Quality Magazine

Quality Plan Book: The Outsourcing of HR

December 2, 2010
While the manufacturing industry is well aware of the benefits outsourcing can provide, few realize that these benefits can be applied to human resource management.


The uncertain manufacturing landscape has led many American plant owners to realize the need for better managed human resources (HR) solutions in order to save money, stay compliant with changing regulations, and improve benefits offerings to attract and retain talent.

While the manufacturing industry is well aware of the benefits outsourcing can provide, few realize that these benefits can be applied to human resource management. For small- and mid-sized businesses, an effective solution is the use of a professional employer organization (PEO) to easily manage these ever-shifting needs.

First, it is important to understand that a PEO provides integrated services, through a co-employment arrangement, which enables business owners to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation.

Co-employment means that a company remains an employer and continues to direct employees’ day-to-day activities while the PEO takes on human resource management duties. PEOs assume certain employer rights, responsibilities and risks such as being the employer of record on employee W-2 forms, as well as managing and delivering equal employment opportunity commission (EEOC) claims and state unemployment insurance.





Key Strategic Benefits

PEOs offer solutions that help reduce the costs and complexities related to employment and human resource management. Companies that focus on creating high-quality products and maintaining strict industrial guidelines are then able to focus on growing the business rather than being overwhelmed by HR and payroll needs.

There are several key strategic benefits that manufacturers can realize by partnering with a strong PEO. Among the most critical:

More productive use of time and resources. This is particularly critical for small- to mid-size companies whose profitability depends on efficient production and distribution. With a PEO handling much of the day-to-day HR administration, companies can devote internal resources and capital funds to revenue-generating activities.

Improved business focus. Many companies have outsourced processes and services that they previously handled in-house-HR/payroll is a prime example. By partnering with a PEO, manufacturing companies can tighten their focus on producing, marketing and delivering products-not HR paperwork and compliance issues.

Guidance from experts across the business spectrum. During the past two years there has been an intensified emphasis on compliance by federal regulatory agencies, including OSHA, the Department of Labor and others. A key benefit of a PEO is that client companies have access to the human resources and compliance expertise necessary to manage critical HR responsibilities and risks, and stay ahead of the compliance curve.

The ability to offer a better overall package of benefits. Increased automation translates into an increased emphasis on attracting and retaining skilled employees. With access to Fortune 500 company-level benefits, state-of-the-art human resource management system technology, training and development, PEOs can provide manufacturing companies with that extra layer of competitiveness.





Making the Decision to Go With a PEO

Manufacturers are increasingly moving toward the outsourcing model for a wide range of noncore functions, everything from maintenance and information technology to parts manufacturing and payroll. The goal is to focus time, energy and resources on business-critical functions, and outsourcing HR is a natural step in the process.

More specifically, as manufacturing companies seek ways to reduce operational costs related to managing HR, payroll and compliance, increase employee productivity, take a more proactive stance on risk management and safety in response to increased OSHA demands and improve recordkeeping to aid compliance efforts, the services PEOs offer are increasingly seen as a valuable solution.

The example of Karpen Steel is instructive. Located in Weaverville, NC, Karpen is a custom door and frame manufacturer whose attention to quality and customer service makes it a national brand. With approximately 30 employees, Karpen fits squarely the profile of a manufacturer for whom partnering with a PEO can make strategic sense.

Karpen’s co-owners, Eric Henken and Rachel Smith, are quick to acknowledge that having the PEO relationship has been a boon to their business. Henken points to the full range of HR expertise that a PEO brings to the table: “I can’t imagine going into a business with 30 employees and have to learn about HR and how to deal with it.”

Smith agrees, and elaborates on the reasons why Karpen chose to partner with a PEO, “As our company grew, our benefit package was no longer holding up…our way of doing business with HR was no longer good enough to necessarily be leading edge any more. We had different companies handling our health insurance, workers’ comp and dental insurance. We were about to lose our long-term disability insurance because we didn’t have enough employees signed up for it.”

Working with these different vendors, plus one for payroll, meant a paperwork and administrative burden that one Karpen employee describes as a “nightmare.” With the PEO relationship, Karpen has access to benefits and administrative support that previously they were unable to offer or manage efficiently.

Smith also points out one key characteristic that manufacturers should look for in considering different PEOs: industry longevity and stability, both as a company and among its individual associates. “We have had the same HR person, the same safety person, the same benefits person and the same payroll person since we started. It’s really the feeling of have an HR team on staff.”

She sums up her company’s experience in a way that should ring true for many small- to mid-size manufacturers, “I love serving customers. I love custom work. I love problem-solving. I did not get into the business to spend my time on human resources, health insurance and all those other aspects of the business.”

What the PEO relationship has given Karpen, according to Smith, is “more time for doing what this business is supposed to be doing.”

Tech tips

  • A PEO provides integrated services, through a co-employment arrangement, which enables business owners to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation.

  • With a PEO handling much of the day-to-day HR administration, companies can devote internal resources and capital funds to revenue-generating activities.

  • A key benefit of a PEO is that client companies have access to the human resources and compliance expertise necessary to manage critical HR responsibilities and risks, and stay ahead of the compliance curve.

  • With access to Fortune 500 company-level benefits, human resource management system technology, training and development, PEOs can provide manufacturing companies with that extra layer of competitiveness.