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Managing HR Internally Vs. Outsourcing with a PEO

Posted on January 27, 2016
Debra KabalkinWritten by Debra Kabalkin | Email author

PEODeciding whether to manage your HR function internally or outsource it is a critical decision, especially for organizations experiencing fast growth. If you are currently outsourcing your HR function to a Professional Employer Organizations (PEO) and are considering bringing your HR function in-house, there are several considerations you need to take into account before pulling the trigger.

For those not familiar with how PEOs work, companies contract with them to provide HR support and assistance, including policies and procedures, payroll services, insurance benefits, Workers’ Compensation and other HR processes. Outsourcing the HR function to a PEO can allow an organization to concentrate on the operational and revenue-generating side of business, while saving costs.

Determining When To Use a PEO Vs. Bringing HR In-House: Top 3 Factors to Consider

PEOs are a great option for many businesses. However, if you are unsure of whether to continue with a PEO or to bring HR in-house, here are some of the factors to consider.

  1. Know the Costs of a PEO – Within a PEO, costs are tough to measure. In some cases fees can exceed 15% of your total payroll. Analyze your monthly bill and determine what you are paying per employee each month. Understand what costs are included (i.e., taxes, administrative fees, etc.) so that you can determine what the true total cost is. If your organization has grown to more than 100 employees, one area to look closely at is Workers’ Compensation costs, which can become a large expense if not managed correctly. For example, in a PEO environment, a universal classification code may be used instead of an industry specific code, which could be costing you money.
  2. Update your HR Technology – Ensuring your HR technology systems are up to date is critical . You’ll need to determine how to transition payroll, HRIS, and benefits administration systems from the PEO. Clearly understanding what systems you currently have and what you need, will help you address systems issues up front and to conduct research on what technology is available and appropriate for your organization if there’s a gap.
  3. Review and Revise Company Policies – Many times your PEO doesn’t have any internal policies, which are company specific. This is a great time to design policies specific to your culture. A good place to start is the employee handbook. Does the company have any stand-alone policies? They would all need to be reviewed and possibly revised to ensure they are compliant with current rules and regulations. Make a schedule and prioritize the order of importance to accomplish this task.

Knowing when to transition your HR function from your PEO is a crucial decision. Make sure you have all of the facts to ensure that you make the best decision for your company. 


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1 Comment

  1. by John on March 16, 2016 at 1:08 pm

    Designing policies specific to your company’s culture is a great tip to remember when transitioning to in-house HR. It will help reinforce your company’s organizational culture and give employees the sense that they are part of a group that pays attention to the smaller pieces that make it up.

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