PEO: Taking Outsourcing a StepBeyond Pays Off for Small and Mid- Sized Companies August 2011 Jayson Saba
August, 2011 PEO: Taking Outsourcing a Step Beyond Pays Off for Small and Mid-Sized CompaniesAberdeen’s recently published The 2011 HR Executives Agenda benchmark Research Briefreport (December 2010) revealed that the top barrier hindering HR’s ability Aberdeen’s Research Briefsto be strategic to business objectives is ‘too much time spent on day to day provide a detailed explorationtactical activities.’ This was cited by 52% of the HR and business executives of a key finding from a primarysurveyed. Previously in Aberdeen’s annual Core HR report (August 2010), research study, including keythe third highest ranked pressure driving investment in core HR is performance indicators, Best-‘regulation forcing tighter compliance’. Aberdeen also found that more than in-Class insight, and vendorhalf the companies in that study outsource some HR processes (such as insight.payroll, benefits, etc.) without sacrificing employee service or businessoutcomes. Definition of PEOThis Research Brief will examine data from nearly 170 companies in the For the purposes of this study,small and mid-size segment (up to 250 in headcount) to determine whether Professional Employerworking with a professional employer organization (PEO) is a valid Organization (PEO) is definedalternative to managing HR processes in-house. as a provider of integrated human resourcesBusiness Context administration and employer risk management of its clients,Effective HR management is founded on three key pillars, each equally by contractually assumingintegral to the competitiveness of the company. First organizations must be substantial employerable to provide services that address employee needs – a necessity to responsibilities and risk,attract and retain quality talent. Secondly, the cost of providing this service through the establishment andand its offerings must be reasonable enough to sustain a company’s maintenance of a co-employerexistence. Lastly, the burden on HR to deliver this service must be relationship with the clientsmanageable because in many cases, especially in smaller organizations, there employees. PEO models areis less than one dedicated resource to HR. In fact, 56% of the companies in also known as co-employmentour sample have less than one resource dedicated to HR functions. This models.resource usually wears another functional hat like accounting, finance,account receivables, account payable, or even owner / general manager ofthe business.While effective HR service must take into consideration the employees, HRstaff and business shareholders, it must be built within a compliantframework. Aberdeen’s 2010 study, Future of Core HR: Building the BusinessCase for Automation and Integration, showed that 35% of all organizations areinvesting in this function primarily to adhere to a changing regulatoryenvironment. Labor laws, tax laws, and healthcare reform are increasinglymoving to the forefront of business leaders regardless of company size.Nonetheless, smaller businesses, that often don’t have the luxury an in-house legal team and may therefore struggle to keep up with changing lawsand regulations, are at a greater compliance risk than larger peers.Therefore, co-employment should be an option to consider.This document is the result of primary research performed by Aberdeen Group. Aberdeen Groups methodologies provide for objective fact-based research andrepresent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc.and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.