NFIB

The Human Element
03/ 11/ 2002

by Sheri Wallace

Considered by most small business owners to be a minefield of liability and technicality, human resources is one of the most popular outsourcing options.

Arthur Abbott, president of Abbott Printing Company in Orlando, Fla., says that his decision to outsource took at least a year. "It was very difficult to let go of such important pieces of my business. It was also a significant financial consideration, but I've never been sorry I made the decision."

In the eight years he has used outsourcing, Abbott says he has devoted more time to actually running his business, instead of managing his 30 employees.

"In a small business you just don't have enough time to do both things effectively, and without liability," he says. Abbott Printing now uses outsourcing to take care of all payroll tasks, including reports and tax payments, as well as other HR functions such as employee handbooks, drug testing, and hiring and terminations.

"Often, in a small business, it is impossible to have a dedicated human resources person," says Anne Caldwell, president of Outsourcing Solutions in Scottsdale, Ariz. "So the response to one employee can vary from how another similar situation was handled previously." Using an HR consultant can spare the business serious liability. Most importantly, Caldwell says, a lot of small business owners aren't good at terminating or hiring employees. A consultant can handle the unpleasant tasks, saving time and money in the long run.

How much you spend or save depends on what you decide to outsource. There are businesses (called Business Process Outsourcing, or BPOs) that take over paperwork-type functions such as payroll. Professional Employer Organizations, or PEOs, take over the legal responsibilities of your employees. It is common for a very small business to hire a BPO to perform all the rigors of payroll, then as the business grows, they add services from a consultant or begin to use a PEO. Which option is right for you depends on your cash flow, budget, and the time you have to devote to these functions.

Expect to pay either an hourly fee for a consultant, or a percentage of your gross payroll for the services of a dedicated outsourcing company. PEOs typically charge the most for their services, with fees ranging from 4 percent to 8 percent of payroll.

How do you know if you need to outsource? Experts say firms with only one or two employees can save money by outsourcing, especially if bookkeeping is something that takes a back seat when your time is limited. Ask yourself how much time you spend on HR currently, and if you could improve your bottom line by spending that time on sales or another area of your business. Also, consider the liability issue--IRS penalties add up quickly. If you currently put off deposits or quarterly reports, you might save simply by avoiding those penalties.

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