Outsourcing Back Office Functions: Finding the Right Partner for Your Firm

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Outsourcing Back Office Functions

In the fast-paced world of IT and engineering staffing, staying ahead means more than just keeping pace—it means setting the pace. That’s why the move towards outsourcing back office functions like payroll, HR, and compliance has become not just an option but a strategic necessity for many firms. It requires choosing a partner who doesn’t just take tasks off your hands but brings deep industry insights and the commitment and know-how to navigate the complex regulatory landscape.

Finding the ideal back office solution requires balancing strategic and pragmatic priorities. This article dives into key considerations for selecting a partner aligned with your firm’s goals and given the unique needs of IT and engineering staffing firms.

Understanding Your Options

Whether it’s keeping things in-house or exploring outsourcing key functions to a Professional Employer Organization (PEO), each path comes with its own distinct set of benefits and drawbacks.

The Default Option: In-House Management

Retaining HR functions internally might seem like the option that maximizes control at the lowest possible cost. While this ‘do it yourself’ approach is often the default option in the early stages of a company’s life cycle, it comes with its own set of challenges. In this scenario, back office responsibilities fall upon the owner or a partner, sometimes with help from an ‘admin.’ For the owner or partner, this responsibility can consume considerable time and shift their focus away from revenue-producing efforts. In most cases, the individuals performing these roles lack expertise in the core back office functions of payroll, HR, and compliance.

Given that IT and engineering staffing, by its nature, involves a distributed workforce, even modest growth inevitably involves becoming responsible for understanding the employment law requirements in additional states and localities. Scaling amplifies these challenges and leaves a company highly vulnerable to staff absences and departures of one or more members of a small back office team.

The Downside Risks of Retaining Back Office Functions In-House

  • Lack of Back Office and Industry Expertise: Smaller firms often face a crucial gap in the specialized knowledge and expertise required to navigate increasingly complex payroll, HR, and compliance issues, as well as a lack of understanding of operational nuances specific to IT and engineering staffing firms.
  • Vulnerability to Staff Absences and Departures: Small in-house teams are highly susceptible to disruptions caused by absences and staff turnover, jeopardizing operational efficiency and continuity.
  • Staying Up-to-Date with Emerging Technology that Can Provide a Competitive Edge: With rapid technological advances, such as automation that can significantly increase the efficiency of many back office functions, companies must continually stay apprised of the latest developments and make the right technology ‘bets’ to remain competitive. Many teams lack both the bandwidth and the expertise to evaluate these new, potentially game-changing technologies.
  • The Inefficiency of Disparate Systems and Inadequate Management Reporting: Most firms rely on multiple systems that lack integration to manage their back office. Within the industry, typical back office configurations often require manual manipulation and transfer of data, creating inefficiencies and heightened risk for error. In addition to these challenges, data flowing from multiple systems without a consolidated ‘dashboard’ makes it difficult for the management team to make fully informed decisions.

An Outsourcing Option: PEOs

PEOs are one solution for outsourcing back office operations. Operating as co-employers, they leverage economies of scale and shoulder a range of HR responsibilities, from managing payroll to administering employee benefits.

However, for IT and engineering staffing firms, PEOs are problematic.

Co-Employment Is a Problem Under Most Client Agreements

Given the relative disparity in bargaining power, staffing firms often find themselves agreeing to the client’s contractual terms, often with little opportunity to negotiate. Among the terms included in most client agreements is the requirement that any consultants placed by the staffing firm be the staffing firm’s sole W-2 employee.

Because PEOs are co-employers and require any client to use the PEO’s Employer Identification Number (EIN) for payroll and benefit purposes, PEO arrangements typically run afoul of these client agreements. A PEO can also create confusion and undermine the staffing firm’s relationship with consultants who would receive a paycheck from the PEO rather than the staffing firm. For these reasons, PEOs have seen minimal adoption within the IT and engineering staffing industry.

While more typically used with select employees operating in foreign jurisdictions, Employer of Record (EOR) firms present similar challenges. In an EOR arrangement, the staffing firm ceases to be the legal employer entirely, with the EOR firm serving in that capacity for all purposes.

Hidden Fees & Markups

Because PEOs operate under their EIN rather than the EIN of their clients, PEOs can hide and embed an array of fees that are not typically visible to clients. For example, PEOs often markup (sometimes significantly) workers’ compensation rates above those available through an insurance agency. They can also markup SUTA Surplus/Admin fees and capture the Section 125 tax savings that would otherwise go to the staffing firm. PEOs rarely disclose all of their embedded fees and markups, making it difficult to calculate the actual cost of their services. When evaluating a PEO, request full disclosure of all fees, markups, and costs beyond the monthly administrative fees.

The Generic Nature of PEO Services

While PEOs offer a broad spectrum of HR services and employee benefits and leverage the economies of scale, they weren’t designed with IT and engineering staffing firms in mind. Most offer services to every type of business—from restaurants to plumbers to clothing stores. Because they serve such a wide range of companies, they don’t tailor their offerings to the specific needs of any one industry, much less IT and engineering staffing.

When it comes to benefits such as health insurance, employees from multiple industries are pooled together. This arrangement can lead to industries with lower claims, such as professional staffing, subsidizing companies in other industries with higher claims. Ideally, you want access to benefit offerings specifically tailored to the needs of IT and engineering staffing firms.

5 Tips for Vetting Back Office Outsourcing Solutions

Look for a partner who doesn’t merely possess generic knowledge of payroll, HR, and compliance functions but understands the nuances of back office operations within an IT and engineering staffing firm. Outsourcing providers specializing in a particular industry can offer strategic advice and bespoke solutions tailored to the needs of firms in that industry—capabilities lacking in outsourcing providers that serve all types of businesses.

While industry-specific knowledge is critical, the caliber of the outsourcing partner’s team is equally important. Investigate the collective experience of the team you’ll be working with. Do they have expertise in each of the specific back office functions such as payroll, HR, and compliance? Do they bring the right combination of strategic insight and practical know-how to deliver a service that meets your firm’s needs not only now but also as you grow? You are looking for a team that does more than execute tasks but rather acts as a strategic partner capable of guiding you as your firm grows and helping you navigate the inevitable challenges.

Does the package of services offered by the outsourcing provider align with your firm’s needs? While some companies that provide back office outsourcing cover only the basics, others provide a comprehensive suite of services. Given your team’s current skill set and bandwidth, will your outsourcing partner design a customized package of services that meets your firm’s particular needs? Evaluate whether a proposed outsourcing provider can handle the evolving needs of a growing IT and engineering staffing firm.

With new compliance obligations regularly imposed on employers by federal, state, and local governments, staying compliant across multiple jurisdictions can be challenging and burdensome. Your outsourcing partner should be well-versed in current laws and regulations, proactively monitor for upcoming changes, and understand how these rules apply to professional staffing firms.

As your firm expands—whether through organic growth, geographic expansion, or the addition of new lines of business—the right outsourcing partner should be able to adapt alongside you, ensuring back office operations don’t skip a beat. By choosing a back office outsourcing partner capable of supporting your team as you scale, your firm will be positioned to capitalize on emerging opportunities with confidence.

Introducing TechServe 360: The Future of Back Office Outsourcing for IT and Engineering Staffing Firms

Given the lack of viable outsourcing alternatives, the only option for most IT and engineering staffing firms has been to keep all back office functions in-house despite the drawbacks—until now. Introducing TechServe 360, designed by TechServe Alliance, the definitive source for IT and engineering staffing industry best practices for more than 35 years.

Born from a recognition of the unique operational needs of IT and engineering staffing firms, TechServe 360 offers comprehensive and customizable back office services delivered by operations, legal, and compliance experts who understand the unique needs of industry firms. Avoiding the problematic characteristics of PEOs, TechServe 360 keeps you as the legal employer while allowing you to leverage a team of back office and industry experts.

In addition to handling your day-to-day back office needs, as the definitive source for industry information our team can provide strategic guidance to support you as you pursue your business goals.

Focus on Driving Revenue, Not Your Back Office

As explored in this article, selecting the right back office outsourcing solution is critical. An outsourcing partner should have operational know-how, an experienced team in back office functions, and an understanding of industry-specific nuances. With its unparalleled industry expertise and commitment to operational excellence, TechServe 360 is the strategic partner for firms looking to optimize their operations so that their teams can focus on revenue-producing efforts.

It’s time to move beyond dated outsourcing models not designed with your business in mind and embrace a service tailored to your firm’s specific needs. Discover how TechServe 360 can transform your back office operations, helping you drive revenue, reduce expenses, and improve profitability.

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