In a rapidly changing world, companies must be agile and work smart. Start by identifying key competencies that are driving business growth as well as functions that don’t generate revenue. Which of those should stay in-house and which could be outsourced? Many business owners discover they save time, energy and money when they hire an outside company for human resources (HR).
Human resource outsourcing (or HRO) is when a small to mid-sized company hires outside HR professionals to manage HR functions and provide HR guidance. There’s a contractual agreement that defines which HR responsibilities and administrative tasks will be handled by the external resource and which remain the responsibility of internal staff or HR department.
Which HR functions can be outsourced?
There’s a wide range of package plans or custom HR services that can be outsourced. Services offered include employee benefits administration (health insurance, fringe benefits, etc.), payroll processing, tax administration, risk management, legal compliance, performance management, workers’ compensation and HR guidance on hiring, on-boarding, training and terminations. They can also provide direction during an HR crisis, like COVID-19. The services vary by provider and range from basic to comprehensive. Companies will want to reflect on their current and future needs when considering a provider.
What are the different HR outsourcing providers?
- Software as a Service (SaaS) charges a monthly set fee for a self-service software platform. You’ll get online tools to help you manage hiring, payroll, benefits and performance management. Call center access is typically available, but you won’t get a dedicated HR expert.
- Independent HR consultants (individual or firm) can offer on-site or virtual HR expertise for an hourly rate. They help companies identify HR needs, develop HR policies, set up compliant processes and more. Whether addressing specific issues/needs or a recurring monthly retainer, hourly fees vary depending on the type and volume of support needed.
- Administrative Services Organizations (ASOs) provide a service model where companies pay for the administration of specific, recurring HR tasks. This is a flexible solution for time-consuming tasks. Since most ASOs don’t sponsor benefits, this works best for companies with benefits already in place.Your company remains the employer of record. The ASO can provide assistance with compliance questions and legal concerns, but ultimately, your company retains all legal obligations.
- Professional Employer Organizations (PEOs) provide the most comprehensive HR outsourcing services including managing recurring tasks (like payroll, taxes, etc.) and more strategic HR guidance (compliance with employment laws, managing during crises, etc.). They use a co-employment model where you maintain decision-making authority in daily operations and the PEO assumes risk for administrative liabilities. Pricing is calculated either as a flat fee per employee or percentage of gross wages.
Why do companies outsource human resources?
HR is a specialized field that’s constantly changing and evolving because of workforce trends and new legislation. There are legal risks, monetary fines and negative ramifications when handled incorrectly. It distracts personnel from revenue-generating functions. Often companies don’t even realize how much time is being siphoned away from growth initiatives to manage HR. By outsourcing, they get cost-effective HR expertise that saves time, reduces stress and supports recruiting and retention goals. It can bolster employee morale when benefits are enhanced, and they aren’t covering HR in addition to their normal job requirements.
When should you outsource HR?
HR is a cost center that takes time away from revenue generating functions. By outsourcing, personnel can concentrate on more strategic activities that could increase revenue. There are factors to consider when deciding if it’s time to outsource:
- HR systems aren’t accessible remotely – Flexible work arrangements require mobile systems that support onsite, remote, local, national and even international employees. During COVID-19, companies had to adjust to a remote business model practically overnight. From normal operations to disaster planning, HR should be able to support your company needs.
- HR staff’s main focus is operational – It’s shortsighted if HR staff is solely dedicated to recurring administrative tasks. This could lead to recruiting and retention issues if HR can’t work on long term needs like career development, corporate culture and supporting business growth goals.
- Overwhelmed by changing legislation – Your HR team may have a hard time keeping up with and interpreting the impact of local, state and national legislation. Even when unintentional, mistakes still trigger costly fines or penalties. This can be stressful and expensive.
Allow enough time to thoroughly assess HR outsourcing options and make a decision. You’ll want to assemble a task force to help identify current and future mandatories, evaluation criteria and implementation requirements. By understanding stakeholder needs in advance, you can effectively compare solutions and find the best long-term fit.
How does HR outsourcing work?
You’re eager to get up and running with your new provider. Whether you’re outsourcing the entire department or specific functions, the goal is to simplify HR for your company. Your service provider should take the lead in explaining the typical monthly schedule and assign a dedicated account manager for questions and guidance. Expect this transition to take a little time as you exchange key information and establish new processes. If you have any HR team members, adjust their focus now that tactical duties have been outsourced. Decide which strategic initiatives should take priority: positive workplace culture, employee engagement, supporting business goals and more. This is the exciting outcome of the whole process.
MidwestHR, a leading CPEO in Illinois (certified professional employer organization), has been partnering with small- and mid-sized businesses for over 20 years in dozens of industries. We have worked with every type of business from start-up to established company. Our clients decide which HR functions they need help managing with no long-term contracts. As one of the first PEOs certified by the IRS,* you’ll gain the peace of mind knowing our tenured HR specialists will take care of every detail. Our top priority is providing exceptional service, support and guidance, so you can focus on growing. Not sure how to proceed? We’re happy to share our thoughts even if that means referring you to another vendor. Give us a call at 630-836-3000 to learn more.