Get outside pros to handle your HR functions

Joanna L. Krotz writes about small-business marketing and management issues. She is the co-author of the "Microsoft Small Business Kit" and runs Muse2Muse Productions, a New York City-based custom publisher.

By Joanna L. Krotz

Whether your business produces pizzas or party hats, you must honor all employer responsibilities to your staff. That includes providing human resources services.

The ever-increasing burden of government regulation on small businesses doesn't make compliance easy. Many small and midsized businesses today simply can't afford managers dedicated strictly to human resources (HR).

The answer is to outsource these services. As with all vendor and consultant services today, there's a great range of options, expertise and fees for outsourcing HR needs.

But before going outside to hire for your HR services, do a "SWOT [Strengths, Weaknesses, Opportunities and Threats] analysis," advises Lynda Ford, president of The Ford Group in Rome, N.Y. "Ask yourself, 'Where do you want to go? How does the HR outsource component help you get there?'"

The four most common mistakes made by owners when hiring for outside HR services, Ford says, are:

After sorting out your needs, you can select from a menu of short-term services, such as hiring a recruiter for a week or two. You can bundle a few services. Or you can contract for all-inclusive packages that completely turn over HR services. Here's a rundown of what you may need.

Human resources basics

Payroll is the simplest service to outsource, though it's considered an accounting function, not really HR. The provider files taxes, handles paperwork and cuts checks for cost-effective monthly fees, generally an annual few thousand or so.

Before signing, read the fine print and compare prices among national providers such as Automatic Data Processing (www.adp.com), Advantage Payroll Services (www.advantagepayroll.com), Paychex (www.paychex.com) and dozens more.

After that, let's assume nothing is in place. All decisions about hiring and firing, or policies regarding vacation, sick leave and the like, are made as they arise -- or not made at all.

In that case, says consultant Arlene Vernon, who runs HRx in Eden Prairie, Minn., you need an HR audit. Business owners who call on Vernon's services tend to come in two categories. "Reactive clients who have had a problem with one employee or proactive clients who are feeling disorganized in managing people," she says.

After assessing the company's needs, says Vernon, "piece by piece, I develop a company handbook from a template that has been reviewed by an attorney. I then write job descriptions for each employee."

The handbook sets written, company policies for health and welfare issues (such as family leave or Flexible Spending Accounts) as well as for recruiting to separation. You also need policies that comply with anti-discrimination, safety and other government-mandated work practices.

Such a handbook runs $3,000 or so. And be prepared for the process of thinking through all your policies.

There also are temp agencies that offer specialized HR skills. The Ascher Group, for instance, based in Roseland, N.J., provides contract human resources professionals for $50 to $60 an hour to work on site. "Many are retired HR directors and very flexible," says chief executive Susan Ascher.

Before hiring project pros, Ascher advises, owners should have clear agendas or checklists of what they want accomplished. That way, goals are defined, costs are contained and you're not paying anyone to second-guess your preferences.

Turnkey HR

Smaller companies often wing the HR process in potentially damaging ways, risking lawsuits or scant resources, especially when it comes to hiring, according to veteran Chicago recruiter Tricia Nickel. She tells of a high-level business development candidate with the track record and contacts for a $2 million quota. He was all set to accept a job with a startup.

"But there were five sentences in the offer letter that weren't worded correctly," Nickel says. The candidate walked.

That and similar experiences motivated Nickel to start her own company, Padigent, in 2002. The company provides consulting and a patented methodology to recruit and retain employees for small, growth-oriented companies.

"It's for a company that doesn't need a Rolls Royce when a bicycle gets you to the next block," she says. "We have dozens of electronic forms including offer letters, non-compete agreements, employer referral forms and more." The process can run as much as $50,000 or more and takes a few months.

One recent Nickel client, a Chicago design and digital communications company, had four partners. During the discovery phase, Nickel asked the partners to provide answers to 42 questions that job candidates might ask during an interview. The partners responded with very different answers for more than 19 of them. No one had any HR experience.

But the main persuasion to hire Padigent was that the partners also learned how much HR influences exit strategies. Companies with HR functions in place were assessed at much higher valuations than other smaller companies,

Co-employer contracts

Last, you can totally turn over services and management of HR functions to a professional employer organization (PEO). "Such services saw a surge in the early '90s when complying with tax laws and complicated state and federal regulation became difficult," says Carlos Rodriguez, president of ADP TotalSource, a PEO based in Miami that's part of Automated Data Processing.

In this climate, with insurance costs rising and leaner workforces, PEOs can be attractive.

Once you sign a PEO contract, you agree to a co-employment relationship. There are now about three million Americans in PEO arrangements, according to the industry's national association (www.napeo.org), while each state has slightly different regulations. Generally, the PEO takes over substantial employer rights, responsibilities and risks, which include:

Choosing a PEO is a major commitment as well as a convenience. Carefully investigate the firm and check references before signing. Costs, says Rodriguez, run about 2% to 4% of payroll.

There are now dozens of HR services you can harness. Find the right fit and don't ignore the need.