August 3rd, 2020

Why Sharing Business Liability with Your HR Outsourcing Partner Is a Good Idea

When you run a business, you have a variety of liabilities. Sharing liabilities with an HR partner can relieve some of that burden. Your business, on its own, is  financially liable for anything you’ve borrowed and owe, like loans or mortgages. You’re liable for things like paying your employees and collecting sales tax. Your business also has legal liabilities, which includes answering to laws and regulations and responsibility for injuries in the workplace.

Much of your business liability falls under the purview of human resources. If you have an in-house HR team, your staff probably understands the basics of staying compliant with laws and regulations pertaining to the workplace and employees. They probably know how to address workplace issues and can process any claims made against your business by employees. Or, if you’re the one managing HR, you might be the one who has to know about and handle those things.

The important point is that when you manage HR in-house, any workplace and employee-related liability is 100% yours. You or your HR team are accountable for how well you manage and mitigate risk, and you’re also accountable for any mistakes or oversights that might happen in the process. When errors occur, they can be very costly. For example, the cost of litigation for small businesses can range anywhere from $3,000 to $150,000. In the event you’re sued and have to pay legal damages, it could threaten your entire business.

Despite worst-case scenarios, owning the risk—that is, being 100% responsible for your business liabilities—can feel like the sensible thing to do. After all, having control over your choices and decisions, good or bad, is an essential part of owning and running a business. But what makes it significantly more challenging is when you lack the in-house expertise or time to thoroughly understand all the ins, outs, and technicalities and handle them correctly and appropriately. One wrong move, or a series of wrong moves, can put your business on shaky ground.

When you lack time and expertise

Not everyone is an expert in all things, nor should they be. As a business owner, you may know a lot about the core work of your company, but less about employee benefits. Or your in-house HR team may be excellent at payroll, but less confident in risk management. Then there’s the time factor. Simply trying to track and manage all the important details that come with everyday HR administration is a full-time job. So is staying up-to-date on changing laws and regulations. In fact, there are over 90,000 state and local governments in the U.S. that each have their own rules and regulations, which means the laws can vary vastly by state. This becomes even more complex if your business operates in several different states.

When it comes to liabilities specifically, if you don’t have a dedicated legal team you can readily go to for guidance or a legal expert on your HR team, you run the risk of missing key information or deadlines. For example, you could incorrectly set up a health insurance or retirement plan—which can have severe consequences later.

Consider just some of what you have to pay attention to when you’re on your own:

  • Whether payroll tax calculations are done correctly and updated according to changes in laws
  • Whether your benefits plan is set up and administered to comply with all federal, state, and local regulations
  • Whether your benefits plan covers all eligible employees or if it extends to employees who shouldn’t be covered
  • Whether all new employees have been onboarded consistently and correctly
  • The potential for audits by the IRS and Department of Labor and how to work with them
  • The potential for workers’ compensation claims and how to resolve them

It takes a high level of skill and know-how to manage and respond to these issues and concerns. If you have a small- or mid-sized business with limited resources, you could be relying on staff members to handle some things that they’re simply not equipped to do, either because they’re lacking in time or expertise—or both.

How an HR Partner can help

To give you greater confidence that your business liabilities are being managed well, one of the best things you can do is work with an HR partner like a Professional Employer Organization (PEO). A PEO acts as a co-employer. This means not only do they take on your most time-consuming HR work, they also shoulder a good portion of your business liability.

As an HR partner, a PEO is equipped with the capacity to handle the HR administrative load and the expertise to ensure your business is in compliance. Instead of worrying about keeping up with laws and regulations, a PEO assumes that responsibility for you. They help you manage workplace and employee-related concerns effectively and can consult with you on legal questions or issues. They can also do much of the legwork of researching, setting up, and administering the best benefits plan for your business. The co-employment business model means they’re invested in the success of your business and want to ensure that your workplace runs smoothly and your employees are well cared for.

Outsourcing HR to a PEO doesn’t mean that you don’t need your existing HR team anymore. Rather, the PEO can step in when they’re needed and offer knowledge and expertise wherever there’s a gap to fill. They can play a supportive role or take the lead—however you see fit.

When you outsource HR to a full-service PEO, and—by extension—share business liabilities with them, you and your team can spend more time on the strategies and work that will help your business grow and evolve.

To learn more about PEOs and other HR outsourcing options, download our eGuide. It’ll help you determine if your company is ready for an HR partner.

Download Our eGuide: PEO or HRO — Which type of HR partnership is right for you?

When you're ready to take the leap and decide on an HR outsourcing model, here are the factors to take into account.

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