compensate for not having HR staff until you can afford them.
2. Your HR Team Is Stretched Thin
You do have an HR team or, at least, an HR person. However, they have many different responsibilities, such as employee relations, finding candidates for open positions, etc. These are all things that they should be doing, but adding payroll to the mix can result in overworked employees.
This is a recipe for burnout and high turnover. Payroll, which requires meticulous attention to detail but no intimate knowledge of your company, is the logical thing to take off their plates.
3. Payroll Has Mistakes
When payroll is rushed or done by an untrained person, it is far more likely that mistakes will happen. These mistakes can be extremely costly. First of all, you can end up with fines and penalties from government agencies, for example if overtime ends up being paid at the normal rate rather than time and a half. Your employees may also have a legitimate reason to file a lawsuit.
When they do so, this does not just affect your bottom line. An employee who sues you to get back pay is also an employee who is on the way out and it's likely they will take others with them. Morale is impacted and your employer brand, which helps others determine whether they want to work for you, faces serious consequences.
While outsourcing doesn't remove your payroll liability for those mistakes (unless you use a professional employer organization), it does mean it will be being done by people who know exactly what they are doing and have nothing else to worry about.
4. You Are Worried About Liability
Which you should be. Payroll mistakes introduce significant liability risk. Again, outsourcing payroll does not typically remove this liability, but if you choose the right outsourcing solution, it can.
Professional employer organizations (PEOs) can reduce or even remove your liability for payroll errors. If you partner with a professional employer, they become your employees' “employer of record.” This means the PEO can file payroll taxes for you and take responsibility for any errors. It does not mean they impact your hiring, firing, and promotion decisions.
5. Compliance Has You Confused
Do you know if you are:
- FMLA compliant
- FLSA compliant
- ADA compliant
- Etc.
If all of this has your head spinning, you need help with compliance.
This only gets worse if you have jobsites or remote employees in multiple states. Laws differ in different places. For instance, if you have a remote employee in Iowa, then that person is subject to Iowa income tax and Iowa labor laws which you, in Mississippi, don’t know.
Compliance issues only become more complex as your company grows. A PEO has a compliance team and enterprise-level HR software that checks you for errors. This scales with you as you become subject to more regulations.
Why Outsource to a PEO?
For many companies, outsourcing to a payroll processor is the obvious solution. However, their payment systems tend to result in increased costs as you grow, and what they do is very limited.
A more comprehensive form of HR outsourcing tends to be more cost-effective.
In fact, the average ROI of working with a PEO is 27.2%, making this the best way to increase the ROI of HR outsourcing.
PEOs can handle all of your routine tasks including things like benefits administration and workers' comp claims.
This does not mean you are firing and replacing your in-house team if you have one, but you can reduce the additional HR employees you need to hire to handle the task load.
If you are seeing any or all of the five signs above, then it's time to consider outsourcing to a PEO. This will free up your HR team's time, reduce mistakes and liability, and let you focus on growing your business.
