Rafanelli Events Management, an exclusive specialty events company servicing the eastern seaboard of the United States, and the American Red Cross, have something in common. Although both are excellent at the services they provide, they don’t have the resources in-house to do everything they need to do. Both also need resources that are scalable–up or down and quickly–when business needs change.
The concept for outsourcing HR processes is the same for large and small businesses–it’s a strategy for reducing administrative and compliance burdens, reducing costs, acquiring expertise and resources, and increasing employee benefits. But small businesses historically have not had equal opportunities. At best, they usually have outsourced several components to a variety of niche suppliers, as a broad suite of services from one outsourcing provider was often not affordable to companies with only a few employees.
Rafanelli is a small business with 22 employees. It designs, produces, and manages private parties, fundraisers that raise millions of dollars for charity, and weddings that are featured on the covers of magazines. However, it lacked the in-house resources to manage comprehensive HR services for employees. As an example, for two years they tried to put an employee handbook together.
Ken Hamilton, its CFO and COO, says handling the HR processes properly–let alone optimally–would have required “the salary of an HR person who would still have to be continually kept up-to-date with all the laws. By outsourcing, I’m paying one-fourth the cost, at most, that it would cost to hire another person to do this.” Once onboard with an outsourcing solution, the handbook was finished in four weeks.
“There are a lot of confidence-building measures that a small company sometimes can’t provide,” states Hamilton. “With the outsourced solution, our employees feel more secure now. They can see the safety in their money being in the 401k account.” He says outsourcing “really improved” the employee benefits program: the company can now offer free counseling and legal services, as well as an enhanced referral service that covers things like babysitting services and vacation/travel services which don’t cost the employees or the company any additional money. Everything is folded into one service. And it’s in a system that, for the most part, “any administrative-level person in the company can run.”
The alternative–outsourcing several components to a variety of niche suppliers–creates a major pain point for small businesses in that they don’t have the in-house resources to deal with multiple suppliers. In addition, they hear too many different things from too many different people and pay too many basic fees to too many suppliers. There is no time to shop the health insurance and other benefits every couple of years, so the benefits in place are often ineffective or not cost-effective. And there’s no way to deal with turnover and disgruntled employees. All these things affect a small business’ P&L statement in a big way.
The “HR Quarterback” and Other Premier Advantages
What Rafanelli, and many other companies found is known as “Paychex PremierSM Human Resources,” a comprehensive suite of HR services from Paychex, Inc. The outsourcer known for its strong brand in the payroll services space is one of the largest 401k plan record keepers, has a well-known workers compensation report, and Paychex Insurance Agency, Inc. is a large workers compensation seller for many insurance carriers. Paychex acquired National Business Solutions, a Professional Employer Organization, in 1996, packaged these benefits with its foundational services, and began marketing the HR suite–known as Paychex Administrative Services (PAS)–in California in 2000.
Fast forward to June 2005, when Paychex added more services to PAS and re-branded it as Paychex PremierSM HR. Perhaps the best new feature of the service is a Paychex HR generalist on-site at the client location. Tony Tortorella, Vice President of Sales for Human Resource Services at Paychex, says it’s like having an HR quarterback.
“The HR representative reviews employee files to make sure the appropriate paperwork is included in the employee file, for instance. You certainly can go out and buy a software program or use a service that has a 1-800 help line and ask what should be in the employee file. But in Paychex Premier, our HR rep at your location opens up the file and reviews it and even helps employees fill out forms correctly.”
“Clients absolutely love this aspect of our Premier HR service,” claims Tortorella. “For a small business, it’s a confusing, complicated thing to manage employees. Our solution gives them peace of mind about the way they are managing the employees.”
For clients with 1-75 employees, there is a lot of hands-on service from the rep, who is onsite weekly or monthly or during benefits enrollment season, as arranged up front with the client. “For clients with several thousand employees, we may even dedicate a rep to work exclusively with them as a back-room consultant for the client’s HR staff,” says Tortorella.
The Red Cross and Hurricane Katrina
Scalable resources and flexibility are two of the advantages of outsourcing, and both were demonstrated dramatically after Hurricane Katrina ravaged the US Gulf Coast, leaving thousands of victims in its wake.
The prepaid cards (similar to debit cards) the Red Cross used at first to disperse disaster-relief funds to Katrina’s victims were difficult to track, and some recipients no longer near their homes had no banking relationship enabling use of the cards. After several weeks of problems with the cards, the Red Cross turned to a company known for its expertise in processing checks.
They approached Paychex on a Monday morning for ideas for an alternative solution. By Wednesday afternoon, Paychex had figured out a way to get the victims’ data transferred from the Red Cross and a process for Paychex to create the relief checks and mail them out to the victims on a daily basis.
Martin Mucci, Senior Vice President of Operations at Paychex, says all the work was a donation to the Red Cross. They also worked with Hibernia Bank to ensure that the funds would be available, and the Standard Register Company donated the check stock on which the checks were printed.
During a six-week period, Paychex printed and processed a total of 271,000 disaster-relief checks, for about $240 million. “The average number per day was just under 8,000, but we had five consecutive days during which we processed 20,000 or more checks per day. And we actually processed 32,117 relief checks in one day,” says Mucci. This was in addition to the millions of checks it handles for its 522,000 clients nationwide!
“Our team worked a lot of overtime to develop the system and process the checks,” says Mucci. “There was a lot of dedication and commitment from the Paychex employees, who were all very excited to be part of this effort.”
Too much PR. Can you tone it down? High-quality service and expertise are two of the hallmarks of the outsourcing model. As Rafanelli says, “I find outsourcing is like buying a car. I may be able to assemble a car but cannot do it as well as a manufacturing company whose core business is cars. For many companies like ours, we can’t do comprehensive HR as well as Paychex does.”
Lessons from the Outsourcing Journal:
- Small businesses often tend to outsource several HR components to a variety of niche suppliers, but they don’t have the in-house resources to deal with multiple suppliers. In addition, they pay too many basic fees to too many suppliers.
- For a small business, it’s a confusing, complicated thing to manage employees. An outsourced solution with the provider’s HR generalist on the client site gives the small business HR department peace of mind about the way it is managing the employees.
- Scalable resources and flexibility are two of the advantages of outsourcing HR functions.