Why small to medium-sized businesses should outsource their Human Resources tasks to third-party providers.
Economies of scale are a very real phenomenon. Once the infrastructure is in place for a certain task, it becomes significantly easier (and less expensive) to continue doing that one task over and over again many times over. That’s what the all-American entrepreneur and industrial icon Henry Ford discovered when he applied the principles of an assembly line to the manufacturing of automobiles. One person very good at one particular task, such as assembling an engine block or welding door frames, arranged in an assembly line was massively more efficient than the previous models of human labor: a single artisan who spent years hand-crafting, tooling, and machining each component of the car. More importantly, applying assembly line logic to the production of motor vehicles meant that each car was reliably the same, and much, much cheaper. So cheap in fact, that Ford is credited with sparking the automobile revolution.
The same logic applies to your business.
Economies of Scale
Economies of scale exist everywhere in the business world and can be enormously useful for companies that can take advantage of them. Large companies and corporations can often simply throw money at their issues by hiring a department of people to address them. Do you need HR services? Hire an HR department to cover compliance, payroll, benefits, and everything else. Need a marketing team? Hire people good at marketing. Thanks to economies of scale, they can often even obtain those and other services at a discounted price. For most small to medium-sized enterprises, however, doing every single task in-house simply isn’t a cost-effective solution.
Apply assembly line logic
Instead, apply assembly line logic. What tasks am I doing now that I could let someone else do, thus freeing me up to invest my time and resources in my business?
For many business owners, the first answer that comes to mind is all the mind-numbing, bureaucratic paperwork involved in running a business.
The solution is to outsource it to a specialist who can do it better, faster, and cheaper than you can. In other words, get a PEO.
A PEO is short for Professional Employer Organization. PEOs are third-party providers that specialize in providing HR and HR-related services (i.e. the tedious paperwork) to companies that don’t have the capacity, experience, knowledge or desire to do it themselves in-house. For small to medium-sized companies, this is a great solution to the problem of increasing regulatory complexity and costs, as well as a proven way to obtain better benefits for their employees. In fact, thanks to something known as “PEO pooling,” companies can enjoy the same economies of scale large corporations do, and can save your business up to 40% in regulatory compliance costs. PEOs act as an umbrella company of sorts, taking multiple client companies under its wings to leverage benefits for their customers on an even playing field with other companies. PEOs also act as the HR infrastructure for these clients ready to provide turnkey HR services for their customers.
As a result, the owner saves time, money, and resources that could be better invested in more profitable areas of the business. Leveraging your resources and letting a PEO do what they do best is the recipe for success.