Smart outsourcing Featured

8:00pm EDT August 26, 2009

Employers have had to make some tough decisions to survive the economic conditions they have been faced with this year. Some companies eliminated benefits, while others downsized.

While making these difficult choices, it’s not always clear if companies are leaving themselves exposed to employee-related liability, fraud, or other unexpected expenses. Doubts about any changes in the business structure can be mitigated by working with a Human Resources Organization (HRO).

“Business owners should consider how working with an HRO will improve their cash flow and whether it’s going to reduce their overall expenses,” says Rob Wilson, president of Employco Group Inc., a division of The Wilson Companies. “Because in this economy, those are two key areas on every business owner’s mind.”

Smart Business spoke with Wilson about how working with an HRO can help business owners run a leaner business while improving cash flow.

What challenges have companies been bringing to outsourcing organizations?

The definition of HR outsourcing has definitely changed in this market. Two years ago, HR outsourcing was more focused on helping small to medium-sized companies grow by offering competitive health benefits and consulting employers on recruiting, retention and performance appraisals.

Now the focus has shifted from growing the company to scaling down and learning how to run a leaner operation. While downsizing, business owners need to know how to decide which employees to keep, who to let go and whether or not they are creating any employment practice exposures. For example, certain employees might be in a protected class and laying them off could put an employer at greater risk. Conducting exit interviews and proper documentation of layoffs are also key in decreasing the risk of exposure.

Additionally, companies are looking at how to best utilize flex weeks and unpaid furloughs and reduce hours.

Employers are also turning to HROs on the issue of leveraging the cost of benefits. Some are stopping their match on 401(k)s altogether but are still offering the option for employees to contribute to their retirement fund. Many employers are turning to HROs for advice on how to still offer benefits at a reduced cost to the company.

How are companies’ needs for an HR department changing?

You’re definitely seeing the HR department downsized in many companies. Many employers are cutting their HR departments in order to keep more production-oriented people.

However, companies still need HR representation and guidance even though the department may be eliminated in order to avoid employee lawsuits and fraudulent workers’ comp claims. By outsourcing their HR, employers are getting experts in the HR field to help them through the downsizing process.

How can working with an HRO help a company increase cash flow during these hard times?

Instead of paying the workers’ compensation premium deposit and health benefit premiums in advance, a company working with an HRO pays on a per-payroll basis. This allows you to control and limit your expenses to a per-payroll basis, which increases cash flow to sustain your business operations.

Companies also pick up a variety of other services, such as loss control and risk management. The cost of working with an HRO is manageable, because typically an HRO charges a percentage of the company’s overall payroll.

What types of companies can benefit from working with an HRO?

Traditionally, companies with 10 to 150 employees have benefited from working with an HRO by utilizing the large buying power for health insurance. Now that the driving factor has shifted from companies wanting to get their health insurance costs down to the broader concept of trying to get their overall labor costs down, any type of business can benefit from business outsourcing.

Business owners can get a cost-savings analysis to see where they can improve not only management of employee benefits but also areas where they may be weak or can eliminate positions or tighten up the organization. It’s becoming more and more an overall strategy as companies are driven to run leaner while increasing efficiency.

How can a company choose an HRO that’s a good fit?

Business owners need to do their homework and pick an HRO with a solid track record and good references.

  • Look at the services offered and see if it’s a good fit for what the company needs right now.
  • Pick a local company to ensure it is accessible to your team, whether it’s face-to-face meetings, payroll delivery, exit interviews, loss control, etc.
  • Choose an HRO that is flexible because companies may not need all of the services right now. Look for companies that offer a la carte options to their clients where services are not bundled. A client may only choose to utilize the payroll service without health benefits, health benefits without payroll, etc.
  • Most important, choose an HRO that understands your current state and is able to work with you to prepare for the upswing.

Rob Wilson is president of Employco Group Inc., a division of The Wilson Companies, which handles human resources outsourcing, staffing and insurance for 400 small and medium-sized Midwest companies. Reach him at (630) 286-7345 or