Adding an employee? don't try an "HR" solo

When entrepreneurs reach the point of adding one or more employees, the complexity of their business increases exponentially. Given the judgment calls they've already had to make about core competency versus the business side, the decision process is not unfamiliar to them, but if they resist the inevitable human resources partner, the business they have painstakingly grown could be put at risk.

Most emerging businesses simply cannot afford the level of HR expertise they would need to manage payroll, benefits, and people. Trying to deal with these time-consuming matters, even with a small staff, is not only foolhardy, it's unnecessary in a community with administrative services firms that can help organizations of varying sizes.

The sheer detail starts with forms and a variety of tax filing considerations, but it also extends to crafting different benefit packages for employees and policies for handling interpersonal disputes. "You really want to be developing and evolving the business, and not be distracted by the payroll, HR, and benefits," said Jane Clark, COO of QTI Human Resources. "Those are the things, especially as a business is getting up to speed, that can really be tremendous distractors."

Many providers have a large group of core clients that are one- and two-person offices. Small businesses not only have several options in terms of administrative providers, but different levels of service within the providers. Selecting someone to partner on HR, payroll, and benefits will require a great deal of trust, but the more services you get under one umbrella, the better the economies of scale. The more you can outsource, the more you can focus on your business.

Despite the volume and complexity of employment law, offering related services should be in your provider's wheelhouse. When comparison shopping, the HR service suite alone might include assisting employers with employee relations and proper documentation, job descriptions, the recruiting and interviewing process, job reviews, and updating and maintaining handbooks, policies, and forms to make sure the employer complies with federal, state, and local employment regulations.

In essence, the provider becomes the administrative employer, allowing your business to still function as the operational employer – focusing on strategic planning, sales volume, product development, and the like.

These services can deal with the vast majority of employment-related issues, but there is a point at which your provider might have to defer to an attorney. The provider might have attorneys on staff, especially attorneys well versed in employment law, but they do not function as attorneys for things like vendor contract negotiations (or as accountants for year-end business taxes). You outsource that.

It won't be long before new employers learn firsthand about the rising cost of benefits. By being part of a larger pool in the form of a Professional Employer Organization (PEO), those cost increases can be offset. With the sharing of employment responsibility, PEOs are able to offer health, dental, vision, life insurance, short- and long-term disability, flex plans, and 401(k) plans most affordably.

"With most if not all health insurance claims, you would need to have a group plan, and you'd need to have at least two employees," Clark said. "Once they hit two employees, we can offer them that full suite of benefits."

A service also can help you keep track of endless tax changes. Since a tax simplification bill was enacted by Congress in 1986, politicians at the state and federal levels have resumed their practice of complicating the tax code, and it's difficult to remain up to date on these changes and their impact on taxes related to Social Security, Medicare, and Unemployment Compensation.

Angela Heim, president of the Employer Group, said 2010 is a great example of how things change quickly. If an entrepreneur is going to add employees, and handle payroll themselves, they have to be aware that the employee's share of Social Security (FICA) tax was lowered from 6.2% to 4.2%. The employer contribution remains the same.

"We were facing the expiration of the Bush tax cuts, and the tax tables going back to what they were before that, and the payroll tax holiday was really down to the wire, down to the last minute," she noted. "If you're a one- or two-person shop, and you're concentrating on your business, you're not necessarily going to catch all that's going on."

In terms of communications, HR providers should be able to work with small employers at any technological level – from providing time- and attendance-tracking software, to e-mailing spreadsheets, to faxing hourly time sheets.

Charges for these services can vary. For HR outsourcing, they might bill on an hourly rate, much like an attorney. With administrative services, especially if it's the full suite, those can be billed out either on a per employee, per pay period basis, or as a percentage of gross payroll. Some will charge on a percentage of gross payroll for hourly employees, and on a per employee, per pay period basis for salaried employees; others will charge extra if you have to terminate an employee.

If you think this sounds expensive, wait until you experience what comes with employee turnover. "If you end up having to let somebody go, if you file unemployment, that goes against your account balance," Heim noted. "It could cost you even more money in the years to come."


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