Advantages of Human Resources Outsourcing

By DeWitt, Lyle | The CPA Journal, June 2005 | Go to article overview

Advantages of Human Resources Outsourcing


DeWitt, Lyle, The CPA Journal


Integrated human resources service providers, known as human resources outsourcers (HRO) or professional employer organizations (PEO), can provide more and less in the right circumstances: less as in less liability, lower fees, and smaller benefit hikes, and more as in more choices, more available time, greater competitiveness, and greater overall value. HRO and PEO services have been growing in popularity, especially with smaller businesses, which can leverage such services to compete with larger businesses in terms of employee benefits options and costs.

To stay afloat while healthcare costs continue to climb, many companies either slash coverage options or pass increases on to their employees; both approaches are unlikely to help attract and retain quality personnel. To remain competitive, more companies are outsourcing their benefits programs to third-party providers that can leverage their cumulative roster of participants in order to qualify for substantially lower rates.

Reducing Risk

According to the Small Business Administration, business owners spend up to 25% of their time on employee-related paperwork. Additionally, smaller companies are less likely to have a dedicated human resources specialist. The compliance requirements of 401(k) programs, the ADA, FLMA, and COBRA also represent significant liability issues. Many payroll service companies will claim they offer built-in compliance, but if an employee's benefits are interrupted because a deadline is missed, a lawsuit might ensue. One major advantage of a PEO-style benefits provider is the limitation on liability; only a PEO will contractually assume most, if not all, liabilities related to the services it provides. …

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