Outsourcing: A Recession-Proof Option for Small-to Mid-Size Businesses

Employee Administration Management-”a cost-effective business trend

Outsourcing has become a way of life in business. Small- to mid-size businesses often use external experts to manage their needs in areas such as accounting and law. However, many don’t realize resources are available to handle other such functions that are difficult and time-consuming to manage, including those in the human resources area.

Due to the downturn in the economy, many companies have thinned down their internal human resources departments so significantly they now find it difficult to manage payroll, employee benefits, workers’ compensation and other employer-related administration.

Many small- to mid-size companies may not recognize that companies exist that specialize in assisting in these important areas, which allows companies to remain focused on their core businesses and better manage their human resources function.

This expertise by highly specialized companies actually has been around for more than three decades. In the beginning, these firms were known as Employee Leasing or Professional Employer Organizations (PEO).

Today, a better term is used to describe the function -“ Employee Administration Management (EAM). An EAM company provides an integrated, cost-effective and efficient way to manage and administer payroll, human resources, workers’ compensation, unemployment and employee benefits for businesses.

The types of businesses that most benefit by using an EAM firm are those large enough to have significant employee administration needs (i.e., 10 or more employees,) but less than 100 employees since those companies likely will have their own human resources department.

EAM firms are experts in payroll and taxation, workers’ compensation and risk management, human resources, unemployment and benefits administration. It is the responsibility of the EAM company to stay current and up-to-date on changing compliance and regulatory issues and implement them at the client organizations.

This year alone at least seven changes have occurred to the tax code and/or compliance and regulatory legislation that have impacted employers. The U.S. Small Business Administration estimates 7-12 legislative changes per year will affect small businesses. It is virtually impossible for an employer to stay on top of these changes, let alone have the resources to implement them.

EAM firms offer a cost-effective option for small- to mid-size businesses. Due to economies of scale, EAM companies are able to negotiate better rates for workers’ compensation and health insurance. Essentially, a larger buying pool creates greater buying power. In addition, saving time and paperwork enables companies to focus more time and resources on their business, resulting in greater profits.

Business owners can determine whether an EAM company is a good option by asking the following questions:

-¢ Is the firm’s internal administration team stretched too thin these days?

-¢ Has the company experienced a loss of revenue due to too much time spent on “back-room” administration that has taken time and focus off our real business?

-¢ Would we like to lower workers’ compensation costs?

-¢ Would we like to offer (more) benefits to employees?

-¢ Are internal administration costs out of line with company revenue?

Small- to mid-size companies interested in exploring an EAM company first need to do their homework and ask the right questions when seeking the best EAM firm for them. Many EAM companies lack the necessary level of experience and expertise to be considered a “full-service” provider, so be careful that you understand their capabilities and limitations.

During a business search for an EAM firm, be sure to inquire about the following:

-¢ Whether the EAM company is a member in good standing with the National Association of Professional Employer Organizations (NAPEO).

-¢ Documentation provided to clients showing all payroll taxes and insurance premiums are being paid in a timely manner.

-¢ An EAM company should be willing to disclose financial information to assure it is adequately capitalized and financially sound.

An EAM firm can be a highly effective solution to meet the human resources needs of small- to mid-size businesses. It offers business owners the opportunity to do what they do best -“ focus on their core business and leave human resources matters to the experts. In challenging economic times, outsourcing is a smart way of doing business.

Michael Decker is president of DEM Group, LLC, a Sterling Heights, Mich.-based Employee Administration Management firm. He can be reached at [email protected].