Outsourcing often has negative connotations in the business sector with employees associating the word with job loss. In particular, outsourcing human resource positions might suggest a lack of personal interest in employees and their well-being. In 2008, the Society for Human Resource Management polled business owners to find that over fifty percent of members wished to maintain face-to-face contact with employees, and over forty percent expressed preference for developing in-house expertise (as well as concern for losing control over key HR functions).
A decade later, the rapid growth in the Private Employer Organization (PEO) industry suggests that many employers no longer feel held back by these same concerns. A survey by the National Association of Professional Employer Organizations (NAPEO) in the United States shows that the PEO industry continued to grow in the fourth quarter of 2017, and more than ninety percent of respondents expected growth in 2018. The evidence suggests many businesses are exploring the benefits of outsourcing their HR within Canada and throughout North America.
According to organizations like PEO Canada, PEOs are the “most effective way for small and mid-sized companies to outsource employer services such as payroll services, benefits plan administration and workers’ compensation administration.” Some PEO’s even offer other services such as recruiting, selection, termination, salary reviews, and job descriptions.
For many employers outsourcing HR services allows them to focus more on their business and customers while more routine administrative work is being handled separately. By consolidating expenses, only one cheque is needed per pay cycle to handle payroll, taxes, employment insurance, Canada pensions, worker’s compensation and benefits. It also allows them access to experts who are familiar with provincial and federal laws. Of course, there are also the cost benefits from reducing administrative staff and associated expenses involved such as copy errors.
Businesses with fewer than 100 employees may not have the resources for an in-house HR department. Likewise, when activities such as recruitment are required only periodically, it doesn’t make sense to hire permanent experts. Furthermore, the hard costs of software licensing, installation, training, maintenance, help-desk services and upgrading may be mitigated by outsourcing. There is also the potential benefit for businesses facing financial uncertainty or who operate in more volatile industries that could benefit from being able to respond faster to changing resource needs by eliminating excess fixed costs.
Certainly, some of those concerns expressed by business owners back in 2008 are still relevant, especially with concern to employee motivation and retention when authority lines can be blurred with an external source that has the power to terminate employment. However, PEOs are a viable resource option for many businesses. Smaller businesses and new start-ups in more competitive industries may have a vested interest in exploring their options with PEOs in order to free up time and save money.
Nevertheless, it is essential that any business examine all their HR functions in order to determine which activities could be outsourced. Next, they need to consider the current cost of those activities to better understand and compare the value of PEO services over time. Ultimately, determining whether or not outsourcing is the right fit for any business requires a close evaluation of business needs and what path best allows for improved business functions in the future.