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Outsource staffing to save labor costs, offer better benefits

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in Compensation and Benefits,HR Management,Human Resources

During these difficult economic times, small and midsize businesses are looking for ways to reduce their employment costs—while maintaining employee benefits and gaining a competitive advantage in the marketplace. Many employers are looking at alternative staffing models to meet those objectives.

There are several kinds of alternative staffing models to consider.

Payroll services

These providers generally just pay employee wages and taxes under your tax identification number. They do not provide any benefits or HR serv­ices. Their primary advantage is that they may allow you to reduce or ­eliminate your internal payroll and tax staff.

Temporary workforce services

These services provide employees for either short- or long-term assignments at your workplace. The workers are employees of the temporary-service provider, which pays their wages, taxes and benefits. Many of these firms will allow you to hire temporary workers without paying a fee, as long as they complete a specified period of service with your company.

Admin services organizations

Under an administrative services organization (ASO) arrangement, the service provider administers your HR functions, such as paying wages and taxes, providing HR advice and ensuring government compliance. The ASO does not assume an employment relationship with your employees, but acts as an agent to pay wages and taxes under your tax identification number. Your company remains the sponsor for workers’ compensation, health care and retirement plans, but the ASO may actively help you secure coverage.

An ASO agreement generally is structured so the ASO is not considered the employer for the purpose of federal and state employment laws such as wage-and-hour claims, civil rights violations and similar laws.

Professional employer organizations

Traditionally referred to as “employee leasing,” professional employer organizations (PEOs) offer the largest selection of services and benefits to employers. The PEO actually becomes a co-employer of your existing workforce, often including management and the owners.

Employees enter into employment agreements and fill out tax forms with the PEO.

All wages and taxes are paid under the PEO’s tax identification number. Since your workers now are considered employees of the PEO, the PEO can provide workers’ compensation and medical and retirement benefits under master plans sponsored by the PEO. Because a PEO aggregates thousands of employees under those master plans, benefits may be better and less costly than small businesses would be able to obtain on their own.

PEOs also have trained HR and safety personnel, provide employee handbooks and may even maintain employment practices liability insurance coverage to protect your company from certain types of employment-related lawsuits.

While the PEO becomes the em­­ployer for the administrative aspects of the employment relationship, the company retains the authority to direct the day-to-day aspects of the employees’ job assignments. The company also has supervisory authority and the discretion to make decisions on wages, hiring and firing—in consultation with the PEO’s HR staff.

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