One of the challenges of having a small business is the need to be an “expert” in all areas – finance, IT, sales – you name it. Most operators believe that HR is a matter of finding a payroll provider and applying “a little common sense” in handling employee issues like hiring and firing. In reality HR challenges, according to the Small Business Administration, can take up 7 to 25% of a typical small business owner’s time. Additional costs are racked up in administrative errors, with 40% of small businesses receiving fines an average of almost $1,000 by the IRS for faulty payroll filings alone. There are a couple of solutions available to owners:

• Outsource the employment role and relationship, and lease back your employees through the use of a PEO (Professional Employee Organization). These companies operate nationally or regionally, and provide complete employment services to their clients at a per-head cost. A PEO is a good choice if you need an immediate “in the box” HR solution for payroll and HR administration. PEOs also may provide discounted pricing for benefits, as you participate as a group with all other PEO clients. The disadvantage is in the nature of a co-employment relationship and the administrative fees; some employers feel they lose a degree of control over their workforce and communication of employment decisions (like leaves, terminations, etc) can sometimes create conflict between the PEO and the company.
• An alternative solution is the ASO (Administrative Services Organization), an outsourced HR model where payroll, employment matters and other people administration is managed through a third party vendor (like HCworx). ASOs may provide services onsite, although typically the support is virtual. Although there is no discounting for benefits, ASOs typically provide a more customized experience, working policy and process to the specific needs of the business. Both a PEO and an ASO provide a high level of functional expertise at a rate much lower than the business could typically afford to bring in-house.
• The final option is to provide the HR support in-house through an administrator and then hire legal or consultative support on an as-needed basis. Although this may prove slightly less expensive in the short term, the lack of subject matter knowledge of the administrator will likely create a greater risk of compliance and a slippery slope of unexpected expense as issues are retroactively addressed.

Many employers begin with one HR solution and make changes as their business grows. The economics of each decision involve both a short and long term cost, so take a hard look at the rates and consider the importance of relationship and long term partnership before you make the final call.