The talent market is competitive and human resources (HR) management is never an easy task, especially for small business owners who may not have the time and expertise to manage all HR functions. Small and medium enterprises usually face more constraints in identifying and recruiting the most suitable candidates, negotiating with service providers for employee benefit packages, hiring for ad hoc projects and keeping up with the latest labor laws. That is why some employers choose to establish co-employment relationships with professional employer organizations (PEOs).
In Hong Kong, according to data released by the Labour Department, there were about 400 new employment agency licenses issued between 2019 and 20201, indicating a prominent rising trend of outsourcing HR duties and certain employer legal responsibilities. In fact, by adopting a co-employment model, a PEO grants small businesses access to comprehensive HR expertise and takes over some HR tasks such as payroll, benefits administration, compliance and other typical HR functions.
Empowering Businesses
The values that PEOs bring to small and medium enterprises are tremendous. In the United States, according to a study2 by noted economists Laurie Bassi and Dan McMurrer, employment at small businesses using a PEO has grown more than 7% faster than at small businesses overall since December 2004, with an employee turnover rate 10-14% lower than the average overall employee turnover rate. In addition, businesses that use a PEO are approximately 50% less likely to permanently go out of business from one year to the next when compared to similar companies in the population as a whole.
The reasons behind can be categorized into three aspects:
- Lower Cost: A PEO is a cost-efficient staffing solution that allows accurate financial forecast and staffing budget to address small companies’ human resources needs. It offers not just a team of experienced HR professionals who can handle all the logistical tasks related to recruiting, onboarding, nurturing, payroll management, benefit administration, tax reporting and offboarding on behalf; but also access to standardized HR policies and practices, sophisticated digital HR solutions and better and more affordable employee benefits such as health, dental and life insurance which are usually available only at big companies.
- More Flexibility and Efficiency: When it comes to ad hoc projects, expansion to other regions where a company does not yet run a legal entity or even pre liquidation, a PEO can employ staff as a legal employer on behalf of a company, and seconds the personnel back to the company under a service contract. It is good for quick upsizing and downsizing, offering flexible and efficient staffing for small businesses without the needs to commit to permanent employment and employer liabilities.
- Fuller Compliance: Compliance has always been a critical issue for all businesses, large or small. An employee claim or regulatory violation can strain resources, damage reputations and take focus away from core business activities. By partnering with a PEO, small and medium business owners can get help navigating complex employment issues and rest easier knowing that compliance experts are looking out for the business.
A Case Study
TSS is an all-rounded human resources service provider specialized in recruitment and staffing solutions, including comprehensive PEO services. Following is a case study demonstrating how TSS’ PEO services can help businesses scale its workforce quickly and flexibly, as well as ease the administrative burden by taking care of the recruitment process end to end from onboarding to offboarding and day-to-day routine.
A company was preparing to reopen its stores due to the easing of social distancing rules. With a limited budget, they decided to engage a PEO to recruit staff and handle all employment matters including payroll, employment contracts, labor insurance, tax reporting etc. TSS not only conducted researches and provided up-to-date information on market salary ranges, but also identified suitable candidates even before the signing of service contract so as to arrange job interviews as soon as possible to meet client’s tight timeline. As a result, all personnel were on board within a week from the confirmation of service engagement and the stores were reopened according to plan. TSS bore all employment responsibilities and costs on behalf of the client, and will ensure enough staffing for the operation in all reopened outlets during the contract period.
Choosing a Suitable PEO Service Provider
While PEO can bring numerous benefits to business performance and operations, there are potential drawbacks, for example, current employees may feel insecure and afraid of layoff, companies may not have complete control over internal HR policies and procedures, or PEO owns the payroll data which may have security issues.
However, these potential negative outcomes can be avoided by careful workforce planning such as how PEO and current employees can complement each other, clearly defined scope of work and data security requirements when engaging a PEO, and open and transparent communication with all staff.
It is important to conduct extensive research, understand thoroughly the services and choose the PEO service provider that best meets your needs, budget and expectations for the future. Companies that need immediate, cost efficient and flexible staffing usually benefit most from engaging a PEO, such as those which want to have a fast-tracked entry to foreign markets, need immediate workforce for business expansion without permanent employment commitments, or are currently at the pre-liquidation stage. But generally speaking, nearly all companies can benefit from the professionalism, agility and flexibility, cost efficiency and administrative ease brought by a quality PEO.
Want to scale your business? To start with, learn more about how a PEO can help you build a capable workforce to spark the next wave of business growth today.
- Labour Department
- Professional Employer Organizations: Keeping Turnover Low and Survival High by McBassi & Company (2014) and Professional Employer Organizations: Fueling Small Business Growth by McBassi & Company (2013)
