HR outsourcing frees company to focus elsewhere

QUESTION: Why is being an employer in Hawaii so challenging?

ANSWER: As soon as you hire your first employee, you must provide a timely paycheck, withhold and pay employment taxes, get workers’ compensation insurance, file special forms, maintain records and comply with hundreds of ever-changing employment laws. And in Hawaii, unlike in other states, employers are also required by law to provide health insurance to employees who regularly work at least 20 hours per week.

The challenge is that most entrepreneurs and business managers don’t go to school to learn how to handle the demands of being an employer. Nor do they have the time to track FMLA, COBRA, ADA, OSHA, EEO, HIPAA, ERISA, FLSA, etc. — in short, all the state and federal employment regulations they need to follow.

Q: What options are available to local employers for dealing with payroll, employee benefits, workers’ compensation and legal compliance?

A: Companies have three basic options for handling human resources administration, otherwise known as “HR” or “all that employment stuff.” One, do it yourself with your own staff. Two, outsource HR tasks to multiple providers, such as a payroll service, an insurance broker, a labor attorney, a retirement plan administrator and so on. Or three, outsource everything to a single provider.

Q: What are the benefits of HR outsourcing?

A: Whether you have one employee or 500, HR outsourcing allows your company to focus on its core business, namely, getting new customers and serving the ones you have. Depending on the capabilities of your service provider, HR outsourcing can help you increase productivity, control labor costs, minimize risk and, in the long run, increase profitability.

For many businesses the first step in outsourcing is hiring a third party to process payroll. There’s really no reason for a company to be running its own payroll.

Q: Are there different types of HR outsourcing?

A: There are two basic methods. The first is called administrative services outsourcing, or ASO, where a business outsources certain HR tasks but retains its own health insurance, workers’ compensation insurance and state unemployment insurance. In this scenario a business manages multiple vendors and assumes all employment-related risk.

The other option is outsourcing to a professional employer organization, or PEO, where the PEO not only handles all the HR administration, it provides health insurance, workers’ comp coverage, state unemployment insurance and temporary disability insurance under its own federal tax ID. This arrangement is known as “shared employment” because the PEO and its client company actually share employment-related responsibilities and risks.

Q: How can businesses evaluate and compare service providers?

A: Outsourcing payroll, benefits and workers’ comp administration shouldn’t be taken lightly. It’s important to understand that a service provider will be handling large sums of your money for payroll, payroll taxes and insurance premiums. It has to be a company you trust, especially since this provider will also be taking care of your employees in many respects.

Businesses should understand the pros and cons of the ASO and PEO outsourcing models and then evaluate vendors carefully, side by side. Don’t just compare whatever rates you’re given. It’s essential to compare apples with apples. No two service providers in Hawaii offer the same services or have the same capabilities. So, do a little digging and find out about a company’s reputation, ownership and HR expertise.

For a list of specific evaluation criteria, a buyer’s guide for Hawaii employers is available for download at simplicityHR.com/HRO.

Q: How much does HR outsourcing cost?

A: The cost of HR outsourcing for your company will depend on several factors: your type of business, number of employees, employee turnover rate, compliance issues and the types of services your company truly needs. One business may need help with employee morale, while another could have safety and workers’ comp issues that need attention.

In general, HR service providers assess their fees either as a percentage of payroll or as a flat fee per month. When comparing service plans, be sure to look at the details. Choosing the right outsourcing plan for your business is not as simple as choosing a voice and data plan for your cellphone. One size does not fit all, and the lowest bidder may not be the best choice for your company’s long-term success.