Outsource HR? You Have to be Ready
How to Know When your Business is Ready for Outsourcing HR?
For you, the small business owner, the decision to outsource HR or your human resources department is not one that should be taken lightly. By moving your HR functions to an external firm, you will be drastically changing the organizational structure of your company, which, could be for better, or for worse, depending on a number of factors. Although the choice is yours, and do not be mistaken, the choice is a daunting one, there are a number of signs that let you know that your company is a good candidate for outsourcing HR functions such as payroll, labor relations, and employee compensation. First you must identify what stage your business is in. Are you just starting your company or has it been around for a while? In his article, "At What Stage is Your Small Business Growth?" consultant Dino Eliadis explains there are 5 stages in the life cycle of a small business; they are as follows:
1. Existence
This stage is often thought of as the “start-up” period of a business, which often is the case. However, even some companies that have long been established struggle to churn out a profit. In order to reach success, growth and maturity, the small business must be able to at least break even.
2. Survival
This is the stage in which the small business becomes a lucrative endeavor and stays alive. The company is approaching the turning point in its life-span; your business goes from breaking even to generating profits because you, the owner, are truly invested in it. At this stage, you must up your game by becoming more knowledgeable, and more importantly, more profitable. Otherwise, your business will remain dormant.
3. Success
Somewhere between Survival and Success is the turning point I was speaking of. If you have truly upped the ante, as in you have developed profitable systems within your company and your employees are efficient and effective, you have reached the success phase of your company’s cycle. Here, your company is capable of staying profitable even in your absence. Many times, owners confuse the Success stage with that of Survival; a common mistake that can spell the end of your small business’s growth. Survival is dependent upon you, the owner, whereas Success stems from the company as a whole. Your company can survive if you work hard enough, but you must create systems within your company to sustain your small business.
4. Rapid Growth
This stage requires a large amount of labor and capital. At this point, your small business can potentially become a large company or a large bust. If the company is monitored to make sure that financial and physical resources can support growth, it can become the large, successful business that you desire. However, if this is not done, the Rapid Growth stage can lead to a rapid death of your company.
5. Maturity
You’ve made it. At this point, your company has reached a plateau. It has reached its growth capacity and has saturated its market. Often times, corporations at this stage are so large that they cannot react to major shifts in the market and they die out. However, if managed well, an owner can always mix things up to keep things fresh and keep the company growing. This is the ultimate goal: keep growing.
Once you have identified your company’s stage of development, you can decide whether outsourcing payroll and other HR functions is right for you. Often, outsourcing HR is best suited for the company that is somewhere between the Survival and Success stages, but it can also be helpful at the other stages. According to Dr. Lawrence M. Bienati,** in addition to assessing your company’s stage of development, there are two more considerations you must take into account when deciding to outsource HR: your company’s organizational strategy and your company’s organizational size, location, and complexity. Of course, based on your assessment in each of these areas, you can decide whether your company is a good candidate for partial outsourcing, full outsourcing, or no outsourcing at all. Usually, HR functions are divided into categories such as
• Employee Benefits
• Recruiting
• Compensation
• Employment Law/Labor Relations
• HRIS and Payroll
• Management Development
• Labor Law Compliances
• Retention of Talent
Fully outsourcing all of these functions isn’t for everyone, that’s why many PEO Companies and ASO or PEOs offer partial and full outsourcing to small firms. Running a small business, though, owners want to focus on the most important thing, making a profit. Often times, administrative tasks and endless paperwork can pull you away from this goal, so a Professional Employer Organization is a useful tool in any stage of development, especially if your firm finds itself somewhere between Survival and Success. This is a pivotal moment when you need to decide whether HR outsourcing will help push your small business to the next level. It should not be too difficult to do this, simply look over the costs and benefits of outsourcing and ask yourself the following questions:
• How much time do I, as a small business owner, have to devote to HR and compliance issues?
• What will allow my company to attract and retain the best employees?
• Is it worth losing control over HR issues in exchange for significantly reducing my HR costs?
• What is the size of my company and what stage is it currently in?
• Does my company’s organizational structure and direction warrant the use of an outsourcing firm?
• Will it cost less to outsource my HR functions rather than pay the high cost of consultants?
Ultimately, the decision to outsource your company’s HR is your own and should be done after much consideration. First identify your stage of growth. Then weight the costs and benefits. Finally decide which, if any, of the HR functions you think you need to outsource.
**Larry Bienati’s doctorate is in Business Administration and he is a consultant for large and small businesses.
About the Author
Carolyn Sokol is a frequent contributor to PEOcompare and writes about issues that may affect small businesses such as Outsourcing HR. She is a founder of PEOcompare.com which helps match small businesses with PEOs matching their particular needs. Her background is in marketing and communications, employee education and training, development of policies and procedures and the ongoing delivery of outstanding service to customers. PEOcompare.com also provides unbiased information on Regional and National PEOs.
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