Should you use a Personnel Management Company?

How important is employee retention to you? Most likely it's crucial. Often, keeping employees from jumping ship comes down to the effectiveness of your company's personnel management. But if you've got a tight budget, a full-time, in-house HR department is often out of your reach.

If you have fewer than 100 employees, you can outsource your HR personnel management quite easily - and even cost-effectively.

The umbrella term "HR outsourcing" includes PEOs (Professional Employment Organizations), BPO services (Business Process Outsourcing), and ASPs (Application Service Providers). While the terms differ, they often overlap. It's not uncommon to become confused, for example, if a BPO claims to be an ASP, or when a service calls itself a PEO but doesn't take legal responsibility for employees. Don't assume that a service performs certain functions based on its label alone; ask them to explain their offerings in detail.

Essentially, PEOs lease employees for your business, paying them and taking over legal responsibility for them, even though the employees are "working" for you. PEOs become a co-employer of your business since they are in control of your employees as far as hiring, firing, and wage negotiations go.

Business process outsourcing services pride themselves on always using the latest technologies, including self-access -- where employees can log on to the service's site and change aspects of their benefits package or contributions to 401(k) plans.

ASPs can solely host HR software that manages payroll, benefits, and more. ASPs can also take the next step by offering self-access like a BPO, but do not always use the latest technologies and can just host helpful ASP software.

Confused yet? BPO services and ASPs are so closely related it's sometimes hard to tell them apart. In fact, most BPO services are technically ASPs (hosting everything online) whether or not they are comfortable assuming the title.

Whatever you choose, all personnel management services generally offer, at the very least, these options: payroll administration, employee benefits, recruiting services, compliance management (dealing with state and federal regulations), and risk management (dispute resolution and employee handbooks).

Why wouldn't you want to outsource? In the case of PEOs, some businesses don't want to give up legal responsibility for their employees. And the new technologies of an ASP or a BPO just may not be appealing due to the possibility technological glitches like crashes and the security concerns of storing confidential information online.

So what sort of fees are we talking? A PEO typically charges 4 to 8 percent of each employee's pretax salary per month. The monthly range can be as little as $20 per employee to as much as $200. A typical package with an online service like a BPO or ASP, including insurance, 401(k) and workers' compensation, costs $75 to $130 per employee per month with an upfront setup fee of about $2,000.

While it's true that HR outsourcing has been proven cost-effective, your choice to outsource should come after much thought and weighing of all pros and cons. But don't wait until there's a problem that only an HR department can solve to start your analysis. By then it will be too late.

Quick tips

Combo deal. You don't have to outsource your entire HR department.Some places may require you to use all their personnel management services, while others offer them a la carte. Trial offers. Whichever HR outsourcing option you consider, don't sign a contract until you've had a trial run. Get references. Not all HR outsourcing services have good reputations. Call references from businesses similar in size to yours.