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Breathing Room: Entrepreneurism and HR Outsourcing

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Today’s recession has at least one upside—it has elicited innovation in an economy that desperately needs that shot in the arm. Many talented professionals have decided to file away their resumes, pool their financial resources, develop a business plan, and jump into the world of entrepreneurship. And what a jump it can be. Bid a bittersweet goodbye to the security of a regular paycheck, standard hours, and the infrastructure of an established company. Suddenly the buck stops with you. Building the company of your dreams is invigorating—and terrifying.

Certain management issues will be critical to your success or failure, whether you’re starting a hedge fund, creating a consultancy, or opening a retail shop. Of these, perhaps the most significant consideration is the team with whom you’ll be working. If this seems like an obvious point, think again. How clear-cut, really, are your ideas on human capital when it comes to recruitment and selection, employment administration, compensation and benefits, training and development, performance management, government compliance, and liability management? And even more daunting: how can you deal with all these HR (human resources) issues while simultaneously focusing on finding customers or clients and building a business? After all, you don’t want to work 24–7, but you want to do things right.


Outsourcing—whether it’s technology initiatives or bookkeeping services—enables you to rely on a broad group of experienced professionals. Released from stifling minutiae, you can concentrate on growing your company.

Nationwide, thousands of companies outsource HR functions to PEOs (professional employer organizations). According to the National Association of Professional Employer Organizations, there are approximately 700 PEOs in 50 states, serving a wide array of clients. A PEO handles the majority of the HR functions of small and medium-sized businesses: payroll processing, employee benefits management, assistance with employer liability management, employee payroll tax filings, and workers’ compensation coverage and claims resolution. A full-service PEO typically also includes personnel-related administrative functions as part of its total service offering.

“When I formed my company in 2006, I had to consider the logistics of running the business, corporate establishment, and operations,” says Anthony Clemente, chief executive officer of Canaras Capital Management, an alternative asset management firm headquartered in Manhattan. “A consultant recommended that we consider outsourcing our HR administration to a PEO, so that we could relieve ourselves of the headaches associated with HR and gain access to a larger pool of benefits. This made perfect sense from a cost standpoint—hiring an in-house person would have been much more expensive—and we would also be serviced by a team of individuals who would understand the myriad HR issues that come up each day. Outsourcing would provide us with the infrastructure and guidance we needed.”


If you are planning to be a solo practitioner, recruitment and selection may not be a current concern. However, if you plan to hire staff, you must be able to secure top-notch talent without spending an inordinate amount of time.

Placing newspaper or online classified ads is likely to inundate you with unqualified applicants. You’ll want to work with a recruiter who can help you identify the requisite skills and experience for a specific job and weed through resumes and job queries. A recruiter can also provide salary data, help determine appropriate wages, and handle preemployment background checks and testing.


Employment administration—everything from payroll processing and employment verification to time and attendance systems—is a necessity that can become cumbersome and distracting. By outsourcing this paperwork to a PEO, you can ensure that employment administration is systematic, consistent, timely, and accurately executed.


Strong compensation and employee benefits packages are critical because they help recruit and retain the best talent. In some cases, employees may accept lower salaries if they feel they have a competitive benefits package.

But developing a comprehensive package can be challenging. Small businesses often don’t have the power to negotiate with large vendors for reasonable prices on quality medical, vision, and dental care. Economies of scale allow PEOs to offer group rates and access to big-company benefits such as retirement services, employment assistance programs, life and disability insurance, and adoption and educational assistance.


Many employers wrongly assume that their new hires instinctively know what they need to do to be successful. When employees join a company, they should receive an orientation outlining performance goals and expectations. Clear and consistent communication from the outset is imperative. A PEO can help you with both the goal-setting and performance-review processes.

Every business owner should consider training an essential part of his or her operation. By bringing in specialists to offer refresher classes, sending employees to outside classes or seminars, and developing mentoring programs, you demonstrate that you care about your employees’ development. Training not only improves employees’ performance, it motivates them, maintaining their interest in their work. It strengthens teams’ skill sets and brings new capabilities into your business.

Some PEOs offer online courses and provide in-person programs to your employees, such as harassment- and discrimination-prevention workshops. Others may offer tuition reimbursement, allowing employees to take classes at local colleges and universities.


New business owners are often surprised by the sheer number of government rules and regulations involved in compliance. A business owner must be aware of everything from mandates of the EEOC (Equal Employment Opportunity Commission) to administration of unemployment claims. You’ll need significant time and know-how to keep your company out of trouble—and infractions mean both penalties and paperwork. It’s a PEO’s responsibility to keep up-to-date on all employer-related laws that affect compliance, such as recent federal changes in the Family Medical and Leave Act.


Owning a company entails a multitude of employer liability issues: workplace safety, payroll, and hiring and terminating employees, to name a few. Keeping up with the growing demands of federal, state, and local compliance is exhausting, but businesses that fall short will be slapped with heavy fines. Employment litigation is quickly becoming a blistering trend in the United States. According to the EEOC, individual charge filings—everything from retaliation claims to racial, sexual, and age discrimination—increased from 82,792 in 2007 to 95,402 in 2008. A PEO’s documented policies and procedures can help protect your company from damaging lawsuits.


Don’t panic. With the right infrastructure, starting and growing a business can be an invigorating challenge, not a debilitating burden. Outsourcing services such as HR brings clarity and focus to your daily operations. It can give you the space to broaden your vision and do the job you really love.


–Rob Giuffrida is a district manager and Mary Cunningham is a sales consultant in the New York offices of Insperity.

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