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Table of Contents

The many components of HR can be intimidating to someone not familiar with their full range. If you don’t want to tackle it all on your own, consider outsourcing HR.

What Is Outsourcing HR?

Outsourcing HR is when a company decides to have all their HR matters handled by an outside company. This typically happens when a company isn’t large enough for an HR team.

Should Companies Outsource HR?

Whether a company should outsource HR or not is not a simple yes or no answer. While it might be right for some companies, it might not make sense for others. When making this decision for your company, it is important to weigh the pros and cons of outsourcing HR. Here are some pros and cons to consider.

Pros of Outsourcing HR

  • Lower administrative costs. One of the most common reasons businesses decide to outsource HR is the savings on administrative costs. Studies have found that companies save an average of 20% on regular expenses when they outsource HR. Instead of paying an entire HR team, a business can outsource HR and pay for only certain services as they are needed. Outsourcing allows a business to pay for specialized services without the administrative costs of having an HR team.
  • Access to better benefits. Many outsourcing HR companies have access to better benefits for their clients due to a wider client base. This allows a business to offer better perks and benefits through an outsourced HR company.
  • Specialized services. When a business outsources HR, they can find specialized services for each aspect of HR they need. This means you could have experts in employer compliance, policy, hiring and onboarding, employee relations, benefits and workers’ comp, without hiring an entire HR team. It provides you the best service for all your HR needs.

Cons of Outsourcing HR

  • Lack of control. When outsourcing HR, a company is trusting in another company to handle the important function of HR. This means the company will have minimal control with how HR issues are handled. It can be hard to get a pulse on the company and culture when issues are being handled by an outside source.
  • Constant turnover. Learning a company’s culture and building relationships takes time. When a company outsources HR, they will typically be assigned an HR rep or multiple contacts when issues come up. As that HR rep becomes familiar with the company, the ball can be dropped when that contact leaves. More issues can fall through the cracks and be lost in communication. Also, you can’t control when turnover or change occurs since the assigned HR rep isn’t your employee.
  • Data/privacy concerns. In order for HR to function properly, they need access to employee files and records. When a company outsources HR, they are turning over their employees’ personal information to an outside source. This can be scary for some employees and cause privacy concerns. This issue is something every company needs to carefully consider if they decide to outsource HR.

What Services Does HR Outsourcing Provide?

Outsourcing HR can provide many different services. While a company might choose to keep some HR services in-house, they can still choose to outsource some HR services. Here are some of the HR services that a company could consider outsourcing.

Payroll

This is one of the more common outsourced HR services. You can outsource payroll to another company to handle paying employees each pay period. Payroll can be time consuming, so these services can save a business a lot of time. Typically if you outsource payroll, you will pay your outsourced company the amount for the entire payroll plus an additional processing fee.

Training

Training is another common service that companies will outsource. Having a team of HR professionals that specialize in training is helpful for a company who doesn’t know what training should be provided, or how to start preparing for training sessions.

Policy

Every company should have its own company handbook with company policies listed. It can be difficult to know where to start when writing company policies for a handbook. A company can outsource this HR task and use a set handbook the outsourced company provides. If a company is struggling to write and implement policies, the outsourced HR company could write and compile them.

Workers’ Compensation Coverage

A company can outsource workers’ comp duties. Workers comp can be complex, whether the reporting, employees returning to work, or paying employees workers’ comp. This can all be handled by an outsourced HR company.

Employee Investigations/Legal Counsel

One of the most important responsibilities of an HR department is mitigating risk for the company by providing guidance on the potential liability and risk of personnel decisions. This can be complicated and messy. Having an impartial party provide guidance on handling employee investigations or legal issues can be vital in helping prevent a company from a huge lawsuit. A company that outsources employee investigations has the benefit of a legal expert who is impartial and can provide the necessary legal advice.

Benefits

Using an outsourced HR company to handle your business’s benefits can be advantageous from a financial aspect, as the outsourced HR company can often offer lower costs and better coverage for its clients. Outsourcing benefits also allows a company to rely on a team of benefits experts.

Factors to Consider Before Outsourcing HR

When a company decides to outsource their HR, they need to be aware of how it will impact the company. They need to consider how they are currently handling HR issues and how a change will affect that. Here are some factors to be aware of.

Size of the Company

Companies that outsource HR are typically smaller businesses. These companies don’t have the manpower or funds to hire employees solely devoted to HR issues. A company should consider the size of their workforce and the needs of their employees before deciding if they need to outsource HR services.

Current Processes

Prior to changing, all current HR processes should be reviewed. What is not working? Why is a change needed? After reviewing those processes, consider the impact it will have on the organization if you choose to outsource those services and processes. Will it be beneficial for the employer and the employees?

What Services Will Be Outsourced?

After reviewing current and lacking HR processes, consider what HR services you want to outsource. If your company is doing a great job recruiting and has great processes in place, there is no need to outsource that. Some companies might decide to outsource all HR services so all HR functions are in one place with a specialized company, but that might not be the best fit for every company. It is important to review what services should and should not be outsourced.

How to Get Started Outsourcing HR

Deciding to outsource HR isn’t a simple turn over of HR tasks to the outsourced HR company and you are done. Here are some steps to consider as you outsource those HR services.

Step 1: Plan and Prepare

After the decision has been made to outsource HR, a company should decide when that will be occurring, how much it will cost and what services will be outsourced. Next, they need to decide what company or companies they will use to outsource HR services.

Step 2: Communicate

All these changes should be communicated with the outsourced HR company as well as your company’s employees. Employees shouldn’t find out about the change when they receive a paycheck from a different company or are referred to an outside source when they have issues to discuss with HR. Be sure to keep employees up on the changes throughout the entire process.

Step 3: Gather Employee Information

As part of the transition to outsourcing HR, the HR company will need your employees’ information. This can often be done through data export which is imported into the outsourced HR company’s HRIS. This transfer of data needs to be secure and with the consent of employees, as their information will be shared to an outsourced organization. This consent can be a signed agreement or part of your company handbook’s acknowledgement that the company has the right to share information with a third-party.

Step 4: Implement

After all necessary steps have been taken, the final step is to implement the changes. Make sure your entire company is on the same page and understands what HR services are being outsourced. Employees should know who they should contact for each of these services. New processes should be in place internally and with the outsourced HR company. Implementation is vital so that things don’t fall through the cracks and every team member understands the new processes and changes.

Questions You’ve Asked Us About Outsourcing HR

The outsourced HR company will not be aware of HR issues unless you bring them to their attention. HR planning will mostly consist of budgeting and how you want to utilize the HR outsourcing company. 

It depends on what services you choose to outsource and through what company, but generally anywhere from $500 to $2,500 a month.

A small business should consider outsourcing HR when they don’t have the manpower to manage HR responsibilities, or if they want the expertise of an HR team without hiring them directly. 

Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.

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