HR Outsourcing Eases Company Admin Roles

In today’s marketplace, “outsourcing” conjures up the image of jobs going to personnel overseas. But one form of outsourcing helps local companies handle personnel issues without having to hire human resources experts.

According to a 2004 survey by the Society of Human Resource Management, 58 percent of U.S. companies said they were outsourcing a human resource function.

Large companies may use human resource outsourcing, or HRO firms, to save money. Smaller companies depend on HRO firms for expertise and experience with various compliances and paperwork.

Not only can the practice free up existing employees to perform other work, it may keep the company from hiring an extra person to perform the HR duties.

“What we’re trying to do is take the company’s focus away from the administrative point and have it focused toward what they’re in business to do,” said Clifford Lyon, president and CEO of SPMI, a human resource outsourcing firm in Van Buren. “We see a lot of people get so bogged down with [human resource] paperwork that they don’t focus on getting their bills out or their collections made.”

The Experts

SPMI (Southern Personnel Management Inc.) has a staff that includes one with a doctor of education degree, eight with master’s degrees and 12 with bachelor’s degree. They also have certified public accountants, certified professionals of human resources and a certified employment law specialist. Those are resources a company can have at its fingertips for a fraction of the in-house cost.

Lyon said a new client of SPMI decided to outsource some of its HR work rather than hire another person. It’s paying SPMI $700 a month to do it, compared to about $1,500 to $2,000 a month to hire an extra person.

Don Marr, president and senior partner of HR Factor in Bentonville, said many small and medium companies are looking for human resource expertise.

A company can outsource its HR functions “if they’re looking for the special expertise because it doesn’t exist with their local staff,” Marr said.

HRO firms can handle any facet of human resource administration. Companies contact an HRO firm with the situation, and the paperwork is taken care of, Lyon said, adding that companies shouldn’t be burdened with paperwork. Plus, SPMI’s database is so extensive that any compliance form most companies wouldn’t have readily available or know how to handle is already in the firm’s system.

SPMI handles payroll administration, basic human resource services (handbooks, 401(k) and background checks, etc.), loss prevention services, workers’ compensation and employee benefit services.

SPMI handles more than $70 million in payroll a year for over 6,000 employees in 49 states. The company has about 100 clients in the River Valley region and about 20 in Northwest Arkansas.

HR Factor’s business is about 50 percent outsourcing, Marr said. It provides outsourcing for sexual harassment issues, Family Medical Leave Act administration and company handbook administration. Other services include HR training, outplacement, compensation services, solution services and help desk services.

HR Factor has more than 200 clients, mostly in Arkansas, but also in other states such as Illinois, Florida, North Carolina and Oklahoma.

The Clients

DDP Holdings LLC in Springdale is one of SPMI’s clients that shifted from having an in-house HR department in 2002. The company has about 1,600 employees across the U.S., said Robert Hunsicker, DDP’s controller. It uses SPMI for its payroll services, benefits administration and basic human resource services. A bigger company like DDP uses an HRO to save time and money.

Because the company grew so fast, Hunsicker said DDP’s logical decision was to outsource payroll and other functions and beef up its accounting department.

“If we were strictly in Arkansas, it would be a little different. But being across the country there are so many different rules and regulations,” Hunsicker said. “We would have to have a staff just to research and keep up-to-date with compliances.”

DDP Holdings is a service merchandising company for the home improvement industry. The company sets up and maintains merchandising inventory in home improvement stores, with Lowe’s Home Improvement of Mooresville, N.C., being its largest client.

It has two other corporate sites in Wilkesboro, N.C., and Mooresville, N.C.

Hunsicker said because his employees are in all 50 states working with home improvement stores, there are a lot of different compliances and paperwork to keep up with in each state. Having an HRO firm that is experienced in those areas eases DDP’S burden.

“We would have to have one heavy-weight HR professional with some type of assistant, and a payroll person with one or two assistants,” Hunsicker said about having an in-house HR department. He said the company saves 10 percent to 20 percent by outsourcing.

Brent Hanby, chief financial officer of Springdale-based National Home Centers, said the company uses HR Factor for its Family Medical Leave Act administration, online applicant trafficking and administering the company handbook. He said National Home Centers uses it on a case-by-case basis, depending on the situation.

The building material company never had an HR department, Hanby said. National Home Centers uses other companies to outsource payroll and basic human resource administrative services, and have two employees in-house that oversee other administrative duties.

Hanby said if he were to bring all those HR functions in-house, the company would need to hire five or six people, not including all the training, software and hardware that would come with it. He estimates savings by outsourcing to be “in the tens of thousands” of dollars.

National Home Centers has doubled its staff size in the past three years, and having an HRO firm is important to keep up with the growth, he said.

“I think when you’re a fast-growing company you do need the expertise of an outside company,” Hanby said.

He said National Home Centers may have to eventually hire a full-time HR person because of its growth, but for now it’s working for the company considering its size.

National Home Centers has 980 employees at its headquarters and 12 stores in Arkansas.

Smaller companies go to HRO firms largely for expertise. And that’s what Custom Equipment Co. in Fort Smith has done since 1997.

Brent Cox, vice president of Custom Equipment — which supplies equipment to oil field and construction companies — started using SPMI when its secretary retired. Instead of hiring someone to take on the HR functions, the company decided to outsource its payroll, OSHA requirements and workers’ compensation claims.

“With 12 employees, it’s so much simpler,” Cox said of keeping track of updates and forms. “It’s a convenience to have [SPMI] keep up with it and what we need to do to comply with laws. They do all kinds of legwork, which keeps us more customer oriented.”

It also saves them money.

Cox said it costs about $10,000 a year for SPMI’s services, but it would cost the company about $20,000 or more a year to hire a secretary — and not one with the extensive HR knowledge that SPMI has.