Explore the potential benefits and disadvantages when considering whether to engage a professional employer organization or put a different solution in place.
As organizations grow and hire more employees, small to medium size companies begin thinking about their human resource strategy. There are a variety of options including managing the human resource function in-house, outsourcing it to a professional employer organization (PEO), or bringing in a consultant.
When considering these options, often the cost is a deciding factor, but the value of the service doesn’t become known until the solution has already been implemented. How can a business determine the value of the different solutions?
Value is based on many variables including cost, ease of use, employee satisfaction with the tools or platform, and scalability.
Here we look specifically at the value of using a professional employer organization or PEO to handle the human resource function. The data shows that many companies decide that a PEO is the optimal solution. A PEO can be costly due to their per-employee-per-month service fee model. So, what is the promised value for that cost and does the PEO deliver on those promises?
1. Streamlined Operations
When a company partners with a PEO or professional employer organization, it typically transfers certain HR and administrative functions to the PEO. The PEO takes over tasks like payroll, benefits administration, and compliance, which means the company may have less control over these functions and the ability to make immediate changes.
Result = LOSS OF CONTROL
2. HR Programs and Benefits Packages
Professional employer organizations often offer standardized HR and benefits packages to their client companies. While this can be convenient for small businesses without the resources to handle these tasks themselves, it can limit the ability to tailor HR programs and benefits to the specific needs of the company. The PEO may have predefined options, and customization may require additional negotiations or costs.
Result = LIMITED CUSTOMIZATION
3. The PEO is the Employer
Partnering with a PEO introduces a three-way relationship between the PEO, the client company, and the employees. This complexity can create challenges in terms of communication, reporting, and employee management. It may also lead to confusion or a lack of clarity about who is responsible for specific HR-related tasks or decisions, potentially causing inefficiencies or disputes.
Result = COMPLEX AND CONFUSING EMPLOYMENT RELATIONSHIP
4. Potential Cultural Mismatch
Professional employer organizations work with multiple client companies, each with its own unique culture and values. This may result in a cultural mismatch between the PEO and the client company, which can affect employee morale and engagement. Employees may feel disconnected from the PEO, perceiving it as an external entity that doesn’t understand or prioritize their specific needs or company culture.
Result = MISALIGNED CULTURE AND VALUES
5. Cost Considerations
While PEOs can help reduce costs in certain areas, such as by pooling employees to negotiate better insurance rates, there are also expenses associated with using their services. Professional employer organizations typically charge a per-employee-per-month fee, which means the costs can vary depending on the size of the workforce. Once an organization has outgrown the PEO, terminating services can be expensive and access to data is lost. For some small businesses or those with tight budgets, the fees may outweigh the potential cost savings.
Result = FEES CAN MAKE A COMPANY A PRISONER OF THE SERVICE
Fractional HR Services
An alternative to contracting with a PEO is to utilize fractional HR professionals to support the organization. Hiring a full-time HR team can be expensive, especially for small and medium-sized businesses. Fractional HR services allow you to access professional HR expertise without the costs of a full-time team. You can also tailor the level of support based on your current needs. As your business grows or faces fluctuations in HR demands, you can adjust the services accordingly. Fractional HR service providers are typically seasoned professionals with diverse experience in various industries. You gain access to their expertise, best practices, and knowledge, which may not be available within an in-house HR team in a smaller organization. HR functions often involve significant paperwork and administrative tasks. Fractional HR services can handle these administrative burdens, streamlining processes and ensuring compliance. External HR consultants can bring an objective perspective to your organization’s challenges and conflicts, helping to resolve issues and improve workplace dynamics.
Result = EXPERT AND TAILORED HR SERVICES AT A FRACTION OF THE COST
Fractional HR Roles & Responsibilities
So, what are the roles and responsibilities offered by fractional HR Services?
· HR Specialist – An experienced Specialist can focus on one or more key areas including recruiting, onboarding, employee relations, benefits, compensation, compliance, performance management and more. A Specialist’s extensive knowledge and experience ensures that an organization adheres to best practices and legal guidelines.
· HR Generalist – A Generalist has a broad understanding of the human resources function and can apply their knowledge to tackle different HR challenges within an organization. They are a go-to resource for employees and management, providing support and expertise in many areas.
· HR Manager – HR Managers are senior-level professionals responsible for overseeing and managing the human resources department. They collaborate with senior management to develop people strategies that are aligned with the organization’s goals and objectives.
· Director/VP of HR – A Director or VP of HR is a high-level executive that plays a strategic role in shaping HR policies, programs, and initiatives to support the organization’s long-term goals. They are crucial in ensuring the workforce is well-managed, motivated, and aligned with the company’s mission and values.
It’s important to thoroughly evaluate potential benefits and disadvantages when considering whether to engage a PEO or put a different solution in place. Every business is unique and careful analysis is required to determine if the advantages outweigh the drawbacks based on specific circumstances and organizational needs. In some cases, a PEO is a PE – No.
Are you interested in learning more about fractional HR services? Contact us at 512Financial today.