A professional employer organization or PEO essentially offers outsourced HR services. Going beyond simple payroll, a PEO service will typically help with things like benefit management, new employee onboarding and even recruiting services.
Since payroll and HR probably eat up a lot of your time as an entrepreneur, and regulations & compliance can be complicated, a PEO is often a good option to handle your HR needs. In the long run it can save you money, time, energy, and frustration. It can be a big investment though, especially initially. Here are four questions you should ask yourself before investing in PEO services.
How Do I Decide Between Outsourcing vs. In House HR?
While at first this might seem like a simple question, it is not without complications. There are some pros and cons of each idea and wading through them is important. Here are some basic things to consider.
- Cost: The cost of both long and short-term solutions needs to be determined. Outsourced HR has the advantage of already trained staff who are dedicated to certain tasks along with automation solutions for some of them. In house HR might cost you more at the outset, but you can hire and grow as you go along, and you have the advantage of direct control and supervision of those employees.
- Software and Office Space: Hiring your own HR department means you need a place for them to work, or you need to arrange for them to work remotely. You will also need more software and to build your own apps, programs, and spreadsheets to handle various HR tasks, or outsource those parts of HR anyway. Software, apps, and office space are all handled by outsourced HR.
- Control vs. Responsibility: Yes, you have a certain amount of control when you hire in house HR, but you have much of the same control with outsourced HR, but you have shifted some of the responsibility and even liability for issues to another company. That might make all the difference to you and your business.
These are all important considerations, but this is not the only question you should be asking yourself.
Do I Need Expert Assistance with Regulation?
Yes, you do. Payroll compliance and government regulations are getting more complex rather than simpler, and even local laws change as fast as many businesses can keep up. If you are not an expert in the payroll area or you have not hired one, you need to ask yourself if you want to become an expert in this area or outsource at least part of your HR instead. This is where PEO companies can help many novice entrepreneurs stay compliant. Regulation violations in the payroll area have been known to bankrupt startups, and you don’t want to be that kind of statistic.
What Can I Handle Myself?
This is the other question. As a solopreneur, what can you handle yourself? How many employees can you deal with and still do the other work you need to do? The answer may vary from person to person, but he number of employees you can handle yourself is probably smaller than you think.
Payroll days can be a headache, but as you get more employees, more time is spent on benefits and other HR activities on non-payroll days too. You need to take that time into account, plus the time you spend simply answering payroll questions. When you reach the point where HR and payroll are distracting from your other duties, it is time to either outsource or hire someone to take care of those things for you. More often than not, outsourcing can help save in overall costs if you’re worried about fulfilling a salary.
What Could I Do with the Time I Save?
If you had five extra hours a week or more what would you do with it? How productive could you be in other areas of business. What about that extra eight hours you spend every two weeks doing payroll? Could you use that time on clients, marketing, or sales, things that actually generate revenue for your business?
Payroll and HR are non-revenue generating activities, ones that can sap your time and energy for truly productive things. If you do not have to spend time on them, you can probably generate enough income to cover the cost of HR or PEO services. Do a simple evaluation, and determine what the numbers tell you.
Investing in PEO services is a risk for small business, but if you are at the right stage, if you can answer these four questions for yourself, you might find that PEO services are the right solution for you and your business.
Was this article helpful and informative? Leave us a comment with your thoughts in the section below.