Article

The Ins and Outs of HR Outsourcing: Part I

How fast casual operators can determine if the HR outsourcing model is right for them.

May 4, 2010

Most people use HRO when they're talking about either breed of service provider, so it's easy to get confused and assume that HRO is the blanket term for HR outsourcing. While HROs, ASOs and PEOs do offer similar services, fundamental differences exist between the approaches. And every restaurant — whether a startup just breaking into the market or a franchisee with years of experience — needs to understand these differences before choosing an HR outsourcing solution.

HROs

An HRO is a third-party provider of common HR services. Depending on its range and scope, an HRO can address all or only a few of businesses' various HR needs, including payroll, benefits administration, training, risk management and recruitment. Most HRO companies offer services à la carte so that you can pick and choose which HR responsibilities you want to outsource.

PEOs

PEOs, on the other hand, take care of all HR responsibilities for their customers. A PEO handles every HR task — from workers' compensation to creating an employee handbook. A PEO also shares liabilities and legal responsibilities for its clients.

In order for this relationship to work, a PEO delivers its services by establishing and maintaining an employer relationship with the employees at the client's worksite and by contractually assuming certain employer rights, responsibilities and risk. The shared employment relationship of a PEO provides a number of benefits for companies over the agent role of an HR outsourcer model. Put another way, PEO shares responsibilities and takes care of all the administrative back-office responsibilities such as payroll, benefit enrollment, HR manuals, workers' compensation and unemployment compensation.

With the much larger size of a PEO's workforce, they can provide economies of scale and scope on health benefits and retirement packages that you might not have the time and expertise to offer on your own. PEOs also are responsible for improving compliance with local, state and Federal regulations. Allocating all HR responsibilities to a PEO allows growing businesses to devote their attention to issues that will make or break them.

Single Source Outsourcing

Single source outsourcing providers or Administrative Service Organizations (ASOs) enable businesses to take advantage of outsourcing without transferring the entire HR organization to a service provider. The approach provides a model under which companies outsource one or several difficult or time-consuming HR processes, such as payroll, recruiting or benefits-plan administration, while retaining control over other applications.

In an ASO arrangement, the vendor is an agent and the business client remains fully liable and responsible, unlike with a PEO where there is a sharing and allocation of responsibilities. It's not unusual for a company to maintain a business relationship with two or more single source outsourcing providers, with each firm offering a critical service in its own area of expertise.

HR Specialist

One alternative to outsourcing is to hire an in-house HR specialist. Finding one person who is an expert in HR, payroll, employee benefits and risk management can be difficult and expensive. Most restaurants don't have the budget for a position like this.

Which One's Right for You

Determining whether an ASO or PEO is right for your company requires a significant amount of consideration and planning. But a few key facts may help direct your decision process.

If you are new to the restaurant industry, you may be wise to consider a PEO. Startups have a host of issues on their plates — from determining the right number employees to creating an effective marketing strategy — and may not have the budget to hire a dedicated HR professional. A PEO can save you a tremendous amount of time and effort.

In addition, if you have a small restaurant organization, it's worth hiring a PEO to be able to offer your employees health insurance or 401(k) plans. If your organization is going to compete with larger chains for talent, you need to provide benefits that are up to snuff.

The Final Choice