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Thursday October 20, 2011

by Joe Caulfield

Human Resource Outsourcing (HRO) and Professional Employer Organizations (PEO) are proven to help improve service and manage operating costs and cash flow. So it’s not astonishing, given the grimness of our current economic situation that companies are increasing their use of outsourcing to cut costs in many areas, to include HR.

HR outsourcing offers key benefits, including reducing costs, increasing the potency of HR delivery, providing greater expertise, and moving HR up the value chain to aid in organizational growth. The motivations for outsourcing Human Resources are access to skills and knowledge, quality and cost reduction.

The past fifteen years have seen an unprecedented rise in employee to employer litigation, employment regulations and tax laws. Effective management of Human Resources has become a complex task for small to mid-market business owners. Then, there is the laundry list of unfriendly policies, including laws governing hiring, family leave, sexual harassment, paying employees, leaves of absence, employee benefits, and workers’ compensation, not to mention the new healthcare laws coming.

Companies also want to use one human resources vendor. They consider it easier to manage, and they know they can get a better deal by adding volume to the vendor relationship. Even if the HR outsourcing company contracts out some aspect of their outsourcing agreement, the client still has only one vender to deal with. As Robert H. Brown of Gartner says companies like the idea that of anything goes wrong, they have “one throat to choke.”

According to a survey by Hewitt Associates employers seem to feel that this single vendor approach also leads to less employee confusion, better integration and easier coordination of services, as well as less time dedicated to vendor management. Analysts say that employers start out by focusing on business metrics like productivity, profitability and employee satisfaction, but in the final analysis savings seems to drive about half of the companies into HR outsourcing, while the other half don’t rate savings as the main motivator.

The additional motivators employers gave for HR outsourcing were:

Gaining outside expertise, improving service quality, and the ability to focus on their core business.

Joe Caulfield has been in and around the PEO business since 1994. He is the author of a PEO sales book entitled “Rapid Sales Success”. To find out more, visit Joe’s website at

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