Outsourcing HR is popular amongst businesses, especially smaller ones, for good reason.
As managing the human resources function becomes more complex and time-consuming—especially when workforces grow internationally—it's worth using solution provider such as a professional employer organization.
In this article I’ll take you through:
- What Is HR Outsourcing?
- The Functions That HR Outsourcing Can Assist With
- The Benefits Of Outsourcing HR
- What HR Outsourcing Options Are Available?
What Is HR outsourcing?
HR outsourcing is the process of contracting with a third-party, typically a skilled individual or specialized business, to perform some or all of your company’s human resource functions.
It's often the perfect middle ground between having no HR department and an in-house HR team.
While the former can be dangerous for employers, the latter is a necessity once a company grows to a certain size.
Rather than spend hours learning the ins and outs of regional employment laws and standards, roughly 25% of small businesses are outsourcing to increase efficiencies.
HR consulting is the most commonly used service, with HR outsourcing provider offerings ranging from a full-suite to a-la-carte options including:
- Benefits administration
- Time tracking
- Performance management
- Employee transition services
Typical HR Functions Perfect for Outsourcing
Outsourcing can satisfy variety of HR needs, but the following are the most common choices for small to midsized businesses.
Outsourcing payroll is administration is a strategic decision that can help businesses deal with challenges related to scalability, compliance, reducing errors and enhancing security.
Tasks ripe for outsourcing include:
- Payroll setup
- Payroll tax filing
- Online payroll submission
- Payroll reporting
- Vacation and sick leave tracking.
Actionable Advice: Perform an analysis of any potential partner's tools and technology to ensure they're compatible with yours. This integration is key for maintaining data consistency, improving workflow efficiency and ensuring accurate and timely payroll management.
Benefits can be time consuming to research and difficult to structure. Outsourcing reduces administrative burden, improves the employee experience and removes the onus for staying up to date with the latest benefit trends from the employer.
- Better buying power for employee benefits such as health insurance, dental, vision care, disability, etc.
- Answering employees’ questions about the benefits plan
- Processing enrollment into the benefits program
- Removing employees who leave the company from the benefits program.
Something to Remember: Outsourcing benefits can expand your access to a variety of benefit packages. Choose an HR outsourcing company that offers customizable benefits packages.
This flexibility allows you to tailor the benefits offerings to meet the diverse needs of your employees.
Outsourcing recruitment can offer several benefits to organizations, particularly in enhancing efficiency, accessing specialized HR experts and improving the quality of hires.
- Creating and posting job descriptions
- Collecting and filtering resumes
- Conducting initial interviews and candidate screening
- Assisting with reference checks.
Pro Tip: Effective collaboration with a talent acquisition partner is based on mutual understanding of your business needs, culture and the specific requirements of the roles you're looking to fill. Create a feedback loop and agree on KPIs that you'll use to measure the partner's effectiveness.
Outsourcing performance management can support the creation of tailored developed plans for your employees and enhance objectivity in assessments.
- Training employees on policies and procedures
- Implementing and managing formal employee performance review
- Handling ongoing performance feedback
- Implementing extended training on topics such as harassment, DEI, etc.
- Handling employee records.
Pro Tip: Your primary concern in outsourcing performance management is ensuring your partner aligns with your culture and goals. Look for a provider that is heavily focused on user experience so that your people remain the central focus of the partner's efforts.
The Benefits Of Outsourcing HR
The volume of work involved in HR processes can create significant challenges for organizations as they grow. Scaling initiatives and maintaining consistency with policies and practices as the volume of people grows is a common pain point.
Outsourcing HR helps to improve your processes
When you only had a few employees, it was easier to onboard them and set them up for success. You likely didn’t have an employee handbook, or any sort of written policies and you may not even have had written employment contracts.
Working with an HR outsourcing service means that you have an expert to:
- Prepare your employee handbook
- Create policies that are suited to your organization.
- Handle employee disciplinary actions
- Implement new HR technology.
The ROI is measured in time and money
Not only is it hard to get HR right on your own, but it takes a tremendous amount of time.
Outsourcing HR allows organizations to focus their efforts on sales, business development, marketing, operations and other aspects of the business that demand their time.
Financial savings from outsourcing HR comes from reduction in errors and lower salary expenses in the HR department.
Better risk management protects the business
Outsourcing HR reduces the burden on the organization to focus on compliance and keeping up with employment law changes.
Other areas of risk that are reduced include:
- Data privacy and security
- Worker's safety and worker's compensation
- Employee disputes and grievances
- Policy development and implementation.
Types of HR Outsourcing
There are multiple options available for outsourcing depending on the human resources services that your business requires and where it operates.
PEOs for your local business
Professional Employer Organizations (“PEO”s) are common in the United States, where 15% of all businesses under 100 employees have already partnered with their services.
PEO services commonly assist with HR administrative tasks such as:
- Payroll processing
- Tax filing and consulting
- Benefits administration
- Workers’ compensation
PEOs are more common for employers that only operate within one country. They come to the table with a lot of HR knowledge and can take on some of the tasks that an HR specialist would embark upon in a larger organization.
Some of examples of PEOs that claimed a significant portion of the market are ADP, Paychex, Papaya Global and Deel, to name a few. Which PEO is the best option for your organization depends on your needs and requirements.
Learn more: What is a PEO?
Go global with an EOR
An Employer of Record (or “EOR”) functions as a third-party, legal employer of your staff.
As such, an EOR performs a lot of the core functions of an employer, such as:
- Employee onboarding
- Employment contracts
- Payroll processing and taxes
- Employee benefits
- Termination of employees
The core benefit to working with an EOR specifically is the ability to hire internationally or across states without any added headaches.
If your business is based in the United States, for example, but you are looking to build a sales team in Europe, you’re likely unfamiliar with the nuances of employment law throughout the various European countries.
HR consultants for local growth
If you're not in a position to hire a large service provider for your human resources outsourcing, there are plenty of localized HR consultants.
These services are tailored to small corporations, many of whom will have direct knowledge of your particular industry.
These consultants usually operate on a smaller scale for a monthly retainer fee and have in-house experts that are available to employers as an outsourced HR department on an as-needed basis.
These providers are often a good fit for a team growing from as little as 20 employees up to as much as 100.
Some key benefits include:
- Localized recruiting strategies
- On the ground HR support and accessibility
- Cultural insight and relevance
- Language proficiency
- Networking and community relations
- Adaptive to local market trends
Key Considerations For Outsourcing HR
While outsourcing can be a smart HR solution for a growing business, it’s not without its challenges.
Loss of Control
Both employees and managers sometimes have issues with moving human resource functions offsite. HR has its finger on the pulse of the company, and so moving internal HR functions offsite for a business owner can be counter intuitive at times.
Additionally, outsourced HR providers often implement cultural changes, which can be a bit jarring since they are not physically part of the team.
Team members may be used to having confidential conversations in the same room as an HR representative, and so it can be difficult for both managers and employees to form those close trusted bonds with someone not onsite.
Staff turnover is usually a challenge for employers, but can be a challenge for an entire company when their outsourced HR provider is training someone new.
A company may be assigned a representative from their HR provider who effectively acts as their offsite HR generalist.
If this person changes teams within their own organization or leaves suddenly, employers are faced with having to work with a new hire who does not know their business.
Freedom of Choice
For employers, outsourcing services to someone like a PEO means that you are likely connected to their vendors to handle tasks such as payroll and insurance.
Some employers may feel restricted by not having multiple options at their fingertips.
The benefit, however, is that PEOs often have great relationships with their vendors, which can mean preferential rates.
There will always be privacy concerns with having that sort of data offsite. If your HR outsourcing service falls victim to a data breach, your employees’ could experience identity theft or harassment.
A professional HR services provider recognizes these issues and takes extra measures to protect this sensitive data.
More Resources for Outsourcing HR
When you need some extra help, but you’re not ready for a full HR department, outsourcing HR is the natural solution.
Outsourcing gives you cost effective way to get all of the skills and resources of talented HR professionals and ensures that your business is operating as it should be so that you can focus on the other important tasks at hand.
If you think the time is right to start outsourcing HR, check out:
- Best Employer of Record Services
- Best Professional Employer Organizations
- Best Payroll Companies to Modernize Your Payroll Processes
Want to get more insights on all things HR? Sign up for our newsletter here!