HR Outsourcing: A Valuable Management Tool For Nonprofits - Part 1
Today's challenging economy has placed greater demands on nonprofits. The financial hardships of many have prompted an increase in the demand for their services while, at the same time, they experience a decline in contributions. According to Charity Navigator's estimations, there has been a 14.5% decline in corporate contributions, a 2.7% decline in individual contributions, and a 2.8% decline in bequests in 2008.
| Posted in Management on Jul 1, 2012 by Louis Basso and Barry Shorten
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The 7th Annual GuideStar Nonprofit Survey found that 64% of nonprofits reported a significant increase in demand for their services. While the nation is pulling out of the recession, there remain many good reasons why nonprofits should be seeking ways to streamline operations, contain costs and retain their best employees.
One tool nonprofit managers are using to achieve these goals is Human Resources Outsourcing (HRO). Specifically, they are turning to Professional Employer Organizations (PEOs) to provide a complete HRO solution. Understanding how a PEO relationship works, the HR services provided and the benefits that should be expected is something all nonprofit management teams should pursue.
Selecting a PEO
A PEO is a co-employer with its clients. The PEO's role is to assume responsibility for the entire HR function. This includes everything from payroll, tax and employee benefits administration to regulatory compliance, workers' compensation, unemployment claims, Employee Assistance Programs (EAPs), and various value-added employee services (e.g., shopping, transportation, travel and entertainment discounts; fitness club memberships; adoption assistance; etc.). As a co-employer, the PEO assumes some of the risks in the relationship. Therefore, when selecting a PEO, it is vital that nonprofits seek out PEOs with the proper credentials.
When seeking the services of a PEO, a non-profit should make sure the PEO is licensed or registered in each state where it has employees and where licensing or registration is required. Additionally, organizations should seek out PEOs which have accreditation by the Employer Services Assurance Corporation (ESAC), which is the equivalent of what FDIC and SIPC are for banks and security firms respectively. To gain and retain ESAC accreditation, PEOs must demonstrate that they adhere to the highest standards in ethics, finances and operations. There is a long and arduous process to apply for accreditation and there are subsequent annual reviews by ESAC of the PEO. ESAC-accredited PEOs are covered by a $1 million bond held in trust by a major national, which backs up the PEO's performance against contractual obligations to its clients, as well as excess coverage in the amount of a $10 million surety bond. For apparent reasons, these operating standards should be a very important aspect of a nonprofit's search for PEO services.
Beyond state licensing and ESAC-accreditation, the PEO/HRO partner should employ experienced and qualified HR professionals. These individuals should hold key professional designations. They include:
- The PHR and SPHR certifications, which are awarded by the Human Resources Certification Institute affiliated with the Society for Human Resource Management (SHRM) and signify that the individual possesses the theoretical knowledge and practical experience necessary to pass a rigorous examination demonstrating his or her high proficiency within the field of human resource management.
- The Certified Payroll Professional (CPP) designation which is awarded by the American Payroll Association (San Antonio, TX) and indicates the individual is proficient in all facets of payroll operations, including taxation, compliance, payroll systems, accounting and management.
In addition to these professionals, the HRO partner should have an experienced employment lawyer on staff to advise the internal PEO staff and counsel clients in the critical and complex area of workplace regulation and compliance.
Another criterion nonprofits should use when examining a PEO is its corporate culture. It should reflect an employee-centered workplace; one which conveys that management values its employees, recognizes the importance of work-life balance, and strives to maintain satisfied employees. This corporate culture is evident both through company policies and employee services. Look for HRO partners committed to: helping advance employees' personal goals as evidenced by their offering of college tuition and adoption assistance programs; helping employees obtain lower auto insurance costs by sponsoring defensive driving classes at the workplace; encouraging community service by giving employees paid time off to volunteer; and promoting team-building and camaraderie-boosting with events like company picnics and offsite retreats which enhance communications across different departments and staff levels. Other ways strong HRO partners demonstrate their concern employees is by responding to employees' health concerns, for example, providing onsite flu shots and medical screenings for blood pressure.
When selecting a PEO, look for an organization that has harnessed the power of advanced information technologies (IT). Specifically, nonprofits should assess the PEO's application of leading-edge, web-based technology that enable both companies and their employees to manage their benefits information online from any PC on a 24/7 basis. In addition, a PEO with a robust website that provides helpful information regarding benefits, wellness, and employee services further demonstrates a strong commitment to the relationship and the highest standards of customer service. It should also be noted that because of the HRO relationship, the nonprofit avoids the expense associated with having to invest in its own HR software solution, while still gaining access to state-of-the-art HR management technology.
When practiced effectively, HRO accrues significant benefits to an organization. Chief among them are addressing employees concerns, enhanced operations and improved risk management.
Nonprofit Management Human Resources Outsourcing HRO Professional Employer Organizations PEO Employer Services Assurance Corporation
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