Two types of outsourcing HR
Human resource outsourcing falls under two categories. The first category is professional employer organization (PEO) and the second category is Administrative Service Organization (ASO). These, as well as a guide to outsourcing HR, are explained below.
PEO– PEO’s are usually used by small businesses to solve their HR outsourcing needs. In PEO, the outsourcing firm will hire all the employees in the organization and will put them on the outsourcing firm’s payroll. The outsourcing firm will also pay taxes as well as secure benefits and workers compensation. In order for PEO to work, the outsourcing firm will contractually lease the employees back to the hiring organization. Ultimately, PEO’s handle the administration of the back office in addition to compliance with taxes and regulations. The goal of PEO is to not interrupt business functions and to make the transition of the outsourcing as seamless as possible.
ASO– ASO is an alternative to PEO and the precise definition of what constitutes ASO will differ from various HR outsourcing firms. Often, ASO will overlap with PEO services, but ASO will always avoid the co-employment aspect of PEO outsourcing. This means that the outsourcing firm will not lease employees, and the hiring organization will use their own tax ID number instead of the outsourcing firm’s number.
Outsourcing HR services
The precise human resource outsourcing services offered will differ from outsourcing firm to outsourcing firm. However, the following list describes commonly outsourced services that can be found from almost all outsourcing firms.
Payroll: HR Outsourcing companies will administer and perform tasks related to payroll services. This can include tasks such as payroll processing and administration, billing reports (on-line options usually offered), tacking and processing of paid time off, and simplified payroll submittal.
Payroll analytics: Most outsourcing firms will provide the hiring organization with insight on payrolls. This insight usually includes payroll/billing/HR reports, payroll registers, employee data reports, job costing reports, and benefits spending.
Tax Administration: Outsourcing firms will handle the tax operations of organizations and will ensure compliance with regulations and laws. Outsourcing firms will be able to prepare and deliver electronic W-2 forms, complete processing and payment of payroll, and complete employment tax processing and payments.
Risk and compliance protection– Outsourcing firms can assist organizations in limiting risks with HR services and in being compliant with laws and regulations. Firms will be up to date on new regulations and will be able to comprehend and explain HR rules. Outsourcing firms can reduce risks related to administrating payroll, administering benefits, paying workers, and business regulations compliance.
Benefits plan– Outsourcing firms will be able to offer benefit plans for companies. Typically, outsourcing companies will provide benefit plans for disability insurance, medical insurance, life insurance, employee assistance programs, and commuter benefits.
Service tools– HR outsourcing firms will be able to offer employees of a hiring organization with tools, often on a web-based platform, to assist with performing their jobs. These tools can help manage tasks such as benefits and compensation planning, advanced analytics, and real-time data on employee hiring, employee pay, and compensation reports.
How to decide if an organization needs to outsource HR
Outsourcing HR is a large step for an organization to undertake. Companies may have trouble in deciding whether to outsource all of their HR needs or supplement their current HR department with outside assistance. The following list describes criteria that companies should consider when deciding to outsource HR and when deciding the extent of the services outsourced.
Cost-effectiveness– Hiring organizations must compile a budget to determine how much is being spent on HR. Next, hiring organizations should obtain proposals from outsourcing companies that contain a dollar amount for the services that will be provided to the hiring organization. Finally, the hiring organization should make the most cost-effective decision in whether to outsource some services or to outsource all services. Furthermore, companies should consider long-term planning in determining the most cost-effective solution. For example, it may be more expensive to switch to an outsourcing firm at first, but eventually the costs may result in a positive return of investment.
Focus on core business functions– The tasks involved with human resource management and administration are usually considered a secondary role that consumes a company’s resources and time. Through outsourcing these services, companies can focus on the core businesses that drive their company and revenue streams. Furthermore, outsourcing firms can provide legal help with complying with regulations and laws.
Access to resources: Outsourcing firms have HR resources that the average company does not have access to because the firms are built around providing HR services and thus invest in a wide range of resources. These resources often include sophisticated and advanced technology for payroll and other HR services as well as service tools to assist employees. Furthermore, outsourcing companies can provide statistics and analytics for companies to improve their HR management.
Suggested HR outsourcing companie
Emplicty– Emplicty is an HR outsourcing firm that has offices located in California and Texas. Emplicty can help organizations with payroll administration, employee benefits plans, and taxes and regulatory compliance. Emplicty will be custom tailor services, and the extent of the services based on the hiring organization’s needs and current situation. Emplicty eliminates the need for an organization to have an HR department.
ADP (Automatic Data Processing) – ADP is a large outsourcing firm that serves small, medium, and large businesses. ADP has near $10 billion in revenues and serves around 570,000 clients. ADP offers HR outsourcing services that include human resource management, payroll, and tax and benefits administration. ADP will tailor the services based on the needs of the hiring organization. ADP can help eliminate a company’s need for an HR department or can assist the HR department that is already in place.
XcelHR– XcelHR HR outsourcing is part of the XcelHR family of companies. They provide a wide range of services, including payroll, benefits, and general human resource management. XcelHR will service any type of company and will tailor the needs to fit the size of the hiring organization.