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  • How Outsourcing Human Resources Can Increase Business Productivity & Profitability

    Apr 9, 2020

    IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities.  Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses.  The following blog has been provided by Jason Randall, CEO of QuestCo (www.questco.net).

    How Outsourcing Human Resources Can Increase Business Productivity & Profitability

    Whether starting a new franchise or purchasing a decades-old business, that entity will be your new baby. Much like you wouldn’t leave the hospital without strapping the child into the car seat and driving 20 MPH under the speed limit, one of your top priorities will be to protect your new business. To accomplish this successfully you will need to ensure your HR is operating smoothly, and that your compliance risk is greatly decreased. Doing so will allow you to instead focus your time and attention on growing and developing your new business.

    One of the fastest ways to accomplish this is to outsource your HR to a trusted partner who already has the expertise and infrastructure you need. Even if you already have an in-house HR staff in place, working with an outsourced HR partner will benefit both your HR team and your business as a whole. An outsourced HR partner, such as a Professional Employment Organization (PEO), grows their client’s companies 7%-9% more quickly compared to businesses without a PEO.

    Size Matters

    As your company size increases, the compliance risk and burden for HR also increases. There is no silver medal for “mostly compliant;” either your company is fully compliant with all relevant laws, or your company is vulnerable to lawsuits and federal investigations.

    Mistakes as commonplace as misclassifying employees is a serious issue that leads to investigations and lawsuits that can cost hundreds of thousands of dollars in related expenses.

    Your in-house HR team (if you have one) should be able to focus on improving company culture and morale (which improves productivity). Those measures correlate with an increase in your company’s growth and bottom line. Happier employees are more productive, better team members, and remain with the company longer. This can be tough to accomplish while simultaneously keeping up with the newest regulations.

    Minimizing compliance risks is essential to avoiding government investigations or fines due to simple, preventable errors. For example, your company needs to comply with the Fair Labor Standards Act, the Civil Rights Act, FMLA, the Occupational Safety and Heath Act, and more.

    When you outsource HR for your company, you are choosing to work with HR experts who know the ins and outs of complex regulations and the best practices for compliance. Outsourcing HR can be especially beneficial when dealing with complex laws like the Affordable Care Act.

    Cost Savings

    No one takes a job in Human Resources so they can spend the day answering complex questions about benefits or re-negotiating relationships with brokers and vendors. Yet, instead of increasing productivity by creating a positive workplace culture, HR has to spend valuable hours researching the latest regulations and connecting with providers.

    A single outsourced HR partner can take the place of:

    • Payroll services provider
    • Benefits provider
    • Benefits administration provider
    • 401K provider
    • HR technology provider
    • HR advice – usually a law firm

    How effective are PEOs? 

    A 2019 study found that PEOs have an average ROI of 27.2%. Over half of those savings come from the fact that businesses who partnered with PEOs did not have to hire another HR representative. Further savings came from gaining access to better health plans with a wide array of benefits: vision, dental, disability, and voluntary benefits such as critical illness.

    Time is money, and the 27.2% ROI of PEOs does not even take into account the time saved. When HR can focus on what is important, productivity rises along with profitability. That is one of the key drivers behind the superior growth rates of PEO clients versus non-PEO clients.

    Technology can lead to further savings. For instance, PEOs offer comprehensive technology that utilizes the same software to manage onboarding, payroll, reporting, HR tasks, and employee self-service portals. The all-inclusive software will save your company money by avoiding the need for time-consuming tasks like integrating Excel, QuickBooks, and other generated reports.

    Companies that partner with PEOs experience an average cost savings of $1,775 per employee. This includes providing better benefits while reducing costs. Teaming up with an outsourced HR partner results in lower personnel costs, more affordable benefits, and expert risk management to reduce workers’ compensation costs.

    Risk Management

    Effective risk management requires a multifaceted approach involving guidance on policies and procedures as well as practical safety training. Risk management protects the company, executives, and employees. Safety programs must comply with OSHA to ensure a safe work environment. That means you need world-class safety programs to train employees to take an active role in safety and accident prevention. A safer work environment correlates with fewer accidents and fewer workers’ compensation claims, which means that a worker’s compensation insurance will cost less. Beyond that, PEOs keep you up to date with the latest regulatory changes so you never have to worry about being caught flat-footed.

    Reach Your Potential with PEOs 

    PEOs help businesses grow faster in today’s hyper-competitive HR landscape. By outsourcing payroll, benefits, and compliance, business owners can focus on profit-generating activities instead of administrative headaches. The result is happier, healthier, and more engaged workers who are ready to help you grow your new business.

    If you have questions relating to the content of this article, David O’Larey, a business development manager with Questco would welcome inquiries. Mr. O’Larey can be reached at (936) 521-5794 or David.OLarey@questco.net.

    IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

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