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Research shows small businesses outsourcing HR

Research shows small businesses outsourcing HR

Small businesses are turning rapidly to outsourcing to manage human resources, including the complexities of regulatory compliance, a new study published by a market research firm showed.
Professional employer organizations are increasingly making a comeback as the HR outsourcing service model of choice for some smaller organizations, buoyed by the improving small business economy, IDC said.
IDC research also shows that the estimated value of the total addressable market for comprehensive HR outsourcing to the small market is a astounding US$44 billion annually in potential recurring revenue in the U.S., based on 2004 employment figures, the industry tracker added.
"It is difficult for small businesses to manage all facets of human resource administration associated with their workforces," Lisa Rowan, a program manager for HR and talent management services for IDC, said in a news release issued by IDC.
"There are an increasing number of options for comprehensive HR outsourcing services for the small market; the oldest of these is the professional employer organization (PEO) model, which actually is a precursor to and grandparent of HR business process outsourcing (BPO)."
According to IDC, PEOs assume responsibility for all facets of their clients' human resources, including overall employee relations.
"As co-employer, the PEO pays the wages and employment taxes for worksite employees out of its own account; collects and reports taxes to state and federal jurisdictions; maintains a long-term relationship with worksite employees (WSEs) that is not temporary; and retains the rights to hire, fire, and reassign WSEs," said the research firm.
IDC learned that five percent of U.S. small businesses with 50 or fewer employees use a PEO for managing their HR administration. The number of PEOs in the U.S. dropped in 2003 over 2000 but snapped back in 2006. The increase was attributed to improved business conditions, lower unemployment, and renewed vigor in the small business market in the U.S., according to the U.S. Small Business Administration's 2006 study of the small business economy.
"As the U.S. economy goes, so goes the PEO market, with contraction and expansion that mirrors the ebbs and flows of the employment outlook," Rowan said. "The opportunity is strong for HR services to the small market in 2007. Our latest analysis discusses the opportunities and challenges facing firms that are in the race to win new business."


Updated : 2020-12-04 20:02 GMT+08:00