When starting out, many would-be entrepreneurs believe that franchises are foolproof. According to the Wall Street Journal's StartUpJournal.com, one common mistake made by failing franchises is that too little attention is given to human resource practices. This thought is echoed by a recent Business Week article, stating that poor HR practices "can cause entrepreneurs serious legal trouble if their operation is not set up correctly."
In the excitement surrounding a new business, many entrepreneurs fail to give proper thought to all the responsibilities that come with being an employer. The average franchise owner isn't equipped with either the knowledge or the time to comply with the mountain of regulations required by the government. According to Angle Masters of Fish Window Cleaning, many of the franchisees she works with have little knowledge of HR administration or of the complexities of compliance issues.
"I am frequently amazed at what the government expects our franchisees to know concerning human resources," Masters said. "Starting a business is a stressful time. Having to fill out loads of paperwork and read up on proper HR practices are the last things on the minds of our franchisees."
According to a recent National Association of Professional Employer Organizations' study, businesses are spending more and more time on regulatory paperwork than ever before (see chart 1). However, it is smaller businesses that are most adversely impacted by this demand, as these are the companies with fewest resources. While a large business might commit five employees to meeting this challenge, these five employees represent only a small portion of the company's overall workforce and available resources. For a small business, however, five employees may represent one-quarter of its workforce.
HR outsourcing--hiring a professional employer organization to oversee HR tasks--is a solution that not only provides help with compliance issues but can also provide some relief to overworked entrepreneurs (see chart 2).
A professional employer organization can offer HR solutions tailored to small and mid-sized businesses in all industries. For an annual fee, usually 2 percent to 7 percent of the dollar value of a firm's annual payroll, such an organization will take care of everything from managing health benefits to designing employee manuals. Since many small businesses cannot afford to hire an HR professional, an organization can be a cost-conscious...