When you're a smaller business, back-office tasks often get spread across employees whose formal titles have little to do with some of the activities they perform. U.S. Energy Services, Inc. is a good example.
Three people performed human resources tasks -- the office manager, the executive vice president of Corporate Operations, and the president. This ad hoc approach worked well enough with fewer employees; but once the company exceeded 50 people, factors influencing management also changed. "As we got to be a company with 50-plus people" says Todd Overgard, "the president and I were feeling less and less comfortable that we had a handle on all the new rules and regulations we had to comply with. We had to use legal counsel to keep us up to date on employment law."
Also, because some of the paperwork had to do with health care, employees had a legal right to privacy under HIPAA regulations, which were increasingly harder to guarantee with growing staff and documents spread across three offices. Eventually the company felt it needed an outside provider to manage and maintain the privacy of those records.
Some of the more complicated HR tasks were problematic and time-consuming for the company too. For instance, it offered a flexible benefits program whereby employees could contribute to accounts on a pre-tax basis for services like day care or expenses not covered by the company's routine health insurance for things like new eyeglasses. When the employees received invoices from providers, they just pulled funds from the appropriate account.
Overgard says, "We used to administer that ourselves and ended up with pages and pages of receipts from medical prescriptions and other treatments. It was a pain figuring out what dollars we put in and took out." It was also difficult to ensure the privacy of these records, he says.
The company retained employees in multiple states too, all of which have different regulations to keep up with.
As an outsourcer itself for its clients, U.S. Energy knew the value proposition of outsourcing. It's a natural gas reseller that buys natural gas from producers, transports it through interstate pipelines to get it to customers' facilities, and manages all the paperwork like invoicing associated with the process on the clients' behalf. In November 2006 the company embarked on an outsourced HR initiative of its own with Doherty HR.
Benefits across the board
Doherty took over all payroll and HR tasks and managed some benefits. Doherty manages HR in various ways. All new employees go through Doherty for their initial orientation; Doherty supplies and organizes all the forms associated with that. Doherty also assists with COBRA requirements when the company terminates employees.
What's more, Doherty assumed all training tasks. Overgard says managers have taken classes on employment law that reviewed, for instance, what constitutes sexual and other harassment, what the Family Medical Leave Act (FMLA) requires a company do in the event of an employee getting leave to have a child, and what's the best way to handle disciplinary issues. Doherty even trained certain employees how to use MS Excel.
Doherty also educated the three HR employees about the Fair Labor Standards Act, which determines which employees earn overtime pay. Some employees earn overtime if they work over 40 hours even if they are salaried.
Doherty also became the mediator between employees and the company's insurance carrier, Blue Cross and Blue Shield, so they no longer have to ask questions of internal staff.
Employees can now also access data like paychecks from an intranet Doherty supplies. They can go here to learn about their benefits too. Doherty does not do the company's 401(k) plan -- instead it acts as a liaison between employees and the 401(k) administrator.
The company used to recruit by word of mouth, the local paper's online recruiting page, or with temporary agency employees to test how well they might fit into a position before hiring them full-time. Now Doherty does it all. It also posts jobs on Monster.com, CareerBuilder, or in a local paper, then identifies the resumes that look most promising and refers them to Overgard. Overgard says. "with Doherty, we're getting a lot more online recruiting with a wider reach than before."
Doherty has also eliminated one very time-consuming process that is unique to this company. Overgard says the company pays its employees monthly, sending a letter with the check explaining all the financial benefits the company is providing employees on a monthly, year-to-date, and annualized basis. This data may include base pay, stock bonus, salary bonus, etc. The company pays 100 percent of its employees' health and disability insurance coverage and also pays into retirement accounts.
Because this was complicated, U.S. Energy used to pay an accounting firm $1,200 a month to do it. Doherty does the same letter now at no extra cost and has enhanced it with graphics.
All of these improvements have saved the company a great deal of trouble. Overgard attests that "I'd have a phone call a week from our office manager inquiring about a payroll or benefit issue. Now Doherty handles all that. Generally, now I hardly hear anything as it pertains to individual issues in HR."
As a result, he adds, "I think we've become a better company from an HR perspective because the issues we're addressing are at a much higher level." Now more of Overgard's time is committed to company business other than HR, like enhancing the employee handbook and doing more training.
The president meanwhile now deals with nothing but policy issues. And the office manager now works on things more suited to her background like processing about $1 billion in accounts receivables for clients and monitoring the company's bank account to ensure it's got the funds to cover the bills on its clients' behalf.
In the event a critical issue arises, Overgard can phone or e-mail Doherty and get a response within the hour.
Better service for less cost
As important, the company is saving money. Doherty's services run U.S. Energy $40 per employee each month, and the company paid about $2,000 for the original set-up fee. According to Overgard, "We're not spending any more than we were before, and we're getting a lot of soft benefits we did not have before. Even if we're just breaking even, our HR expertise is five times better than before."
Lessons from the Outsourcing Journal:
- As smaller companies grow, HR outsourcers can take over existing tasks and offer enhanced services without increasing overall HR costs or staff.
- Outsourcing HR also insulates companies from certain compliance liabilities -- for instance, ensuring the privacy of health care-related information to comply with HIPAA and adhering to human resource regulations that differ from state to state.
- HR outsourcers also help companies become less legally liable by training workers in employment law like the Family Medical Leave Act and the Fair Labor Standards Act.