In this uncertain economic climate, many small- and mid-sized companies are looking for new ways to cut costs. Some are downsizing and leaving vacancies unfilled. Others are freezing spending and slashing budgets.
Yet astute business owners have discovered another proactive way to maintain growth and boost profits in a down economy: human resources outsourcing. (And we're not talking about sending jobs overseas.)
A Professional Employer Organization, or PEO, enables clients to cost-effectively outsource the management of human resources activities, such as employee benefits, payroll and workers compensation. According to research by the Society for Human Resource Management Foundation, PEOs allow clients to "reduce costs and free up time to devote to revenue-generating activities, improvements that can be instrumental to gaining competitive advantage." No wonder the PEO industry is growing at a double-digit annual rate and now serves an estimated 2 million to 3 million U.S. workers.
No one likes to downsize. But companies that are forced to reduce staff would be wise to have experts on their side. As trained HR professionals, PEOs can advise companies on the most effective – and legal – ways to let employees go, potentially reducing the threat of lawsuits down the road. Trends show that when the economy goes down, employment-related lawsuits go up. According to a recent survey by the global law firm Fulbright and Jaworski LLP, companies are bracing for an increase in litigation as a result of the current economic crisis; the most common lawsuits facing U.S. companies relate to labor and employment, contracts and personal injury.
Many companies are looking to downsize the departments that do not contribute to the bottom line. Human resources employees frequently fall into that category because they do not appear to directly generate profits. (Although, as HR professionals ourselves, we would argue that strong human resources departments yield happier, more productive employees.) Whether revenue-generating or not, HR functions still need to get done. That's where a PEO can come in.
According to the U.S Small Business Administration, the average small business owner spends between 7 - 25 % of his or her time handling employee-related paperwork. And a 1995 study by the SBA found that firms with fewer than 500 employees spent, on average, $5,000 per employee for regulation, paperwork and tax compliance.
Outsourcing HR can also help those firms that are in a position to capitalize on a down economy by making their companies more attractive to potential job candidates. PEOs offer companies access to more sophisticated products and services than they could afford on their own.
Bottom line: No matter how the economy impacts your firm, a PEO can help you make the most of the situation. And because PEOs are scalable and flexible, they can adjust to your firm almost as fast as Wall Street's up-and-downs. (Well, maybe not that fast...)