How A Small IT Firm Prospered After Outsourcing Its HR to a PEO | Article

financial securityTechGuard has one mission: to protect critical infrastructures by providing cyber-defense for government, business, and most importantly, for people. “People think that their e-mail communications and the information stored on their computers are safe and secure,” says Suzanne Magee Joyce, President and Founder. Not true! She started the firm in February 2000 “to address security gaps in an increasingly paperless world.”

Soon the fledgling firm had a gap of its own. Joyce wanted to provide healthcare and dental benefits to her employees. Most dental insurers require a payroll of 12 people before they will sign up a firm. Since TechGuard had fewer than a dozen employees, Joyce couldn’t find dental coverage at all. And her employees wanted orthodontics!

This lack of benefits became a recruiting hurdle. “Our most valuable asset is our people. The personnel we need to attract have to be best of breed,” says Andrea Johnson, Chief Operating Officer. “We are working with artificial intelligence in our research and development labs, so we need people with hard-to-find skills,” she says.

The Supplier Becomes a Recruiting Tool

The answer to this dilemma was outsourcing. TechGuard outsourced its entire HR function, including health and welfare benefits, to Administaff in December 2000. “Administaff allowed us to attract the right people. Our benefits clearly swayed the decisions of some candidates up front,” says Johnson. She adds Administaff’s professional benefits materials clearly made a difference. “Having a professional organization like Administaff has allowed us to attract and retain the right employees,” she continues.

In addition, joining Administaff allowed TechGuard to grow, hiring talent in Illinois, Michigan, New York, Virginia, and Maryland, far from its founding office in St. Louis, Missouri. “We just didn’t want to deal with finding healthcare benefits and the mounds of paperwork required if you have staff in different states,” says Joyce.

TechGuard discovered there were other benefits. First, Administaff performs background checks for TechGuard applicants. “In the security business, it’s critical that we hire trustworthy team members,” says Joyce. People who apply know they must pass a background check, weeding out inappropriate applicants from the start.

In addition, Administaff keeps its buyers in compliance with state laws. “We sleep better at night knowing someone else is taking care of this,” says Joyce. For example, the company discovered certain US cities have their own employment tax, which is another deduction on top of Medicare and federal withholding. “It would be a full-time job keeping up with all that,” sighs Johnson.

The HR supplier also keeps the company abreast of liability issues. “We just put up the latest required employment posters in all our offices that Administaff provided,” says Johnson.

Training the Bosses and the Employees

The two women say the Administaff seminars they attended taught them how to handle thorny employment issues. For example, TechGuard had a non-performing employee. “We didn’t have time to deal with this issue” says Joyce. “But we didn’t want him to leave with hard feelings or file for unemployment,” continues the president.

In response to the problem, Administaff convened a group to teach her how to coach this employee. It shared a counseling form. The group suggested inviting the employee to a performance meeting. “The employee saw we were serious about his performance,” reports Joyce. In the end, TechGuard enjoyed a “win-win situation. The employee’s performance improved and we got our valuable employee back,” she says.

Administaff also provides templates for employee appraisals as well as an employee handbook clearly explaining all policies and procedures.

TechGuard employees can also take advantage of Administaff’s training capabilities. Its Web site offers online classes. In addition, every one of TechGuard’s employees can enroll in a college class; Administaff will reimburse them up to $1,500. Professionals who need to take professional education to keep their licenses current can file for a reimbursement of up to $500.

The HR supplier even figures in fun. It has enlisted a series of ancillary companies which supply benefits to its outsourcing buyers. Johnson says many TechGuard employees use Administaff’s travel partner to book their vacations. “We get deep discounts,” notes Johnson, thanks to Administaff’s industry relationships.

The best part of outsourcing is “now we have time to focus on our customers and our national security mission,” says Johnson. “We don’t have to worry about employment laws, which ate up a lot of our time.”

Learning The Benefits of Outsourcing the Hard Way

TechGuard executives felt they had learned a lot about HR from Administaff. In June 2002 they ended their outsourcing relationship because they felt they could save money by bringing the function in house. In June 2002 there was a huge downturn in the IT market and TechGuard had to conserve cash every way it could. They thought it would save money to bring HR in house.

But it only took 12 months to decide “it wasn’t worth it,” says Joyce. “We were losing focus on our business by having to devote time to HR. In the end, it was just more cost-effective to use Administaff,” she says. When the firm analyzed the money it spent to do the time and benefits work of HR, they discovered it was costing them more.

TechGuard also likes the solution offerings. The company purchased a package from Administaff. Other suppliers wanted to charge them by the piece. She says this time around the firm looked at two other suppliers before returning to the Administaff roster. “No one else could offer the complete package at the value. We certainly get more for the same dollars,” she reports.

The Answer for Small Businesses

Johnson says the outsourcing relationship works because Administaff “understands the constraints of a small business. They have a deep understanding of entrepreneurship.”

That’s exactly how Paul Sarvadi, Administaff Chairman and CEO, describes his company. “We are the HR department for small businesses. Our goal is to help them succeed through the HR process,” he says. The Houston, Texas-based firm currently services 5,500 companies and over 100,000 employees.

Sarvadi believes “most business problems are HR problems in disguise.” This becomes an issue for small-to-medium-sized businesses (SMBs) like TechGuard because “every employee becomes an impact player.”

He says most SMBs get their start with an entrepreneur “who works 16-hour days and doesn’t get to eat for two years.” He says these entrepreneurs typically excel in certain business skills like sales, operations, or customer service. “But they seldom have strength in all the necessary disciplines,” he observes. “Few know how to deal with the people side.”

He believes great employees are a multiplier, just like technology. “When people make a discretionary effort on their own volition, it will make a big difference in any company. I believe HR is responsible for that discretionary effort,” he says. His company helps the entrepreneurs lead their companies so employees will go the extra mile.

Sarvadi says Administaff customizes the HR solution for every buyer. “We liken it to a Sunday brunch buffet,” he explains. But Administaff standardizes “how we get the job done.” It handles routine transactions on its Web-based platform.

Unlike some HR suppliers, Sarvadi says Administaff is “very profitable and debt-free.” He explains it charges “some of the highest prices in the marketplace, but we do so much more than anybody else to make a difference in a company,”–200 per employee per month. The New York Stock Exchange company just reported quarterly results for the third quarter up 65 percent over the previous year.

Customer retention rate is 80 percent, the CEO says. Those that leave typically got into financial difficulties–like TechGuard–or were so successful a larger company purchased them.

The 20-year-old supplier is one of the industry’s first Professional Employer Organizations (PEO). Whenever a buyer signs an outsourcing contract with Administaff, its employees become co-employed. The advantage: “The employees receive all the benefits of a large company but get to work in a small-company environment,” explains Sarvadi.

The executives at TechGuard would certainly agree. “We couldn’t be the multi-million dollar company we are today if we didn’t use Administaff. They are truly a partner in our success story,” says Joyce.

Lessons from the Outsourcing Journal:

  • Small-to-medium businesses may have a hard time recruiting highly-skilled staffers without the benefits they expect. Outsourcing allows SMBs to offer benefits typically available only at bigger companies. That includes things like orthodontics, short-term disability because of pregnancy, and reimbursements for training.
  • HR suppliers have teams of experts small businesses can rely on when tricky HR solutions arise.
  • Administaff can customize plans but standardizes all the transactions to keep costs down. Standardization has contributed to its profitability.


Post a Comment

Your email address will not be published.

( required )

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>