What To Ask Before Choosing An HR Firm

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Most employers already know the basics about outsourced HR administration firms (also known as Professional Employer Organizations or PEOs). They provide a service that’s become indispensable for many successful business owners who appreciate letting professionals handle employee-related details like payroll, health benefits administration, workers compensation, and risk management.
But as more providers enter the market, it can be hard to differentiate the breadth of services. Here’s what you should ask any HR administration firm before you commit.

 

  1. How long has your company been providing true HR administration services in Hawaii?

In Hawaii, it’s important to know the local business market. State regulations are notorious. Our remote location means deep business and community connections are crucial. Find out how long your provider has been a bona fide HR expert in our state and how much of their staff is dedicated to the HR Administration side of their business.

  1. How many clients do you serve?

Size matters. The size of an HR firm directly correlates to long-term pricing leverage, tenure of staff and range of businesses they have worked with. Larger PEOs will have the tenured HR staff, long-term buying power and depth of HR industry knowledge that a company with a few hundred clients simply can’t afford. New firms will often crop up promising equal service at lower rates. Inevitably these groups run into trouble either operationally or through client loss, taking remaining clients down with them.

  1. What is the ratio of internal service staff to client employees?

A top-notch HR administration firm will have no more than 120 client employees per internal service staff member. This 120:1 ratio should not include sales staff, admin, senior management and staff working on other business lines like temporary staffing or executive recruitment.

 

  1. What are the qualifications and tenure of your service staff?

A reputable HR administration firm will gladly disclose staff credentials and tenure. Verify this to ensure that qualified industry veterans are managing the many potential technical escalations of HR for you. No matter what size your business, a misstep here can be disruptive, time-consuming, and economically catastrophic.

  1. How will your team interact with and support my staff?

Frankly, a lot of HR firms fall down on the job because of an inefficient and outmoded service model. Clients are assigned an account manager, but for day-to-day questions employees must call in to a rotating operations crew for support.

  1. Can you provide long-term cost-control of health care benefits, via solid carrier relationships?

Some firms will “broker” your rates to a number of carriers or jump from carrier to carrier. Others will quote unsustainable healthcare rates just to win business. Ask how they are ensuring that next year’s rates won’t jump by a large margin. Insist on learning how a firm will manage your health care rates over time. Unless they can demonstrate historical and forecasted health care rate data from the same healthcare carriers, as well as formal healthcare underwriting or screening processes, expect painful surprises at renewal time.

 

  1. Who provides your workers’ compensation coverage? How stable is that relationship?

Affordability is one thing. Equally important is the likelihood that a claim will get paid so an employee can get the best treatment and get back to work. As with health care, many HR administration firms operate as a middleman to a carrier, or jump to whomever they can access during a given time period. You’re left with no control over rates and no certainty as to the quality of your coverage.

 

  1. Are you ESAC Accredited?

ESAC, the Employer Services Assurance Corporation, provides the highest level of accreditation in the outsourced HR administration industry (similar to the FDIC for the banking industry), requiring a rigorous verification of financial, operational and ethical performance. ESAC accreditation provides clients with up to $6 million in surety bond coverage as financial assurance. Fewer than 30 firms nationwide have this honor.

  1. Can my company retain its FEIN and DOL number if we so choose?

Traditionally, when a company hires an HR firm, they enter into a “Co-Employment” contract, adopting the firm’s FEIN and DOL numbers. Technically its employees become employees of the HR firm. This model is right for many companies; in fact more than half of our 1,000+ clients choose it.

An evolution of the “Co-Employment” model is known as HRO (Human Resource Outsourcing). HRO provides the same HR support, bundled services, and insurance advantages. However, HRO clients maintain their own FEIN/DOL. There is no co-employment relationship.

It is extremely challenging to properly implement and service an HRO client, requiring a high level of expertise. If the provider you are considering says they have an HRO service model available, be sure to get references from several of their long-term customers.

  1. Do you provide Employment Practices Liability Insurance (EPLI) for your clients?

Entering into a successful HR services agreement means you are entrusting the well-being of your human capital to a qualified professional. Adequate insurance is a must.

Many firms offer EPLI coverage. It’s not the same thing as insurance. With EPLI coverage, plans are often cleverly designed so that the client pays the first $25,000 on a claim, the HR administration firm pays the next $25,000, and the client pays the remainder.
 In reality, EEOC complaints are generally either a nuisance claim or a serious claim, and will fall either far under or far in excess of the commonly offered $25,000 deductible—leaving the client holding the bulk of the bag either way.