Insights on When to Outsource Hiring to Human Resources Companies (PEO's)

If you are a CEO of a growing company, and are looking to outsource your hiring, you should be aware and well-informed of your options regarding these companies. Make sure your company can handle the extraneous cost and liabilities of having a Professional Employer Organization handling your human resources.

Chris Nininger, for example, won't necessarily refer you to a professional employer organization (PEO), even though he's a satisfied customer. Nininger has enlisted the duties of Payroll Solutions Plus in Roanoke, Va., to oversee the human resources duties of his Roanoke company, Bugman Exterminating. They look after everything from payroll and insurance administration to writing employee handbooks. Payroll is Nininger's de facto co-employer, acting as the official employer for taxes and payroll, even though Nininger still manages his employees. This costs Nininger about $15,000 a year, but it has saved him at least 10% on workers' compensation insurance and lets him spend more time building his $1.5 million, 15-person company.

Nininger also co-owns Roanoke's Blueberry Hill Restaurant & Lounge, where he wouldn't think of using a PEO. The general manager of that 30-person, $600,000 business is an ex-attorney with a solid grasp of HR issues. Plus, workers' comp is less onerous for restaurateurs than it is in the chemical-heavy world of extermination. Going it alone works for the restaurant, but Nininger says using a PEO for Bugman is "one of the best things I've done."

PEO's, however, aren't for everyone. Being relatively expensive, fees can run from 1% to 4% of payroll, and there's often a setup fee - usually $1,500 or more. (That doesn't include insurance premiums, which the PEO collects and forwards to the insurance carrier.) And the benefits PEO's offer aren't equally important to all companies.

Entrepreneurs considering a PEO should analyze which services they need, vs. what their current costs are. They also need to decide how much control of their business they're willing to cede to a third party. And they would be wise to ensure the PEO itself is on solid footing.

The advantages of PEO’s are somewhat obvious. You no longer have to deal with human resources issues directly. That means you can say goodbye to the days of maintaining payroll records, negotiating health insurance plans, and mediating workers’ compensation claims. This frees up time for you and your office staff to concentrate on growing your company – which is why you became a small business owner in the first place.