Outsourcing HR is fast becoming more popular and more cost-effective, especially among small and midsize businesses. According to the National Association of Professional Employer Organizations (NAPEO), the average ROI from using a PEO is 27.2%, based solely on cost savings.
As a result, more and more companies are seeking good partners to handle many of their HR tasks. A critical element of the search is the Request for Proposal, or RFP.
The RFP provides the company an opportunity to state its needs and request information from prospective vendors such as a PEO. It's important to take your time and be thorough with your RFP. A poorly executed RFP will exclude good companies and allow bad ones to slip through.
Ensure that your RFP addresses the following items:
Goals:
What are your highest-priority objectives for your relationship with a new PEO? Think about what you really want from a new partnership with a PEO. Every business has its unique priorities and objectives. For instance, a startup might prioritize reducing HR administrative burden so that the business owner can fully concentrate on the core business.
On the other hand, you could be in a business facing a lot of employee turnover. In that case, your main focus could be on improving your hiring process and making employee benefits more attractive. It's all about figuring out what best suits your business.
So here's a simple yet powerful question to ask yourself: What does my business need the most right now? This question can be your guide when you're outlining objectives when writing a Request for Proposal.
Scope of services:
What services do you want outsourced? When outsourcing, it's important to decide exactly what services you want your HR partner to assist with. Most PEOs and similar organizations are pretty flexible and can adapt to fit your needs. However, in your Request for Proposal, you've got to be clear about what you expect your partner to handle.
Your RFP should act as a detailed guide. It's not just saying "We want to improve HR" but actually going deeper into your business needs. Ask the potential vendor to explain how they'll fulfill those services and their experience in each.
However, if there's anything specific about your needs because of your industry or specific business, don't hold it back. Your RFP is the opportunity to detail your current situation. The more the potential vendor knows about your business, the better they can tailor the proposal to you.
Service commitments:
Within service categories, what are your expectations for the vendor? Ask them to specify the service levels to which they can commit. There should also be some provision for monitoring and enforcing those service commitments, or concessions they will make if they fail to do so.
If your company has specific needs or expectations, the Request for Proposal should make these explicit. Don’t make potential vendors guess what you want from them.
Non-negotiable requirements
Sometimes you have certain evaluation criteria that are must-have requirements. For instance, you may require particular technological capabilities, such as managing HR for a fully remote workforce, or specific service offerings. It's crucial to express these requirements clearly in your RFP.
Here's the catch - while it's essential to express what you need, remember that the more "must-haves" you list, the fewer potential vendors you'll be able to consider. So it's all about finding the right balance between what's non-negotiable and what allows for flexibility. This way you can still have plenty of options to choose from.
Subcontracting and staff:
How will the vendor meet its service obligations? How many personnel or teams will dedicate themselves to your organization? What credentials, certifications, or skills will they possess? Will the vendor subcontract or otherwise use outside staff to fulfill its obligations?
Shady organizations can use “pass-thru” and subcontracting structures to hide bad behavior, and clarity upfront can help avoid those situations. Include the questions above in your Request for Proposal to better understand your future HR partner and their resources.
Pricing:
How will the vendor charge for its services? Seek predictability and regularity in the pricing; you must know what you will be charged before you start. You’ll obviously want to make sure the pricing is competitive, but perhaps even more important than that: is it smart? Poorly thought-out pricing schemes can incentivize waste.
Instead, favor pricing models that “provide vendors an incentive to drive down costs,” recommends the Society for Human Resources Management. If you have specific desired contract terms – like contract duration, renewal options, termination clauses, etc. – include them in the RFP as well and note if they are negotiable or not.
Transition protocols:
How does the vendor handle changes? It’s possible that your needs will change mid-stream. You may wish to increase, decrease, shift, or end the vendor’s work. In addition to mid-stream changes, how do they handle the initial transition?
This can be a risky time for the client because it involves many significant changes. PEOs, for example, become the employer of record for issues like payroll taxes. The Request for Proposal should ask for a clear explanation of how the vendor handles any service transitions.
Questions:
Alongside the information you're seeking in your Request for Proposal (RFP), it's important to include any unique or specific questions. These specific questions can shed light on aspects of the potential partnership that are significant for your business. This is your chance to gather insights that may not be covered by typical questions but are essential for your decision-making process.
Additionally, consider allowing PEOs to share extra information they believe is relevant to the proposal. They often possess valuable knowledge and insights that can benefit your business. Giving them this opportunity to provide such information can lead to a more comprehensive and customized proposal.
Don't hesitate to ask those direct questions or invite PEOs to share their knowledge that goes beyond the standard RFP template. This ensures you receive a proposal tailored to your business, enabling you to make a well-informed decision when choosing the right PEO.
Key Takeaways
Outsourcing HR functions through a PEO has emerged as both a popular and cost-effective strategy, especially for small to mid-sized businesses. As more businesses recognize the advantage of this partnership, the journey begins with an important component: the Request for Proposal, or RFP. The RFP provides the business with an opportunity to state its needs and request crucial information from prospective PEOs. However, it is most important to approach this process with extreme detail and care.
A good RFP can be the solution to finding the right HR partner, while a poorly crafted RFP can exclude qualified candidates and invite less suitable ones. It's an important step in finding the perfect fit and it requires your undivided attention.
Throughout this exploration of crafting an effective RFP, we have delved into various elements that require thoughtful consideration:
Defining Your Goals
Decide what's most important for your partnership. Whether it's enhancing employee benefits or simplifying HR tasks, understanding your core goals is the foundation.
The Scope of Services
It's crucial to clearly outline the services to be outsourced. Your RFP should convey what you expect from your partner, including any industry-specific needs or requirements.
Service Commitments
It's important to specify your expectations regarding service levels. Establish ways to ensure transparency and accountability in delivering those services.
Nonnegotiable Requirements
While some criteria may be non-negotiable, staying open to a few flexible options widens your choices.
Subcontracting and Staff
Avoid potential issues by understanding how your HR partner plans to execute the tasks. Inquire about the qualifications of their team and if they will use a subcontractor.
Pricing Strategies
Seek pricing models that align with your budget and promote cost efficiency.
Contract Terms
Ensure transparency and minimize understanding by clearly defining contract terms, such as duration and termination clauses.
Transition Protocols
Determine how the vendor handles changes, especially during the initial transition. Transition periods can be complex, so clarifying responsibilities is crucial.
Questions
Don't be afraid to ask unique or specialized questions to gain deeper insights into the PEO's capabilities and alignment with your business goals.
Writing an effective RFP is not just a procedural step; it's a strategic one that can shape the outcome of your HR outsourcing partnership. A well-structured and comprehensive RFP allows a business owner to make a well-informed decision when choosing a potential vendor. Further leading you to a partnership that improves HR operations and boosts your business success. As you start this process, remember that your RFP is your strongest tool for finding the perfect PEO, so use it wisely.
CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), assists small to mid-sized companies with comprehensive HR solutions. Our services encompass HR administration benefits, payroll, and compliance. To learn more about CoAdvantage’s ability to create a strategic HR function in your business that drives business growth potential, contact us today.
