TIME OUT!

Paperwork got you down? Want to focus on your core operations? Then maybe you need to think about oulsourcing your HR functions

If you're a small business owner, you probably have fond memories of the earliest days of your entrepreneurial venture when you spent most, if not all, of your time working diligently on your core products or services.

Then along came success. And along with success came an employer identification number, federal paperwork and maybe employees with workers' compensation and health insurance claims. And suddenly, you weren't just an accountant or a marketing consultant or a Tier II supplier any more. You also became a hands-on administrator wearing a dizzying array of hats.

Maybe it's time to consider out-sourcing some of those administrative functions.

Outsourcing frees you up to focus on your core competencies -- those competencies you brought to the table when you launched your business. Outsourcing also can save you money, and improve both employees' skills and the service you can provide.

Today there's a wide variety of outsourcing choices available. One of the best known is the Professional Employer Organization (PEO). These organizations form a legal partnership with business owners to handle their company's nonproductive employee administration activities, including human resources, payroll, regulatory compliance, taxes and record keeping. In essence, the PEO becomes the employer of record and "leases" the employees back to the business.

"For tax reporting purposes, the business' employees fall under our federal tax ID and are recognized as our employees," says Marc Vanderburg, marketing director of SES, a PEO in Auburn Hills that also has offices in 41 other states. "We're like a silent partner, and we can offer Fortune 500 benefits like 401(k) plans and cafeteria-style health insurance because we have the economies of scale a pool of 32,000 employees at 2,500 companies nationwide can bring."

PEOs are becoming a viable option for more and more small business owners across the United States. Since 1984, PEO participation has grown from 10,000 employees to an estimated 2 million to 3 million employees last year, according to the National Association of Professional Employer Organizations (NAPEO).

There are many benefits to such co-employment situations. First, entrepreneurs who are freed from dealing with the legal and social complexities of human resource functions, including recruiting, hiring and firing and handling the mountain of paperwork associated with benefits and payroll, find themselves with far more time to run their business. This can result in increased profitability and productivity, while reducing the headaches associated with common administrative tasks.

Another significant benefit is the level of cost savings that can be achieved. Because PEOs typically represent up to thousands of workers from many businesses, they can negotiate tremendous discounts on workers' compensation and medical benefits costs, which are then passed on to business owners. In fact, a PEG can save the average small business with one to 25 employees up to 40 percent on the cost of employment and workers' compensation, according to studies conducted by the U.S. Department of Labor, the U.S. Chamber of Commerce and the Society of Human Resource Management.

Furthermore, the benefits that can be offered to companies due to PEGs' considerable buying power often are far better than the benefits small business owners themselves can hope to afford. Typically, PEOs offer flexible-benefit medical plans, disability insurance and 401(k) retirement plans. Other desirable supplemental benefits may include adoption assistance programs, deferred compensation plans, payroll-deducted life and disability program options and travel club memberships.

Additional benefits from a PEG relationship, according to NAPEO, may include reduction of turnover among employees due to improved benefits; professional compliance with Occupational Safety and Health Administration (OHSA), the Equal Employment Opportunity Commission (EEOC), the Employee Retirement Income Security Act, and other government mandates; professional personnel services (employee handbooks, forms, procedures, etc.); reduction in accounting costs; and advice that may help employers avoid wrongful termination or negligent acts in the workplace. All of this administrative expertise and advice is available from PEOs at a cost that typically runs between 1.5 and 9 percent of the company's gross payroll.

When selecting a PEO, it's important to complete a process of due diligence to protect yourself and your employees (see chart below). Start by requesting a services proposal from the PEG, and then have an attorney review the document. It's also advisable to contact NAPEO at [phone] to find out whether the PEG under consideration is a member, since the organization upholds a strict code of ethics and professional standards.

Another option: BPO 

A variation on the PEO theme is the Business Process Outsourcer (BPO), which provides specific services in a way that's transparent to the end user. Industries that use BPOs include, but are not limited to, government, health care, legal, supply chain management and transportation. Unlike PEOs, which actually take over a company's administrative functions, BPOs focus on specific processes, such as running a data center or call desk. managing projects or administering training programs.

"We function on behalf of the client to provide entire infrastructures for a variety of technical and service needs," says Daniel Rose, CEO of edcor, a BPO based in Pontiac. "For example, we have a turnkey package for e-learning where we work with companies to set up and tear down on-site training sessions. We don't actually stand up and deliver the training; what we do is the behind-the-scenes work that makes it happen."

The cost to use a BPO varies widely and "depends on how '360' you want to be," as Rose puts it. Generally, prices vary based on volume and function, and are subject to variable setup and transaction fees.

No matter how jazzed up you may be about the benefits a PEG or BPO can bring you, it's important to remember that your employees may experience some anxiety when they see control of their company pass from the hands of their owner or boss into the hands of an outside company.

"Any time employees hear about changes in employment they are nervous, even suspicious," T. Joe Willey, a founding member of NAPEO, writes in his book "Thrive as an Employer Without the Employee Headaches" (The Aegis Group, 1994). "Overall, the service program does not interfere with the daily lives of the employees. (They) return to work at the same time, with the same wages, under the same supervisor, doing the same job as before. So there (may be) some apprehension at first, but after one or two paychecks these apprehensions drift away."

That's why CareTech Solutions Inc. of Southfield, a hospital information technology (IT) outsourcing company formed in 1998 by Compuware Corp. Chairman Peter Karmanos, treats the start of a new outsourcing relationship as an event to be celebrated -- not dreaded.

"Employees can be extremely anxious when we come in," says CareTech CEO Rich Nemisi. "'Outsourcing' is not a popular word; it implies your company is going away and people are leaving. So on our first day on site, we hold town hall meetings with employees to explain the compensation and benefits package, and we give them a CareTech T-shirt so they're proud to be part of the team. Then after about 30 days, when they see that their job hasn't changed and the world hasn't turned upside down, it's business as usual."

And while business owners may also experience some initial trepidation at the perceived loss of control over administrative functions, they soon come to appreciate the efficiency and expertise outsourcing organizations can bring.

"In the beginning, (an outsourcing company) can seem like an administrative machine," says Cathy Bramlage, office manager of Zilka Heating and Cooling in Sylvan Lake, which has used SES for the past three years. "But the peace of mind we get by using (a PEO) is worth whatever we pay. The service is in the budget now, and it's going to stay there."

PEOs at a glance

A good PEO can help employers:

* Control costs.

* Improve benefits packages.

* Reduce paperwork.

* Assure compliance with federal mandates.

* Reduce worker turnover.

PEO limitations:

* The PEO has a right to exercise certain controls over your employment policies.

* PEOs are not a way to avoid legal responsibilities or liabilities.

* The employer still must take responsibility for the productivity and conduct of the workforce.

Source: National Association of Professional Employer Organizations

Seven guidelines for selecting a PEO

1. Determine your own human resource needs. A good PEO will allow you to create a customer program of services that will meet your precise needs.

2. Thoroughly investigate the firm's financial background. In addition to requesting banking and credit references, ask for proof that payroll taxes, workers compensation and insurance premiums have been paid, and paid on time. If the PEG can't or won't provide the documentation, don't engage its services.

3. Ask for client and professional references. Then be sure to check them out.

4. Investigate the company's level of experience. sure the PEO's professional staff is experienced in key administrative areas such as human resource management, risk management. legal, finance, payroll and accounting.

5. Determine how the employees' benefits are funded. Ask whether they're fully or partially self-funded. Also ask who the third-party administrator or carrier is, and find out if the carrier is licensed.

6. Determine whether the employee benefits fit the needs of your employees. If the PEG can provide benefits that are as good as or better than what you provide, and the cost is right, it's a viable choice.

7. Review the PEG service agreement carefully and request a provision that permits you to cancel on short notice (i.e. 30 days). This gives you plenty of time to reconsider if something in the policy doesn't ring true.

Source: National Association of Professional Employer Organizations

Clip and save: 8 great HR Websites

Loads of information on the Web -- and it's all free!

www.about.allbusiness.com -- Click on "Employment and HR" and be sure to note the section that lists several standard forms you can download and use in your own business.

www.all-biz.com -- Click on "Human Resources" for links to informative articles on a variety of HR issues.

www.bls.gov -- Data from U.S. Bureau of Labor Statistics. Exhaustive -- and exhausting -- but it's probably got the material you're looking for.

www.businessnation.com -- Click on "Employment." then click on "Human Resources." Lots of helpful HR links -- but you need to navigate your way through a slew of topics.

www.hrtools.com -- Includes template for employee policy handbooks and other HR information. Registration required, but it's free.

www.ideacafe.com -- Under "Running Your Biz." click on "HR" for HR tips plus a neat "CyberSchmooze" section for sharing your HR ideas and challenges.

www.miningco.com -- Click on "Small Business," then click on "Human Resources." Includes online discussion rooms where you can swap ideas and information.

www.paychex.com -- Click on "Managing Your Employees" for articles and tips on employee benefits plus HR tools.