Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

What’s Driving Investor Interest in HR Services?

Posted by Tom Foremski - July 18, 2014

Editor's Note: Wall Street and VC investors seek out companies selling services in the human resources (HR) sector, as compliance with new legislation grows in complexity.

Guest column: By Burton Goldfield, CEO, TriNet.

If you look at the HR cloud market, you’ll find recent growing financial interest and investment in cloud-based, human capital management. Companies like TriNet, Paylocity, Workday and Paycom have all had recent IPOs, while ZenPayroll and Zenefits have received VC funding. Additionally, within the last two years Oracle and Salesforce.com have acquired Internet-based HR software firms.

So, what fuels the recent interest in HR services companies?

Expertise In Navigating the Legislation Maze

Navigating the legislative and regulatory changes that occur throughout the year can be challenging. Managing HR can distract executives from their core competency — running and growing their business. Additionally, for an early stage start-up, the costs associated with a business that isn’t compliant can be extremely damaging.

Over the past 20 years, the risk of non-compliance and lawsuits has risen significantly, arising from a plethora of new laws and regulations, from the Family & Medical Leave Act in 1993 to the various state and local background check laws and most recently, the Affordable Care Act (ACA).

Specifically, the requirements ushered in by the Affordable Care Act and recent Supreme Court rulings have made it challenging for companies of all sizes to stay abreast of ever-changing regulations. For example, in May 2014, the IRS provided guidance reiterating that the ACA prohibits employers from reimbursing employees on a pre-tax basis for premiums those employees pay for individual health insurance policies, either in or outside the Marketplace.

In addition, the Supreme Court’s 2013 holding that a portion of the Defense of Marriage Act was unconstitutional effectively expanded the federal definition of marriage to include same-sex spouses, which had a significant impact on small businesses, such as in the areas of payroll taxes and health insurance benefits. Due to limited resources, small- and medium-sized businesses are more vulnerable to missing such legal updates.

Evolving employment laws will only grow more complex over time. 

Tools for Hiring and Retaining Workers 

For many start-ups, the first year of business is often hard enough on its own. Developing a value proposition, gaining traction in the market and trying to make sense of the overall business model is challenging. It is even more problematic without the right people.

Attracting the right candidates in this aggressive hiring market has become extremely difficult. Due to the strengthening economy and rise in employment, hiring has become a seller’s market. Start-ups that don’t think strategically about recruiting will struggle t0 recruit the best talent.

Employee retention strategy is even more critical. Small businesses need to invest in ways that both satisfy and advance their staff, through competitive and comprehensive benefit packages or training opportunities to strengthen skill sets.

Convenience and Cost Benefits

A recent survey conducted by Software Advice, discovered that more than 60% of business owners still handle at least a portion of their HR duties through manual processes. In addition, 40% rely solely on manual processes.

About 77%  sought applications that they could access from remote locations or mobile devices to help them in their efforts to create a mobile business. Cloud-based HR management tools save time and reduce employer-related risk with respect to on-boarding, time keeping, and administering payroll and benefits, as examples.

When business leaders take advantage of ways to alleviate human resources challenges, they can be more focused on creating better companies.

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