For many businesses, outsourcing some or all of their human resources (HR) functions is crucial to meet the increasing demands. This includes aspects like health insurance, HR management, payroll processing, benefits administration, and more.
In many companies, the HR function is facing a growing divide between its capacity and the ever-increasing demands placed upon it. The Hackett Group's 2023 HR Key Issues Study highlights this gap, revealing a significant increase in HR's workload. Despite a 10% increase in HR's overall workload, staffing only increased by 0.3%, while budgets have only seen an increase of 0.4%.
Multiple factors contribute to the increase in HR's workload. These include evolving regulations, new pressures from organizational leaders, labor-related challenges, and more. This growing gap between the heightened workload and the limited increase in resources presents a hurdle for HR departments.
Small businesses face even tougher hurdles. They must keep up with regulations and labor issues while often lacking in-house HR experts. This makes it especially challenging for them to handle these matters efficiently, including aspects like employment laws and hiring processes.
In such cases, a Professional Employer Organization (PEO) often emerges as not only the best but sometimes the only solution to bridge that gap. PEOs offer the expertise, experience, and resources that small businesses may lack, making employment relationships and retirement planning easier.
In fact, the National Association of Professional Employer Organizations (NAPEO) analyzed PEOs and their relationship with clients. In 2022, they found that almost two-thirds of all PEO clients have between 10 and 49 employees. Partnering with a PEO provides small businesses access to valuable HR capabilities and insights they might not have otherwise, especially in terms of administrative tasks.
But outsourcing can be a worrisome topic, especially when it comes to business-critical activities. How can you ensure your PEO relationship performs at its peak?
Businesses often outsource transactional HR tasks, such as payroll, to third parties. However, given the gap described above, "companies are getting much more serious about enabling digital transformation," said Tony DiRomualdo, senior research director in The Hackett Group's Global Human Resources Executive Advisory Program.
PEOs with a wealth of HR experience and expertise are well-positioned to assist companies in meeting modern requirements. These PEOs offer a unique set of skills and resources, helping businesses align with the demands of the digital age.
HR's ever-changing role in many companies extends beyond the transactional and short-term aspects. Embracing a strategic and long-term view is important. Your PEO can play a pivotal role in this transformation if you allow it to do so. Successful PEO relationships are not just fleeting transactions but long-lasting, collaborative partnerships that pay dividends by empowering your in-house people to focus on core business areas.
Opting for a long-term perspective means managing your vendor relationships with an eye on the future, not just short-term objectives. This ensures that your PEO aligns with your company's long-term goals and objectives. Given the opportunity, a capable PEO can contribute to both short-term efficiency and long-term strategic growth.
By investing in a long-term, mutually beneficial PEO partnership, you pave the way for your HR functions to evolve into a strategic asset for your company, working hand-in-hand with your core business functions to drive sustained success and growth.
Creating clear and detailed SLAs is a cornerstone of a successful PEO partnership. These agreements serve as the guiding document that sets and defines expectations for everyone involved. To ensure the effectiveness of your PEO relationship, it's essential to establish SLAs that are as detailed and specific as possible.
These agreements should prioritize clarity and specificity for several reasons:
Function Allocation:
The SLAs need to clearly say which HR tasks the PEO handles and which ones your team is still responsible for. This clear division of tasks prevents confusion and streamlines operational efficiency.
Quality Measurement:
Well-structured SLAs enable employers to measure service quality accurately. By having specific performance indicators and benchmarks in place, you can measure the PEO's performance effectively. This ensures that the service aligns with your business's expectations.
Governance Enhancement:
SLAs facilitate governance by providing a structured framework for monitoring and managing the PEO relationship. This ensures that both parties hold themselves accountable for their roles, fostering transparency and mutual understanding.
This is not a one-and-done process, though. Revisiting these SLAs as your company evolves is imperative. Requirements evolve, so your SLA and governance plan may need adjustments to stay in line with your current goals and circumstances. Continuously improving your SLAs can keep your PEO partnership strong, helping with HR tasks and overall business success.
Communication is the foundation of a successful PEO relationship. You want to establish open and clear communications with the PEO's representative for effective human resources management. This means actively listening and sharing thoughts, expectations, concerns, and specific requirements.
Timely and open communication is especially vital when circumstances change. If there are alterations in your expectations or requirements, it's crucial to convey these changes promptly. At the same time, encourage the PEO to do the same, providing regular updates on HR-related matters and any changes that may impact your business, including employee performance and unemployment insurance.
Regular meetings with your PEO are a valuable practice. They provide opportunities to connect, even if it's through teleconferencing software, to align strategies, make necessary adjustments, and maintain a collaborative partnership.
Addressing issues promptly is equally important. When concerns arise, tackle them head-on and work together with the PEO to find solutions. This approach can help prevent minor problems from escalating into larger issues that could jeopardize your working relationship. Effective and open communication, backed by proactive actions, forms the foundation of a successful PEO partnership.
Navigating the complexities of HR in today's fast-moving business environment can be a challenging task. This is especially true for small businesses without in-house HR specialists. HR is facing a growing gap between its capabilities and the increasing demands. In these cases, a PEO may be the only option to bridge this gap.
This blog detailed essential tips on how to improve your PEO relationship and harness its full potential
Assign Tasks for Maximum Benefit.
Think Strategic and Long Term.
Clear and Appropriate SLAs.
Effective Communication.
Open and clear communication is key. Establish strong connections, adapt to changes, and promptly address issues to maintain a successful and harmonious PEO partnership.
By implementing these strategies, you can unlock the full potential of your PEO relationship. It's not just about outsourcing, it's about forging a partnership that empowers your HR functions and contributes to your overall business success. Your PEO can be a catalyst for growth, adaptability, and efficiency as you navigate the ever-changing HR landscape.
CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), provides tailored HR services to small to mid-sized companies. Our PEO services encompass HR administration, benefits, payroll processing, unemployment insurance, and more. To learn more about our ability to create a strategic HR function in your business that drives business growth potential, contact us today.