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What is the Best HR Service for Small Businesses?

What is the Best HR Service for Small Businesses?


HR outsourcing comes with many advantages for small businesses, but the success of outsourcing for small businesses ultimately depends on the type of solution you choose. Generally, you’ll want to ensure that your return on investment (ROI) covers the price of HR outsourcing. The kinds of cost savings you experience differ from service to service, which is why you need to compare the different types of small business HR outsourcing partners to find the best services.

To help you make the right selection, the following is a guide to HR outsourcing for small businesses and the different options available. 

Which HR Functions Should You Outsource? 

The type of HR outsourcing solution you choose will depend largely on the specific functions you need to outsource. Some potential aspects that outsourcing can cover include: 

Administrative Burdens 

Tasks such as payroll processing, benefits administration, and unemployment claims administration require ample attention. These and other administrative burdens can take up your HR department’s time when it could be better spent on core priorities. Through the right HR outsourcing solution, you can relieve these burdens. 

HR Compliance 

Businesses must maintain compliance with all regulations on the federal and state level. These include compliance with Occupational Safety and Health Administration (OSHA) regulations and payroll compliance with the Fair Labor Standards Act. In addition, businesses must meet general compliance with standards and acts such as the Family and Medical Leave Act and Title VII of the Civil Rights Act. HR outsourcing can help make sure a company remains consistently compliant. 

Employee Benefits 

The best HR outsourcing services will give you access to their master benefits plan, which experts negotiate using economies of scale. This means you’ll get access to Fortune 500-style plans at prices that small businesses can afford. Benefits include everything from health insurance policies to retirement plans.  

Workers’ Compensation Insurance 

The right small business HR outsourcing solution will go beyond merely finding the right workers’ comp plan for your business. Instead, full-service HR outsourcing gives access to the provider’s workers’ comp experience modifier, which can lower premiums. Your HR partner also provides the initial deposit, which enables your company to pay-as-you-go on a monthly schedule. 

What are Your HR Outsourcing Options? 

Depending on your business’s unique needs, a few different human resource outsourcing solutions are available to you. 

Dedicated Payroll Processor 

Some businesses may turn to a dedicated payroll processor to outsource HR. Normally, these organizations specialize in payroll processing, which limits their services. These solutions are ideal if you want to focus solely on payroll. However, your in-house team will still have to deal with the other administrative burdens. You also will not gain access to more affordable benefits or workers’ comp plans. 

Administrative Service Organization (ASO) 

An ASO is a type of HR outsourcing provider that offers various services and HR advice, along with administrative support. These services include payroll processing, benefits administration, and regulatory compliance. In addition, ASOs may offer administrative assistance, which could entail taking over payroll processing to give your teams more time to focus on growing your business.

Although they offer more comprehensive services than a payroll processor, ASOs won’t cover as much as PEOs. They also lack the cost-saving mechanisms of a PEO.

But this begs the question: what is a PEO? 

Professional Employer Organization (PEO) 

Professional Employer Organizations (PEOs)  are companies that offer HR services that relieve administrative burdens for internal HR teams while providing cost-savings on benefits. In the process, the PEO serves as the employer of record for employees, which means that payroll is filed under the Federal Employer Identification Number (FEIN) of the PEO. As a result, both the business and the PEO mutually benefit from a co-employment relationship. 

Because of the relationship that PEOs develop with their partners, they can handle a variety of tasks around tax, payroll, and insurance. Additionally, PEOs can help address HR compliance to ensure your business isn’t vulnerable to compliance issues. At the same time, you retain full control over day-to-day activities. 

Which Outsourced Service is Best? 

The best HR outsourcing services for you will depend on what you’re looking for in a service provider. However, PEOs are the best option for the most comprehensive services.

When making your decision, first consider the ROI of PEOs compared to payroll processors and ASOs. The fact is that PEOs are the only HR outsourcing solution with an average ROI of 27.2%. Conversely, there’s little to no evidence that payroll processors or ASOs have a positive average ROI.

The ROI of PEOs increases when you work with local PEOs that don’t have to cover the cost of nationwide ad campaigns and satellite offices. Subsequently, you get all of the services of a national PEO at a competitive price that rivals many payroll processors and ASOs. 

Choose PEOs for the Complete Coverage You Need at a Price You Can Afford 

By partnering with a PEO, you get access to everything you need with full-service HR outsourcing. Unlike payroll processors and ASOs that offer limited services and frequently higher prices, you’ll benefit from comprehensive solutions that are as cost-effective as they are reliable. Because of this, your internal teams will remain comfortable knowing your HR is in good hands. In turn, your in-house team can focus on growing your bottom line.

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Small Business, HR Outsourcing