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Outsource Human Resources and Meet Your New PEO

Tickers in this article: ADP
CHICAGO ( TheStreet) -- There are certain milestones all small-businesses owners reach as they grow from a one-person startup to a multi-employee operation. The moment they realize they can no longer function effectively from their home office in the basement. The moment they make their first hire. And the moment they realize they just aren't equipped to handle all the paperwork and regulations that come along with building a workforce.

Human resources departments are a must-have for large corporations, but having a dedicated HR pro is a luxury for most small businesses. When there are only a handful of employees, you hardly need someone tending to their needs full time. But as small businesses grow, their needs change. A dozen new employees may need to be hired on short notice, which means crafting job descriptions, determining salaries and designing training procedures. Wouldn't it be great if you could bring in an HR expert to handle it all?

You can. Many human resources functions lend themselves to outsourcing, allowing small businesses to pay for just the services they need rather than keeping a full-time human-resources specialist on staff. Payrolls, for example, are often handed off to outside firms; industry leader ADP (ADP) processes payments for one in six workers in the United States. Employee benefits can also be handled by an outside vendor, saving business owners the hassle of sorting through mind-numbing health care plans.

One solution that has been growing in popularity over the past decade are professional employer organizations, which operate on the concept of "staff leasing." The PEO provides a dedicated human-resources point person for your company, who works in your offices, handling all the financial and legal aspects of employee relations.

The PEO you've contracted with then becomes a "co-employer" of your business's workers. Legally, that company (and, by extension, the HR specialist who works in your office) are responsible for employment-related services and liability issues such as risk management, payroll and tax compliance. The way such arrangements are structured is intended to be long term. You don't hire a PEO for a few weeks to set up a human-resources system and then leave; they stay on as the business grows (or until it is big enough to justify hiring an in-house HR specialist).

One big plus for small-business employees is that they can access benefits through a PEO they might not otherwise be offered. A company of 10 or 20 employees might not be able to offer health care options to its workers, but a PEO, which is legally considered an "employer" for thousands of employees at different companies, can provide a wider range of health care options and better pricing. The same goes for retirement plans and other benefits. A PEO therefore, might help a small company attract a higher caliber of worker because they can offer a more competitive benefits package.