Community banks are joining other small businesses in outsourcing their human resources tasks.
To reduce administrative burden-and legal risk-some very small community banks are calling on professional employment companies to handle everything from payroll to insurance benefits to employment taxes.
Among them: Main Street National Bank, a $13 million-asset bank in Cleveland, Tex.; BankDallas, a year-old start-up with seven employees and $11 million of assets; and Inter Savings Bank of Edina, Minn., a $90 million-asset thrift that signed on with Alliant Employer Services in January after a part-time employee who handled payroll and benefits retired.
"To remain competitive, you have to specialize in just a few things, and HR wasn't one of them," said Fred B. Stelter, chief financial officer at Inter Savings Bank.
Dawn L. Dempsey, executive vice president of Alliant, also based in Edina, said outsourcing frees up the bank employees' time so they can concentrate on banking.
"Independent bankers need to be out in the community, not managing human resources," she said.
It also reduces legal risk, a key reason Inter Savings signed on with Alliant.
Under a typical contract, a bank's employees become co-employees of the outsourcing firm, which shifts liability in personnel-related suits to the human resources contractor. Although contracting with Alliant may be more expensive than hiring another part-time human resources employee, Inter Savings Bank is less at risk should it be sued for wrongful termination or age discrimination.
"It acts partially as an insurance policy," Mr. Stelter said.
Jon A. Doukas, a human resources consultant at Professional Bank Services in Louisville, Ky., said that with a flood of new outsourcing companies entering the market, banks have become prime targets of companies like Alliant and Administaff in Kingwood, Tex.
Banks are interested, he said, because it fits in with the industry's emphasis on efficiency. "We're starting to see where banks are becoming more comfortable with outsourcing on a wider scale," he said.
But it is not the answer for every bank. Mr. Doukas said he recommends that banks with more than 100 employees handle the human resources function themselves. Rates for human resources contracts range from $5 to $10 per employee per week based on the services used.
And the concept does not work for some small banks that do not want to give up control over their employees.
Don Goulding, president and chief executive officer of STAFCO Personnel Management in San Francisco, said it takes time for prospective clients to get comfortable. He tried to sell the concept to his community bank, CivicBank of Commerce in Oakland, Calif., but after some consideration, the $325 million-asset bank decided to start its own human resources department.
"It's a new way of doing business," Mr. Goulding said. "The prospects are always wowed and awed at first but then they have to go think about it. Some decide it's just not for them."