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IS IT TIME TO OUTSOURCE

YOUR HUMAN RESOURCES?

THE STATE OF THE US ECONOMY, THE CHALLENGES

FACING EMPLOYERS TODAY, AND THE HUMAN

RESOURCES OUTSOURCING SOLUTION

A WHITEPAPER BROUGHT TO YOU COURTESY OF

CPEHR.

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INTRODUCTION For small- and medium-sized employers in the United States today, running a business can be a daunting proposition. An uncertain economy, onerous federal employment programs, and intensified government oversight have combined to create a business climate unlike any other in history. When it comes to effectively and efficiently managing the human resources functions for a company with 50 or fewer employees, most business owners struggle to balance resources with needs. This whitepaper explains the environment faced by today’s small to mid-size employers and offers insights into possible solutions.

MARKET FACTORS AFFECTING

EMPLOYERS Gone are the days when a business owner could simply hire staff and focus on productivity. Today’s employment environment is heavily influenced by a number of market factors that combine to create a challenging situation for even the most savvy business owner. Uncertain Economy It is no secret that the United States’ economy has been in a state of uncertainty since the 2009 recession. The International Monetary Fund (IMF), the entity that tracks the global economy, recently issued its second downward revision for the U.S. economy in two months. Growth expectations were cut to 1.7%, the weakest annual forecast since 2009. Likewise, Americans are demonstrating their lack of economic confidence in a very significant way. New housing construction recently sank to its lowest pace in 9 months. This is a key indicator of consumer confidence, in that people buying new homes tend to spend money on other consumer goods like home appliances and

furniture. When new housing starts fall, it is a clear sign that consumers are nervous about the economy and battening down the hatches to conserve financial resources. Of course, all economic news is not doom and gloom, as consumer confidence overall hit a seven year high in June 2014. While this should be an encouraging statistic for business owners, the reality is that overall uncertainty in the U.S. economy continues despite this positive note. It is this economic ambiguity that makes it difficult for businesses to move forward with confidence.

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Obamacare/ACA When the Obama administration introduced its wide-sweeping national healthcare mandate, commonly known as Obamacare, the world of employment governance was turned on its head. With over 10,500 pages of rules, guidelines and definitions, Obamacare ushered in a new era of byzantine employment regulations previously unheard of in the country’s history. To make matters even more complicated, Obamacare itself remains in a constant state of flux, including the delayed implementation of numerous provisions, uncertainty related to mandated reporting structures and a Supreme Court lawsuit related to subsidies. With all the complexity that Obamacare brings, it takes a legion of experts to understand and properly comply with this program.

Renewed Legislative Enforcement In response to the Obama administration’s push for greater governmental oversight, a number of initiatives from various government agencies, including the Equal Employment Opportunity Commission (EEOC) and Department of Labor (DOL)

are poised to change the landscape of employee management and relations. The DOL’s FMLA Branch Chief recently announced the agency’s renewed focus on conducting more on-site compliance investigations, calling 2014 a “pivotal year for FMLA enforcement.” What this means is that agency investigators will spend significantly more time at individual workplaces reviewing documentation and interviewing employees. The practical effect is that all aspects of business operations will be closely scrutinized and even unintentional violations are likely to be discovered and harshly addressed. Likewise, employees will be encouraged to be more pro-active when it comes to pursuing relief from their employers (e.g. lawsuits). The DOL is also jumping in to the fray with the announcement of its 2014 Strategic Goals that aim to ensure fair compensation, safe workplaces, high-quality work-life environments and secure benefits. To ensure these goals are reached, numerous new laws are being passed that directly impact employers. Many, like deeming breastfeeding the latest disability can catch employers by surprise, with potentially dire consequences. These laws are vast and complex and the average small- to mid-size employer simply doesn’t have the in-house expertise to navigate the ever-changing rules. Many employers will fail in this regard and be subject to fines, penalties and lawsuits.

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Other Influences To these factors, add in the hassle and stress of managing non-revenue generating activities such as payroll, human resources management, employee benefits or risk management. It is easy to see how much of each day can be taken away from what a business does best – providing services or making products. When a business loses focus on its core competencies and diverts its energy to managing complex, non-core competency administrative tasks, the business exposes itself to significant and unnecessary risks.

EMPLOYER OPTIONS Faced with all the uncertainty of successfully managing the administrative side of a business, small- to mid-size employers have three options. One is to dramatically increase in-house expertise by hiring full-time employees with expertise in these areas. Unfortunately, for many employers, this is a financially unfeasible approach. A second method is to find and retain third-party experts to consult on specific issues. While this seems like a viable alternative, it results in a piecemeal approach to solving problems that can sometimes cause information to be miscommunicated among and between various consultants and management. This miscommunication can have dire consequences. The third choice is to outsource the entire HR process. Outsourcing a business’s human resources functions allows the business to reduce operational expenditures (no need to hire full-time employees for these roles),

attract qualified talent (the best and brightest employees seek out organizations that offer a professional work environment with robust benefits), and minimize employment risk (reducing risk creates a safer work environment and greatly reduces employee lawsuits).

THE WORLD OF HUMAN

RESOURCES OUTSOURCING

When it comes to HR outsourcing, there are three main types of relationships available to employers. 1. A La Carte This is service-specific consulting or products, such as training, policy creation, documentation audits, or compliance support. In this scenario, the employer contracts out only certain components of the company’s overall human resources needs. 2. Payroll & HR This option provides integrated payroll services plus various levels of human resources support. Commonly referred to as bundled services, this option is more robust than a la carte, but still requires the employer to bear responsibility for some of the administrative human resources tasks.

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3. Professional Employer Organization (PEO) is a team of professionals who spend their days focusing exclusively on all facets of human resources issues. This option offers employers a fully comprehensive, end-to-end human resources solution that allows the employer to hand over the administrative side of the HR function while maintaining overall, day-to-day control of the business. The PEO and employer perform as a team with shared responsibilities. The PEO functions as the employer’s outsourced human resources department. To the

employee, the PEO is seen as the “administrative employer” while the business remains the “managing employer.” Managing risk is the primary reason that smart small- and medium-sized business owners turn to PEOs to handle administrative tasks such as payroll, employee benefits and human resources functions. When a business partners with a PEO, the business can get back to what it does best while knowing that the day-to-day administration and compliance issues are under control.

PROFESSIONAL EMPLOYMENT OUTSOURCING (PEOS) OVERVIEW As noted above, a Professional Employment Organization exists to help small- to medium-sized business successfully navigate the myriad employment law matters that govern business operations that employ staff. PEOs in the United States currently serve approximately 3 million employees nationwide and partner with more than 300,000 companies. As experts in all facets of human resources law, a PEO’s primary goal is ensuring that a business complies with all laws, rules and regulations. Small to medium-sized employers clearly see value in partnering with PEOs. The PEO industry is one of the fastest growing segments of the human resources outsourcing world, growing by more than 20% each year and realizing more than $63 billion in annual revenues.

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KEY FUNCTIONS OF A PEO A PEO offers services in four key areas, each of which serves a discreet need within a company.

Human Resources This domain includes virtually everything that has to do with the ongoing management of employees, including administration, employee handbooks, employee relations, job descriptions and legal advocacy. While the employer remains the entity that finds and hires good talent, the PEO is responsible for processing all back-end paperwork related to the employee. Also of importance to note, if an employee files a complaint or lawsuit against the employer, the PEO provides legal advocacy on behalf of the employer and manages the process to its conclusion, acting as a liaison and relationship manager.

Employee Benefits Employee benefits are one of the most challenging areas for an employer to manage. A PEO will ensure compliance with health care reform legislation, manage benefits like major medical, cafeteria plans, 401(k) and other programs. The PEO has access to thousands of companies who provide such benefits, and can offer PEO clients access to rates and options that would otherwise only be available to much larger employers.

Risk Management A PEO focuses on risk management in several ways. The PEO can dramatically improve the safety of an employer’s workplace through implementation of

solid safety training and other programs. The PEO also manages OSHA compliance and claims administration and represents the employer to carriers if and when a claim arises. The PEO also functions as a relationship manager, offering assistance throughout the workers’ compensation process, ensuring that employees move swiftly and efficiently through the system so they can quickly return to work.

Payroll & Tax Perhaps the most recognizable of PEO services, an employer can offload all operational responsibilities for payroll and tax, including direct deposit, payroll processing, tax and garnishment administration. The PEO can also offer employees a secure, online portal for access to a blended combination of human resources and payroll

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information, including salary data, vacation accrual, sick leave, etc.

BENEFITS OF A PEO Small- to medium-sized businesses that partner with a PEO enjoy a multitude of benefits that allows the business to function and offer benefits on par with much larger employers.

Reduce Operational Expenditures Perhaps the biggest benefit to companies that enlist the help of a PEO is the benefit of economies of scale. Since the PEO works with thousands of carriers and providers, the PEO is able to secure extremely favorable rates for its pool of clients. From liability insurance and group health plans to 401(k) programs and workers’ compensation premiums, a PEO allows small- to mid-size businesses to access rates and premiums that would usually be reserved exclusively for Fortune 500 companies. These savings allow the PEO client to offer its employees generous benefits at very reasonable costs to the company. A PEO also allows a company to

streamline its human resources systems, from onboarding and benefits enrollment to processing claims and inquiries. The employer can forego hiring full-time employees to handle these tasks, thus saving the overall cost of in-house employees. A PEO can also offer on-site safety consulting that dramatically minimizes work-site injuries and reduces claims, both of which cost employers time and money.

Minimize Risk When a business outsources its human resources functions to a PEO, it receives a proactive employment team whose exclusive focus is on mitigating risk for their clients. Through the creation and implementation of compliance policies, solid employee relations programs, management training courses and procurement of employment practices liability (EPL) insurance at cost-effective rates (due to the PEO’s economies of scale abilities noted above), the business is able to significantly reduce its risk of employee claims, and manage them effectively when they do arise. Also of importance to note is that when a business partners with a PEO, the best in

human resources practices and consulting is only a click or phone call away, all at a set price. With a PEO, businesses can avoid the expense of fees generated by consultants who bill by the hour for these services.

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Attract Talent & Improve Productivity It is proven that employers who invest in their staff yield greater returns and experience higher profit margins than competitors who do not. A direct corollary is that companies are able to recruit the best and brightest talent when they offer meaningful benefits. Robust health insurance plans and other voluntary benefits like dental, life and vision insurance are just some of the things that top talent expects from their employers. A PEO allows small to mid-size employers to build comprehensive benefits packages that attract the best of the best employees. Likewise, a PEO can create a very professional workplace image through well-crafted new hire documentation, handbooks, form and the like. Small businesses may have a hard time creating

this same level of professionalism on their own, but for a PEO it is what they do best.

PEO Clients Grow Faster A recent study by the National Association of Professional Employment Organizations (NAPEO) revealed that small businesses that partnered with PEOs for their human resources functions grew nine percent faster than small businesses that tried to go it alone. Plus, they tended to save 21% on administration costs each year. The study further demonstrated that medium-sized businesses (10-50 employees) with a PEO were more than two times likely to have workers in a retirement plan, while small businesses (less than 10 employees) with a PEO were more than three times likely than those without such a plan. This is yet another way that small and medium-sized businesses can attract top talent through use of a PEO.

SUMMARY In today’s economic climate, it makes sense for small- to medium-sized employers to outsource their human resources functions. From helping mitigate employment risks and reducing administrative distractions to attracting top talent and improving employee morale and productivity, the choice of outsourcing is a decision that should not be delayed.

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ABOUT CPEHR

Celebrating more than 30 years in business, CPEhr provides human resources solutions and Professional Employer Outsourcing (“PEO”) services to over 75,000 employees nationwide. Its extensive industry experience, combined with the flexibility afforded to a privately held corporation, allows CPEhr to deliver highly customized human resources support, while at the same time offering benefits typically associated with Fortune 500 companies. Services include:

Employment Compliance

Human Resources Administration

Payroll & Tax Administration

Management Training

Health Care Reform Compliance

Risk Management Consulting

Employee Benefits

Workers’ Compensation Insurance With corporate headquarters in Los Angeles, CPEhr is one of the largest, privately held Human Resources Outsourcing and PEO firms in the state. To learn more about human resources outsourcing services, contact CPEHR for a free HR analysis. CPEHR

9000 Sunset Blvd, Suite 900 West Hollywood, CA 90069 (800) 850-7133 www.cpehr.com info@cpehr.com