Employee leasing companies

Rich Kavanaugh · September 2003

We have 170 employees and growth of about 30% yearly. We are considering changing from in-house payroll and HR administration to an employee leasing company. They claim savings in insurance, administration and in HR headaches.
What are the pluses and minuses of these agreements?
Or is "the devil I know better than the devil I don't know"?
Thanks,
Rich

Don D · September 2003

I certainly would not suggest that a company of 170, who will reach 220 next year, should farm out their HR function. I suggest, to the contrary, that you will not be able to survive without at minimum 1.5 people in the department and you would not be overstaffed at 2 or 2.5. Sure, you will perceive that you're saving unemployment insurance taxes and a minimal comp charge per head and a few benefits savings by not having an HR staff. But, stack that up against the charges you will incur by paying a vendor to investigate sexual harassment charges, manage payroll, clean up the mess of mishandled progressive discipline procedures, conduct multiple training sessions and orientation classes and mind the business of compliance with labor laws on a daily basis. Not to mention the running of newspaper advertisements, overseeing confidential file maintenance and destruction, and union avoidance.

Crout · September 2003

We used to farm out the Unemployment Compensation stuff to a well-known company (let's call them ABC) and the bigger we got the less efficient they became. Since we are a non-profit we are on the reimbursable system and our monthly UC tab began to skyrocket because we were losing so many claims. When I came on board I made the observation to my boss that I could hardly do worse than ABC and would probably do much better which has proven to be the case. For hand's-on functions, there's just no substitute for an in-house HR staff.

Nrdgrrl · September 2003

[font size="1" color="#FF0000"]LAST EDITED ON 09-09-03 AT 12:53PM (CST)[/font][p]There are a couple of issues to decide upon before outsourcing HR functions.

The short test- can they do it cheaper, faster or better than you can in-house? If you answer no to all three, then there is no real reason to outsource. But what if they can do at least one? Then you have some other issues to decide.

If you ousource, you may lose HR expertise in your company, making it difficult to change vendors or bring the function back in. Also, how will your current ee's feel when all their issues, many of them confidential, are handled by "outsiders"? Even when branded, savvy ee's know they are being shunted to a 3rd party vendor.

My current company outsources some items and not others. We outsource unemployment, workers comp, partial payroll processing, etc.

Nrdgrrl

Don D · September 2003

I spent many years in and around the employment/unemployment insurance systems and cannot for the life of me figure out why companies outsource any part of that. Our company does the same nationwide and somebody is making a killing! If there's a hearing to attend, I attend it. If there's a form to fill out, we fill it out. We do get the opportunity, though, to report to this third party how the claim came out. I suppose they keep a record of our work and charge us for what we did. They are also supposed to ensure that the rate paid in each state is accurate. Hmmm.

Crout · September 2003

I suppose with a nation-wide company the sales pitch would be that they could juggle the various state laws better than an in-house person could. For that matter, in our case their claim was that they had genuine expertise in the realm of Unemployment Compensation. Expertise? Hardly. The problem was that their performance never came close to matching their rhetoric. I took it over because I got tired of seeing so many undeserving former employees receive UC benefits. Since then we've done very well.

Pork · September 2003

RICH: BEEN THERE AND DONE THAT; I would not do it again! In my case the leasing company provided only paper connection to the employee for 90 days, which got us by most of the history of employee accidents and "piss poor performers", that we would terminate and have replaced with another. After 90 days they became full time employees with full benefits at that date! Everything worked smooth for a while until there was a union drive, which we won, but cost me my job, because of the arms length distance that was established for these leased employees, our attorney and the NLRB allowed the leased employees to be counted as our labor employees and entitled to vote. We won but only by the narrowest of margins.

Good luck, but require the leasing company to provide a person on site to train, supervise the performance, and handle the people issues with their employees. Make it so that all issues are dealt with by the on-board supervisor, who will handle all complaints and doall of the terminations. Don't ever allow the labor force to become an employee until they are ready to be promoted to supervisor level and up!

PORK

Shawn · September 2003

When you have an HR Manager in house you can just walk over and ask anything you like. When you outsource something you generally pay as you go. I think that if you outsource HR, you are likely to begin consulting your HR consultant less and less to save money. As a result, you have less HR input and begin to make mistakes that can cost you big time. Keep your HR folks. You will be glad you did.

TN HR · September 2003

>the arms length distance that was established for these leased
>employees, our attorney and the NLRB allowed the leased employees to
>be counted as our labor employees and entitled to vote. We won but
>only by the narrowest of margins.

PORK

Actually, didn't the NLRB rule in the M.B. Sturgis Incorporated case that temps/leased employees have to be included in the same bargaining unit with regular employees?

Gene

Pork · September 2003

GENE: Just the reason that I wrote to have a leasing company employee on-board to truly handling the leased people's issues, bendfits, complaints, their spokesman to the leasor company; which is much the role of the UNION rep. I do not think you will find a leasing company, who is truly ready to put someone on-board the operating floor, thus the ability to do the "people leasing act" under the "arms length away approch" is an exercise that we HRs have to go through to get some managers/GM/CEOs to understand there is no way to get away from having a strong HR Department to take care of our company people issues. I could be wrong maybe things have gotten better, two years ago I was approached by a people leasing company with same old methods, the first question I asked was "how soon will you have your people handler ready to roll"?
The answer was "no, you don't understand; the presentation ended at that point and I ushered the individual to the door and wished him well!

PORK

Don D · September 2003

>
>Or is "the devil I know better than the devil I don't know"?
>Thanks,
>Rich

But, if the part of your question shown above is indicative of your true feelings about an HR Department, I suspect you don't value them highly enough to follow the advice you're getting. Good luck. And, Good luck when you decide to re-establish the HR department two years down the road. It should only take you about two additional years to re-establish it fully.

Pork · September 2003

"DANDY DON": It wasn't that difficult, they fired me by giving me a promotion to corporate and waited 180 days and then gave me a two week notice of lay off. The operating company fired the leasing company and promoted the smallest company manager ( a young good looking female, who was banging the GM) into my old position, immediately gave her $10,000.00 more than what they were paying me, made the payroll clerk take on all of the HR administrative duties, and the new HR attended all meetings with the GM and made life in the company uncomfortable for everyone, because, everyone knew what was going on! Had the ownership not been a personal friend, I probably could have owned them. The CEO, had all the faith in the world with the corporate HR and listened to him and did not believe me. The corporate HR was terminated out right after 9 more months, because he knew I was right and the company was wrong. The GM and his "shack-up" were also fired, but I was never recalled, the operating company shut down and is now a pure distributor of manufactured products. The "shack-up" has since married an ATTORNEY, and living a life of dreams.

OH FOR BLESSED DAYS, I HAVE BEEN WANTING TO GET THAT NASTY OFF OF MY FINGER TIPS FOR A WHILE!

YA'LL EAT MORE PORK AND HAVE A BLESSED DAY, FOR WHATEVER IS LEFT OF IT!

Rich Kavanaugh · September 2003

You did JUMP to a conclusion there...Are you a little sensitive when it looks like HR may be outsourced? I'll assume that the "if" in your first sentence is the key to your remark.
My point was that doing HR in-house has a lot of details and responsibilities and possible liabilities. That is the "devil" I was referring to.

But, all kidding aside, thanks for the point of view. I am not a proponent of employee leasing, but when it comes to a potential savings of the magnitude that leasing companies claim, I have to look at all sides because we are a for profit operation

Rich

Pork · September 2003

Rich: that is just "dandy Don" and he did take you wrong! Outsourcing of HR functions can be a way to go, but I certainly have never been a proponent of it either after my last opportunity to be so bright to set it up and end-up with no job at all.

ON TO ANOTHER TOPIC!
PORK

Don D · September 2003

Rich: either I didn't click on 'post' or James omitted my last response. As I recall it was, "I fully understand. But, before you conclude your complete analysis of this alternative, check with ten of your counterparts in your industrial classification, companies of your size, and I think you'll find that not a single one of them has outsourced their HR department, or if they did it was only maybe part or most of the payroll processing and maybe a couple of ancillary functions like 'employment verification' and 'basic OSHA standards training'. And I must ask Pork, what are those odd slang terms you are slinging around...banging...shack up?

Pork · September 2003

"DANDY DON" go get an after noon of coffee and rich and I will finish this discussion in meaningful terms. THE ANSWER IS JUST SOME OF THOSE OLD SOUTHERN BOY SLANG WORDS TO EXPRESS SOME PROCESSES AND STILL BE A SOUTHERN GENTLEMAN ABOUT THE ISSUES. I could be brash and bold and write out the terms, LIKE YOU, but then what is the meaning of "it" anyway? Our previous leader in the White House your President spent 8 years getting me all "bumbfuzzled and confused". "It is in the eyes and ears of the beholder";I'm getting ready for Bible Study tonight, so I need to move on before my working day ends with a "banging in the old wood pile, where the hogs are breed"!

PORK

Employee leasing companies

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