Let Somebody Else Do It

There's an option for small companies that want to ease their human-resources headaches: have their employees work for someone else.

In this setup, sometimes known as co-employment, your staffers still do their day-to-day jobs for you. But on paper they work for another company called a professional employer organization. These outfits function as the HR department for hundreds or thousands of small businesses, doling out paychecks, managing employee-related taxes and administering benefits.

They also make big promises about simplifying back-office operations and making small companies more competitive. But you'll need to do some heavy lifting to get the most of out of the deal—from researching your potential partner to easing employees' fears about the setup.

Shifting the Burden
The big selling point of co-employment, obviously, is streamlining. Small companies can skip lots of the hassles involved in human resources, such as managing employee paperwork and staying current with employment laws.

Then there's the matter of benefits. Professional employer organizations can pool together workers and get lower rates on health insurance than a small business could find on its own. These firms also "can offer your workers other perks you never see in a small organization," such as extra training, a crisis or counseling hotline and easy online access to benefits information, says Frank J. Casale, chief executive of the a research and consulting firm.

What's more, many professional employer organizations offer companies employment-practices liability insurance—often expensive for small businesses seeking it on their own—to pay damages and legal costs should a worker sue for, say, wrongful termination.

In return for all this, you might pay a fee per employee, a percentage of your total payroll or a flat monthly charge. Of course, all of that's on top of paying your workers' salaries, taxes and insurance premiums.

Finally, remember that hiring a professional employer organization doesn't mean you can wipe HR from your mind. "It's still your company," says Mr. Casale, adding that you want to show employees you're not abandoning them. Tell them that "you'll still have your parking spot and that the day-to-day isn't changing."
By LOUISE LEE