Why should I pay for this? What does this usually cost?
According to a report by the industry publication HRO Today, HROs average price for services is around $600 to $800 per employee, per year.
PEOs appear to be more expensive. Some of this can be hard to tell, because you don’t get to see the ala carte pricing for each service provided, like workers compensation insurance. PEOs price their services as a percentage of employee salary. The percentages vary, depending on how much the outsourcer will have to spend to cover workers compensation, retirement and health insurance. But expect a figure between 12 and 20 percent of your employee’s wages.
A 2007 report by the Everest Research Institute, an outsourcing intelligence firm, looked at twelve different HR functions that firms send out. The functions with the smallest variation in price – managing employee data, contact center services, maintaining evaluation reports – tended to be those with the least subjective judgment to apply. The services with the widest price variations – compensation, training, employee relations – tend to require a thinking human being applying subjective judgments.
What should I look out for when outsourcing my payroll processing?
Outsourcing payroll processing – or any HR function – is a question of cost and quality. An outsourced HR service should cost less than it would if you were handling it in house – if it doesn’t, you shouldn’t use it. But HR screw ups are the worst kind of morale killers in the work place, and there’s only so much cost cutting that can happen before you run a risk of a breakdown. To that end, the reputation of your HR partner is critically important. While there’s always going to be some grousing about HR in most organizations, if you’re hearing more than the fair share of complaining about an HR company, you should consider that a significant warning sign.
It’s also important to look for service level agreements in any contract you make with a payroll processing service or other outsourced HR process. If you are about to provide crucial data of your company, make sure the company keeps it confidential under all circumstances.
And remember, an HR company will protect you legally, but not emotionally. Your employees will still have you on the hook if anything goes wrong.
Are there major providers of payroll processing services? Do those providers offer services targeting small and medium-sized businesses?
ADP, Intuit, Ceridian and Paychex are the best known of the large payroll processing services operating in the US. ADP is the largest of the group, although Paychex comes a close second. About one in 10 employees in the US is paid with an ADP paycheck. The four together represent about 25 percent of all employee payroll processed in the US. Beyond these four, though, the market is deeply fragmented, with small and local firms handling payroll processing for millions of small businesses. Ceridian was recently bought out by a private equity firm, and public data about its financial performance and market reach has become harder to glean.
Paychex is the small business specialist of the four. It processes payroll, handles employee benefits, and offers related human resources services for about 561,000 clients. Most are small or medium-sized businesses with fewer than 100 employees in the US, representing about 98 percent of its customer base, according to company materials.
What other human resources services could I outsource along with payroll?
Most companies are not human resources experts. Payroll is a specialized business function, like advertising or finance, that everyone isn’t going to be good at. So, any company can potentially take advantage of a payroll processing service. Smaller companies in particular will likely lack the expertise to handle payroll inexpensively. Outsourcing payroll processing allows a firm to focus more on improving its own business.
But the same can be said for other human resources functions as well, like drug testing, counseling services, workplace training, and even hiring and firing to some extent. A whole set of these services falls under the umbrella of professional employer organizations, or PEOs. These companies essentially hire a client company’s employees, becoming their employer of record for insurance and tax purposes. The employer has a contract with the PEO for the services of the employees. It’s also called employee leasing. The idea is that the PEO will be really good at administering the 401(k), benefits and other HR issues for the employees, leaving the employer to concentrate on other business. The cost can range from 12 to 20 percent of payroll, depending on the industry.
Human resources organizations, or HROs, on the other hand, offer the same services, ala carte. An HRO may be able to administer payroll, and retirement benefits and training, or each service individually.
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