Q&A with Xenium President Anne Donovan on Outsourcing

On November 12, Xenium President Anne Donovan spoke on a panel at the Oregon Entrepreneurs Network monthly PubTalk event where they discussed the outsourcing. Below is a transcription of her answers to the Q&A portion of the evening.
 
What are some potential benefits of outsourcing and examples of success?
Quick background on me, the only way I’ve done human resources is through the “HR as a service” model. So I’ve never actually been an in-house HR person, I’ve always delivered services through this model. It’s been my career at Xenium.
One of the main benefits, I would say I’ve experienced and observed throughout the years is that you get a depth of expertise. You can hire, in the HR world, a department of one, or you can hire an HR service that can bring VP, director of HR, HR business partner, and administrative coordinators and representatives into your business; and you can fashion it around your budget so that you can get the right type of HR when you need it.
Another benefit I’d say is cost. Ultimately, in a start-up small business, you’re rarely thinking about when you add your HR manager at that stage, but you still need all of that same help for providing infrastructure and hiring systems–all those things that every company needs.
From an outsourcing perspective, it makes a whole lot of sense from both cost and experience level that you get right out of the gate.
At what point does it make sense to outsource?
One of the things that we decided to do early on was to scale our pricing model to fit every level of business. I’ll give you some examples. We work with start-up companies, and we bring our fees down and essentially say, “what are the game-changer priorities that you need help with? Let’s get it to a budget-able cost that fits you.” We also have everything up to very large companies who have made the choice to outsource their HR because of distribution and depth of expertise. But as the start-up entrepreneur where you’re doing everything, what we decided to do was to say “okay, let’s work within your budget—you need expertise, but you don’t need it all the time. You need it in very specific circumstances.” And we prioritize those projects and the level of HR support that you need. So you can get into an outsourcing engagement for a few hundred dollars a month, or it can scale all the way up to much more than that.
How do you compete against employer leasing companies that have their own HR companies?
Great question. Another commonly known term for employee leasing is Professional Employer Organizations, or PEOs. We actually offer that model ourselves, where we offer an integrated package of payroll, tax administration, benefits administration, worker’s compensation—think everything a big company would have in different departments under HR. We do it all for the small business as a service. We compete in that space as one product line, and it fits really well with start-ups because, in many cases, we’ll have clients that say “We are in a very competitive industry. We don’t have the means or desire to write an employee handbook , put together a hiring package, and write offer letters”—all those things that they need to do to get good people. We have it in a turnkey format that we can execute very quickly.
So it depends on what each company needs. Some companies hire us just for HR, some companies like the integration of the turnkey systems together. In Oregon there aren’t a lot of PEOs, so we don’t find ourselves in a lot of competitive situations. It works really well for the employer with 5-50 employees especially, because it can be turnkey for them.
Can that work for a company spread across multiple states?
Absolutely. We are licensed in 48 states, not because we are going out and choosing to put sites in those states, but because we’re a Portland metro based company that has clients with divisions and some single-person operations in other states. We have been required to be there as we’ve grown throughout the last 20 years.
As a payroll company, you have to be in every state and know every local and state tax laws, and also the HR laws. So we didn’t set out to become an HR employer services company in many states, we just grew with our clients and that’s how it happened.
How do you handle the accounting/HR overlap in the list of PEO services?
Small businesses start up and need the nuts and bolts accounting, but they don’t have the luxury of hiring a CFO. So doing a platform of services where you can get that CFO experience when you need it.
We work with a lot of companies like Ryan’s [Two Ocean Partners] and it’s a really nice process because you get experience and it doesn’t have to cost you an arm and a leg. If you think of a full-time employee, it’s not just their wage, it’s their loaded up burden of taxes and benefits, and that can get expensive quickly. I think it’s a model that makes sense, especially at certain points in the business life cycle.
Are you international?
We don’t do international payroll now, we refer to some of our partners that do it. NAPEO is a great resource in our industry. Whenever we have clients that are going into Canada or Europe we will refer them and make sure they get taken care of. So there are certainly solutions that do that.
What sucks about your job?
That’s a great question! From the HR perspective, you don’t always get to dictate when your client is going to have a sticky investigation. So an HR Business Partner in our model has a book of business–a series of companies they work with–and if five of those companies each have investigations that all land on the same week, that’s a rough week. I’d say that’s one of the pitfalls if you’re in a company where your service organization doesn’t have the depth of resources to be able to plug-and-play a different person to come in and help when you need it. You need a very nimble group. You can’t predict when your HR issues are going to come up and we can’t either, but we’ve got to be there because responsiveness is key. Those are the hard weeks at Xenium.
Which company functions would you want to outsource, and which ones wouldn’t you?
Our best relationships, through the different organizations we’ve started working with and grown with throughout the years, are where the employees and the managers think of us as their HR department. They even forget that we’re a service company. Our HR business partner and our staff are interacting so much with them day in and day out, and even though we’re not always down the hall in an office, we are an email or a phone call away, we still are physically in those locations and that’s when we know we’ve got a partnership. We’re inside the leadership meetings and the employees call us as their HR team. We love it because we are an objective third party. We don’t get a W-2 from that company. Certainly we have a job to do, but when we’re in, we do our work, and then we’re out. A lot of CEOs and owners say that it’s a really refreshing way to look at how to get HR done.
Walk us through the timing—when should someone decide to outsource? What are the stages of bringing in help?
It can scale to fit a budget that works for a small company. But if you think about the risk of being an employer, you didn’t go into business because you were excited about worker’s compensation and EEOC and all those kinds of things that we, weirdly, get excited about. But you might get an issue that comes up that you’re not prepared for because you didn’t get an employee handbook written or you didn’t handle your offer of employment appropriately. I think, as soon as you’re starting to hire more than a few employees it’s time to get some infrastructure help. The sooner you can get it, the fewer issues you’ll have down the road.
And setting the compliance stuff aside, I think it’s a best practice issue for when you’re hiring top talent, which is the most important thing that you do, you want to have a package that is going to entice and show the candidate pool that you’ve got something really great here. It’s hard to do that on your own if you’ve never worked in HR and never built those systems before. If you can get a service company to build it–we do this hundreds and hundreds of times over and over again, so we’ve learned a few things along the way. We’ve hit those bumps—it’s better for you to not have to go through that. So earlier is better.
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We find ourselves called in to conversations when the office manager, director of operations, whoever does everything under the sun, has HR as a part of their job duties, and they’ve realized, “Oh my gosh, I don’t have the expertise or time or interest in managing it at the level that I need to. I’ll keep my regular job, but you’ll be a person on my team as an HR person, as a service, and I will tap you for expertise and resources as I need.” We’ll then report to that person. It doesn’t have to mean that someone’s losing a job over it; it just means that we’re enhancing and creating bandwidth for existing employees.
For a PEO client, how frequently would an HR person be in their office?
In the PEO model, and frankly any of our models it really depends on the client company and what they have in place when we come in. We actually, by happenstance, place people onsite for companies that say, “I love this idea of getting expertise and resources when I need it, but HR is really important to me in terms of my employer brand, and I want to make sure I have presence.” So we offer to hire those companies an HR person, and in many cases in the small business space it’s a part-time HR person.
Anecdotally, we were excited about this, because we knew a lot of people who were in HR and wanted a part-time, professional engagement that would work around their family’s schedules but aren’t ready to go back and do the 40-50 hour work week. So now we have a product offering for PEO where we can actually place a person onsite. It’s burdened up to cover their cost, but it’s not a model that becomes so expensive in terms of a staffing arrangement. What that person does is they get the mentorship of the back office services of Xenium and an HR business partner technical person who can train and mentor and come in to do the sticky, technical resource, strategic planning portion of it. But the day-to-day person is there onsite to engage with the employees and develop those relationships.
When we don’t place an onsite representative, our HR business partner is typically onsite, depending on the engagement, weekly. Those managers and employees know our business partner as their HR person. It’s a different model than some of the larger organizations that we compete against. We feel that the high-touch service is important, because HR is something that is near and dear to founders’ hearts, in making sure that people don’t feel that the engagement or relationship has been set off to the side.
What’s the hottest topic in the industry, and what are you doing to address it?
I would say that compliance is a big issue in the HR world, so the Affordable Care Act is obviously on the minds of every company that thinks they may get into a pay or play penalty situation. Ironically, of the clients that are in our mix, most were already offering a healthcare package already way above the minimum essential value. So it’s a complex issue that people have been concerned about and have a lot of questions about, but at the end of the day, in our space, a lot of them aren’t yet having to comply with the big picture, costly parts of that. But we have to be there to help answer those questions and look at measurement periods and those kinds of things.
Decriminalization of marijuana is another hot topic. People want to know what does it mean now in the employer workplace and do they have to change the drug free workplace policy? They ultimately want support on how to navigate through it, so there have been a lot of questions about that.
From Audience Member: So what’s the answer?
I can answer that! I was the VP of HR before I took on this role, so I can quickly step into an HR role. Ultimately, if you have a drug free workplace, the decriminalization of marijuana doesn’t change how you navigate that in your workspace. You can still say that it’s not okay to come to work under the influence of x, y, and z.
Audience member: What about federal government contract workers?
We actually don’t do a lot of work with government contracts, so I’d actually want to do more research on that. Certainly, in the workplace, so far our experience is that you can maintain that same workplace policy that states that we do pre-employment testing, for-cause testing if there’s an issue, and post-accident testing. At a certain threshold, if the test comes back positive, you get into all those dynamics of how do you navigate that, and the answer always depends on the circumstances. I think that, especially in a safety environment where you have an issue and someone could get hurt, you absolutely want to make sure that you’re navigating that on the front end before you’re in a situation.
What we find is that companies think, “Oh we’re all friends here, we’re family, we’re easygoing.” And then something will happen, and they’ll look to see what the policy and procedure is and they don’t have it yet. That’s when you’re in a bit of a dance, because you can’t point to a “Here’s what we stated and this is what we expect” type of document.
Ultimately, a lot of it is waiting to see what happens. Medical marijuana under the Americans with Disabilities Act is a different scenario. And this is so new, just a few weeks old.
How do you make the most out of your outsource partner?
Along the way we’ve created documents that help us flesh out the expectations, especially as there’s so much that goes into each of these areas. When we’ve failed, it’s been because we didn’t set those expectations up front clearly enough to say, this is on our plate, that remains on your plate, and here’s a third bucket of things we need to figure out together. When we began to realize the questions and dialogue we needed to have, we kick off the relationship so much better. We’re able to move some of those things back and forth because we’re pretty customizable, but when we didn’t do that, those unmet expectations that were never outlined was where we struggled.
Once someone’s decided to outsource, how do you get them from the idea to “Okay, I’m actually going to do this”?
Part of that process is the dialogue up front to make sure that the style fits with your philosophies, your mission, values, and vision. I think you should expect, out of your outsource partner, that they are going to blend in with your style. Our job is to make sure that we assign the right person. We do interviews with our HR business partners, because some may not fit the style of the business owner and founder. So I think it’s the service provider’s job to make sure that we’re engaging with you in a way that makes sense so that you know that this is the right fit and the right time.
I think you know when you have a person who wears five hats, and one of those is HR, and they can’t get to the hiring and building the infrastructure systems of performance management and all of those things that you need to get to as you’re growing, then you know it’s time to look at a service provider. I would interview several, because I think you can tell who’s done it and who knows what they’re doing. There are a lot of different ways to slice it, but make sure that you’re not just talking to one but interviewing them as if you were interviewing an employee.