What Should You Consider When Deciding Whether Your Startup Should Outsource Its HR to a PEO?
Starting a business from scratch can be both exciting and challenging. Many startups are staffed by their founders alone in the early days. But as the business grows, its staffing needs do too. When the time comes for your business to grow beyond its founders and begin adding employees, should you manage your HR needs in-house or look to outsourcing? Here are some tips to help you decide if working with a professional employer organization is right for your startup.
Ask the matrix
To answer the outsourcing question, many businesses turn to the decision-making framework known as The Outsourcing Decision Matrix. This matrix asks businesses to evaluate a task in terms of its strategic importance to the organization and its contribution to operational performance. There are four quadrants to the matrix. According to the matrix’s design, a task that is of little strategic value and not necessary for the operation of the business might be entirely eliminated. On the other hand, tasks that are at the very core of what makes your startup unique should be kept in-house.
Where would managing the complexities of labor law compliance, health benefits administration, and payroll taxes land on The Outsourcing Decision Matrix?
Well, consider the importance of these factors to the continuing operation of your business.
According to the U.S. Department of Labor website, there are now over 180 federal labor laws. Not all of these laws apply to every business. However, it is up to each employer to know which ones do. Some of these laws will be applicable as soon as you hire your first employee. The Equal Pay Act, Fair Labor Standards Act, Health Insurance Portability and Accountability Act (HIPAA), as well as OSHA safety standards, apply to employers of any size. Once your startup has 15 or more employees, additional laws (e.g., Title VII of the Civil Rights Act of 1964) apply.
And, of course, making sure your employees are paid and withholdings are handled properly is pretty important. So, HR tasks have a high operational value.
However, unless you are a professional employment organization (PEO), handling state and federal HR compliance issues probably isn’t one of your core business functions. That means these HR tasks have a low strategic value. These tasks fall in the outsource quadrant. Outsourcing these tasks will allow you to delegate non-core functions while ensuring they are completed.
Some HR tasks are more strategically significant than others. In particular, nurturing your startup’s culture and recruiting the right candidates for new roles are tasks that may fall within the strategic alliance quadrant. A strategic alliance allows you to leverage the knowledge and expertise of your partner while still exercising influence over the process.
Decide to delegate
If you’re still not sure whether your HR tasks should be outsourced or not, consider the advice in Jenny Blake’s article, How to Decide Which Tasks to Delegate. In it, she points out that some tasks are just not an effective use of your time. For example, you probably could learn how to properly maintain your startup’s employee records, handle health and safety concerns, and manage its payroll. But should you? A full-service PEO can offer you expertise, efficiency, and economies of scale. For agile startups, it doesn’t make sense to invest time reinventing systems that dedicated providers have already perfected.
Take advantage of free advice
Still not sure if outsourcing is right for you? Zamp HR provides a full range of payroll and HR services to businesses throughout the state of Utah. If you’d like to know more about how a PEO solution can help your business scale, just get in touch. We’d be happy to explain our HR services and how they can benefit your startup.