Navigating HR responsibilities is a complex task, and while there isn't a perfect approach to managing them, several courses could land you in hot water. Employers often overlook their HR duties, setting up policies and procedures only to leave them for long periods without review.
As a small business owner, you have a lot on your plate, and though you may not be intentionally neglecting your HR responsibilities, things slip through the cracks. Creating and implementing a plan for your company’s HR needs is the best way to ensure your business is protected and compliant.
But what’s the right choice for your company - building an in-house team of HR experts or partnering with a professional employer organization (PEO) to tackle your HR needs? While only you can answer that question, we’ve compiled a short comparison of your options to help you make the best decision for you and your business.
Cost Of A PEO VS. In-House HR
It's essential to understand the cost of each option to determine the best option for your business. While PEOs can offer access to various benefits, they may not be the best choice depending on your goals, business size, and current needs.
Economies of scale vs. variable cost
One of the most compelling financial arguments for partnering with a PEO is the benefit of economies of scale. The co-employment model allows PEOs to pool employees from multiple client companies, creating a larger collective workforce. This scale enables PEOs to negotiate better rates for health insurance, retirement plans, and other benefits compared to what a small or medium-sized business could achieve on their own. If you’re struggling to offer competitive benefits due to high costs, a PEO could be a game-changer, providing access to premium benefits packages that attract and retain top talent.
Depending on your size and complexity, you may need to outsource certain services to third parties, such as legal counsel for compliance issues or specialized payroll services, if you opt for an in-house HR team. These variable costs can fluctuate significantly, making budgeting for HR more challenging.
While larger companies may absorb these costs more easily, small to medium-sized enterprises (SMEs) must carefully consider these potential expenses, as they can significantly impact the cost-effectiveness of maintaining an in-house HR department.
Fee structure vs. salaries and overhead
PEOs typically charge businesses a percentage of the overall payroll or a per-employee per month (PEPM) fee. This structure allows PEO services to scale seamlessly with your business as it grows, with the key advantage being the bundling of services. However, for some companies, particularly smaller ones with minimal HR needs, the cost of partnering with a PEO might exceed the expense of maintaining a small, in-house HR team.
Opting for an in-house HR department introduces different costs, primarily the salaries for your HR professionals, in addition to the overhead associated with supporting these functions internally. This includes the cost of HR software platforms, ongoing training and development for HR staff, and other resources necessary to maintain an effective HR department.
Services Provided By PEOs Vs. In House HR
PEOs offer comprehensive HR services, including managing payroll, administering benefits, handling workers' compensation claims, and overseeing risk management. In other words, PEOs are a one-stop shop where the complexities of HR management can be outsourced to a team of specialists, allowing your company leaders to focus on core business strategies and growth. The breadth of services offered by PEOs can be particularly appealing if you want to streamline operations and reduce the administrative burden associated with HR tasks.
In addition, partnering with a PEO can help ensure compliance with federal and local labor laws and implement best practices in HR management. As rules and regulations are subject to change, PEOs can give you peace of mind that your policies are up-to-date, and your business is safeguarded. PEOs offer the support needed to manage a workforce effectively, avoiding common pitfalls and legal risks, particularly for SMEs.
Unlike the co-employment model used by PEOs, traditional HR management means that all employment tasks, responsibilities, and liabilities remain solely within your company. If you prioritize a unique company culture or have specific HR management needs, in-house HR provides the flexibility to implement customized solutions. This direct relationship between employer and employee can facilitate a closer connection and potentially more personalized management of your team's concerns and needs. However, it also means that your business retains all legal responsibilities and risks associated with employment – so you’ll need to stay vigilant to protect your team and your business.
Value Of PEOs Vs. Traditional HR
Beyond the day-to-day management of HR tasks, PEOs bring a strategic edge to human resources planning. With access to extensive data analytics and industry insights, PEOs can guide businesses in making decisions that enhance HR functions. This strategic approach can lead to higher employee retention rates and increased job satisfaction, as initiatives are backed by solid data and tailored to meet your team's and your company's needs.
Having an on-site HR team means employees can access HR support whenever needed. An in-house team is also deeply integrated into a company's culture and daily operations. This proximity allows HR professionals to develop a nuanced understanding of your company's ethos, values, and interpersonal dynamics, enabling them to tailor HR strategies and initiatives that align closely with your business goals.
Ultimately, a thorough cost-benefit analysis should guide you in choosing between partnering with a PEO or hiring in-house HR professionals. Your decision should not only fit within your financial framework but also align with your long-term business objectives. In other words, consider the immediate costs and savings in addition to the broader impact this decision will have on your company's operations, culture, and growth potential.
How GMS Can Help
GMS provides comprehensive HR solutions to small, medium, and large companies throughout the United States. As HR professionals, we take on the administrative burdens that companies don’t have the time or expertise to manage effectively, including:
If you haven’t made up your mind and are still turning over that question of which option is the best one for you, GMS can help. Our primary goal is to help you navigate your options with clarity and confidence. Contact us today, and let us help you make the most informed decision possible.