At large companies, the HR department is responsible for every facet of employee management—searching and screening potential candidates, maintaining the employee handbook, payroll processing, onboarding, fostering your company culture, and thousands of other administrative tasks. But, where does that leave you and your small business?
Unfortunately, many small companies don’t have the resources to hire HR professionals full-time, in-house. Their need for help with these various human resources tasks often exceeds their capabilities (and their small but mighty HR teams, if they’re lucky enough to have dedicated HR staff).
Rest assured that you aren’t left to manage all of this yourself—or accept that some of these important responsibilities are bound to slip through the cracks. HR outsourcing is a way for you to tap into valuable resources and expertise, without having to build a team of your own.
What Exactly Is HR Outsourcing?
Simply put, human resource outsourcing is when you outsource tasks that would typically need to be done by an in-house HR team to external human resource services.
The trend of outsourcing HR duties has been rapidly rising. The Human Resource Outsourcing (HRO) market was valued at $32.8 billion in 2020 and is projected to reach $45.8 billion by 2027.
What HR Services Can Be Outsourced?
Here’s the short answer: basically any of them. You can hand over the duties of hiring, onboarding, compliance, payroll, recordkeeping, performance management, and more to HR services outside of your company.
Still wondering exactly what you can expect when you hire an HR outsourcing firm?
Well, it depends on the firm you’ve hired and the package you’ve opted for. You’ll likely find yourself using one of two broad options:
Option #1: Outsourcing Specific HR Tasks
For small businesses that have some dedicated HR staff, but not enough to handle every responsibility
With this route, you’ll choose specific tasks or focus areas to delegate to an HR outsourcing company.
For example, you might choose to outsource hiring to a recruitment services firm that will handle all duties related to the hiring process. So, hunting for employees, filtering resumes, and finding suitable candidates to interview isn’t a burden on you or your internal HR department. But all the other HR functions related to compliance, company culture, employee wellbeing, and more, are still in-house responsibilities.
Or, maybe you’d rather outsource payroll and workers’ comp insurance to a service like Hourly. In short, this option is a way to lighten the load for your existing HR team without delegating the HR function entirely.
Option #2: Outsourcing All of Your HR Tasks
For small businesses that have no HR staff or expertise and want somebody else to handle it for them
Rather than picking out specific tasks, you can choose to go all-in and outsource your HR functions entirely. This way, you eliminate the need to onboard any in-house HR staff.
Usually, when you work with an HR service in this capacity, they’ll match you with an expert HR manager who takes care of all things human resources—handling employee complaints, making sure your business is in compliance with labor laws, managing your employee records, and more. It’s basically the equivalent of having your own in-house HR team—except they aren’t actually in-house.
Bottom line: You can outsource almost all HR services—from payroll administration to employee benefits to health insurance. It depends on your requirements and in-house capabilities.
Now that you know what HR outsourcing is, what a human resources outsourcing firm does, and which HR services your small business can outsource, let’s get into the benefits your organization can derive from outsourcing HR functions.
Top 5 Benefits of Human Resources Outsourcing
Why is HR outsourcing important? Well, enlisting an HR outsourcing provider offers plenty of advantages for both your company and your employees. Here are five compelling ones.
Benefit #1: HR Outsourcing Controls Costs
Seventy percent of participants in a Deloitte survey said the primary objective of outsourcing is cost reduction. But if you’re running a small business (especially if your margins are tight), it can be tempting to think that you’ll save money by skipping outsourcing and doing it all yourself.
But would you rather spend your time on core business activities—like understanding customers, talking to investors, and motivating your team—or on administrative tasks like handling payroll taxes, searching for new employees, and reading employment laws?
As a small business owner, your focus should be on growing your company and not worrying if your employees receive their paychecks on time.
According to the Bureau of Labor Statistics, the median pay for a human resource manager in 2020 is $121,220. On the other hand, outsourcing human resources can cost you anywhere between $45 - $1,500 per month based on how many employees you have and what services you require.
Even with the wide range, outsourcing your human resource management is a much more cost-effective option than making a new hire for all of your HR tasks—or potentially making costly mistakes by going the DIY route.
Benefit #2: HR Outsourcing Saves Valuable Time
As a business owner, you have to wear many hats—from marketing to client or customer support. It can be exhausting, even on your best days.
You might think that you don’t spend a whole lot of time on HR, but you’ll be surprised: 45 percent of small businesses spend one day a week or more on HR-related administrative tasks. This becomes even more true as your business grows and starts onboarding more and more new hires.
Now, your human resources responsibilities are no longer sustainably managed by you alone. What do you do then?
Seventy percent of small businesses combat the problem by increasing existing staff members’ responsibilities, who can manage HR on an ad-hoc basis. They spend a whopping 13 hours a week on human resource tasks—and that’s time that’s taken away from their core responsibilities.
Even scarier? They seldom have the training to perform these human resource duties well, so it’s no surprise then when blunders happen.
Outsourcing benefits administration and other human resources responsibilities can free up valuable time for you and your employees, which you can then use to focus on your core roles (and maybe even bring in more revenue).
Even if you have a dedicated HR professional, selectively outsourcing manual aspects of human resources—like payroll—can allow more room to address major employee concerns and focus on other initiatives to grow your small business.
Benefit #3: HR Outsourcing Puts Your Compliance in the Hands of HR Experts
According to the latest HR Service Provider Trends Report, the biggest challenge for small and medium-sized businesses is managing COVID-19 related issues (68 percent of respondents) and staying compliant with federal, local, and state regulations (58 percent of respondents).
And the concern is rooted in valid reasons: The average cost for employee lawsuits that resulted in a defense and settlement payment in 2017 was $160,000—taking 318 valuable days to resolve.
Your HR outsourcing service provider will be a human resources expert. They specialize in human resource management—meaning they can keep up with all the ever-evolving rules and regulations and get the job done faster (while ensuring you’ve checked all of the boxes, filed the appropriate paperwork, and more).
As just one example, when you partner with an HR outsourcing provider, like an expert Professional Employer Organization (PEO), you will have help in your corner to iron out policies and provide training to prevent workplace accidents.
Getting external HR support also means you no longer have to handle the administrative tasks of background checks, workplace safety, and risk management. It’s added peace of mind that’s well worth the investment.
Benefit #4: HR Outsourcing Helps You Find and Retain Top Talent
Hiring and onboarding can be a costly and time-consuming endeavor. It’s tricky to determine the actual cost of hiring a new employee—but one survey put it at $4,129 on average.
Plus, in an increasingly competitive labor market, reducing employee turnover is all the more challenging. Data says 31 percent of employees leave their jobs within the first six months of joining.
HR outsourcing can come to your rescue here. Many firms help small businesses maintain staffing levels by managing various aspects of employee relations—like addressing time-sensitive concerns promptly, soliciting employee feedback, and ensuring compensation and benefits packages are competitive.
Outsourced HR firms don’t just help with retention—they can also assist with recruitment. Although the final decision of who comes on board remains with you, you can outsource the rest of the hiring process. The HR outsourcing provider can write job descriptions, advertise vacant positions, sort through resumes, and take care of pre-employment screening.
Later, you can also outsource other time-consuming HR functions like setting up a 401(k) retirement account, workers’ compensation insurance, and other employee benefits paperwork.
Benefit #5: HR Outsourcing Helps You Provide Training and Development
Eighty percent of employees say they would feel more engaged at work if they learned new skills. Regular employee training—from managerial training to performance management—is a crucial HR task.
But you might not have the resources to hire a dedicated HR professional to manage various upskilling activities and development opportunities (and it’s probably not the most cost-effective approach anyway, especially when training needs will often ebb and flow).
Couldn’t you or other leaders in your small business provide those chances for learning and development? Well, it’s important to recognize that you might not have the professional expertise required to execute an effective and well-organized training program, even though you might be technical experts in your niche.
A human resource outsourcing (HRO) firm can provide you with knowledge, templates, and guidance you need to create helpful and more structured training systems and development offerings—whether that’s seminars and workshops or formally-outlined career paths. This saves valuable time for you and your in-house managers and also helps your employees continue leveling up in their careers.
Win-Win: The ROI of Outsourcing HR Functions
As the times change, HR is increasingly becoming one of the most important pillars to run a successful company. But trying to run your small business with an “all-in-house” approach in your HR department can leave you stressed and spread thin.
HR professionals in most small businesses (or small business owners themselves) are so busy with administrative tasks—ensuring everyone is paid on time, addressing concerns, managing documents—that they have almost no time or space for strategic business initiatives that lead to long-term growth.
Outsourcing some or all your human resources tasks saves time, money, and valuable resources for your organization. Plus, you’ll have the added benefit of knowing you have HR experts readily available for all of your questions and concerns. That’s worth its weight in gold.
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