If a PEO Isn’t Right For Your Start-Up, Here Are Some Alternatives

Hiring an HR professional is typically at the bottom of a start-up’s to-do list despite the very real risks forgoing this “to-do” poses. There’s no clear verdict on when hiring in-house HR talent is a must — some argue that at a company should have at least 50 full-time employees, while others consider a nascent company’s rapid growth rate to be the criteria — but one thing is clear: most start-ups often feel like they can’t afford to make this hire right away.

So what do start-ups do in the meantime? The overwhelming logistics of employee relations often drive start-ups to outsource HR functions to a professional employer organization (PEO). These orgs promise to scale services at an affordable cost, but having been hired as the first HR executive during a company’s transition from a PEO to internal HR, I was quickly put off by the initial lack of control I felt over my employees. PEOs become the start-up‘s co-employer (workers are legally employed by both the start-up and the PEO) and the start-up must comply with the PEO’s protocols with respect to most HR issues.

There are, no doubt, some benefits to PEOs — namely, low cost and the ability to implement structure around HR practices quickly and efficiently. But, from my experience, there are significant drawbacks: HR is essential to your employer brand — clearly, culture can’t (and shouldn’t) be dictated by a third party vendor. The good news is this: alternatives outside of PEOs exist for companies that need HR services on a tight budget.

Start-up friendly HR alternatives to PEOs

Hire a consultant to build a foundation — Until you are ready to bring on a full time head of HR, start-ups should consider working with an HR consultant to build the much-needed HR infrastructure. Developing an HR infrastructure includes drafting a mission statement, employee handbook, policies, offer letter templates, and other considerations such as how to designate employees as exempt or non-exempt. Do you want a formal vacation policy or do you want to jump on the unlimited vacation trend? Within the framework of what is legal and feasible, an HR consultant can infuse your culture into these policies.

Find someone who can serve as an “on-call” resource — Once the infrastructure has been built, retain the services of an “on-call” HR professional who will be familiar with the company and its policies, and who will work on an hourly basis to handle recruitment and manage employee relations as needed. The consultant who helped you create your infrastructure may serve in this role, or can recommend someone else.

Bring a payroll and benefits broker into the fold — Another cost-saving stop gap is to find a payroll and benefits broker who specializes in small businesses. Unlike PEOs, brokers aren’t co-employers, and a good one can set up online enrollment and payroll services with minimal paperwork at a reasonable price.

Enlist the help of an employee — Designate a detail-oriented employee to coordinate with the on-call HR person and payroll or benefits broker. This person can handle paperwork, synchronize scheduling and be a gatekeeper for HR-related matters.

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As a small business, you may not be ready to hire a vice president of HR just yet. But one day you will be. Don’t wait until then to nurture your company’s most important asset: the people with whom you’ll be working toward success.

This article originally appeared on ReWork, a publication exploring the future of work.

Lynda Spiegel is a human resources executive with over 14 years of experience recruiting and hiring thousands of talented individuals. She founded Rising Star Resumes to leverage her background, which affords her a unique perspective on which resumes will get read by recruiters. Rising Star Resumes works with clients to market the value proposition they represent to employers.

A graduate of The University of Rochester (BA – Philosophy) and Queens College, City University of New York (MA – English), with doctoral level courses at CUNY’s Graduate Center in Rhetoric, Lynda has worked at Citigroup (Smith Barney), as well as financial services, telecomm and SaaS companies. She has recruited for positions in IT, legal, finance, sales, marketing, public relations, media, project management and customer service.

She is a frequent writer and speaker on recruiting as well as careers in human resources.

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