Startups Should Outsource HR
For the first eight months after we raised our initial seed round at SeatGeek, I handled all HR myself. This included a bunch of less-than-thrilling activities:
- Getting quotes from lots of health insurance providers and signing us up for the best plan. Repeating that process for vision/dental.
- Handing all onboarding for new employees, which meant spending a morning wading through a mountain of forms for each new hire.
- Paying all sorts of random taxes to New York State .
- Handing all compliance and government reporting. In retrospect, this is a terrifying thought–I no doubt unintentionally committed a least one act of gross negligence somewhere along they way.
Eight months in, one of our investors convinced me to sign up for a PEO. We chose Administaff, which has since changed their name to Insperity (a portmanteau of “inspiration” and “prosperity”…say it aloud and let a wave of zen wash over you) but I don’t think the particular company matters much–there are other good options. What was important was that I wasn’t doing it myself. Rather than spending 5-10 hrs/week on administrative HR–something I’m mediocre at–I spent that extra time actually building our website .
We initially kept HR in-house as a way to save money, but it turns out that using a PEO adds almost no incremental cost. PEOs like Insperity charge about $150/mo per employee, but that amount happens to be almost exactly what we save per month on healthcare due to the fact that our plan is part of a much larger group. We also got a bunch of nice fringe benefits that we could have never have offered previously–things like 401(k) administration, life insurance, and commuter benefits–all of which come as part of the standard PEO package.
Chris Dixon, among others, has pointed out that startups should outsource areas in which they don’t have a competitive advantage. HR is a pretty obvious choice. Don’t make the mistake I made; outsource HR from the get-go.
 It’s bewildering how many small, trivial taxes they collect. I think it’s like a cop’s speed trap–largely just a way to force mistakes and levy fines.
 It’s worth emphasizing that I’m only talking about the *administrative* part of HR here. Some people consider other higher-level functions, such as recruiting and maintaining morale, to also fall under the HR umbrella. Those should obviously not be outsourced.