What is HR Outsourcing?

As your business grows, so do your human resources responsibilities. Developing and streamlining your HR processes – potentially with a HR outsourcing provider – can help you increase efficiencies, take care of your employees, connect with top-tier talent, stay on top of rules and regulations, and improve your bottom line. It also frees up time for you to focus on your business.

Let's start with the basics: what is HR outsourcing?

When your business hires an external company to manage some or all of your HR needs, you are outsourcing HR. Some businesses have limited HR resources, and they choose an HR outsourcing provider to offload daily HR administrative tasks. Others seek strategic HR support to elevate their business or to utilize the latest technology to streamline processes.

Small and mid-sized businesses often realize several benefits from HR outsourcing. The investment to hire an HR outsourcing provider pays off through cost savings, better employee benefits, increased productivity, improved employee morale, and more.

When it comes to outsourcing HR services, you have options. If you have an in-house HR team in need of additional support, you can outsource a specific task, such as payroll administration, to an HR services provider. Or if you’re looking for a more comprehensive HR solution, there are providers that offer services, support, technology, and expertise for any and all HR needs.

Below are some of the most common types of HR outsourcing:

HR Technology Vendors

Some companies have the infrastructure and resources in place to manage their HR functions internally but lack the tools or technology to do so efficiently. A third-party HR technology vendor provides access to a program or online platform that performs these functions (typically payroll processing) or empowers your employees to handle more tasks through self-service. However, if you use HR technology vendors, you are still required to do the heavy lifting for many HR tasks.

HR Outsourcing (HRO)/Administrative Services Organizations (ASO)

An administrative services organization (ASO) is a company that contracts with employers to provide administrative and human resources services. An ASO partnership allows employers to build a customized HR services package, where you can pick and choose from an a la carte menu of available services – such as recruitment, payroll processing, benefits administration, risk management, regulatory compliance, performance management, employee relations, etc. This model is similar to other business outsourcing and vendor/client relationships and typically works well for large and established companies with an HR infrastructure.

Professional Employer Organization (PEO)

When you partner with a PEO, your company enters into a co-employment relationship that allows the PEO to act as the “employer of record” for your employees. As the employer of record, the PEO shares much of the administrative responsibilities and liabilities associated with carrying employees and performs employment-related tasks on your company’s behalf. While PEO services offer a full-service HR management solution, they also provide scalable options that create value by supplementing services carried out by your company’s internal staff.

Employer of Record (EOR)

An employer of record (EOR) – sometimes referred to as an international PEO – is an organization that legally employs workers in foreign countries on your behalf. Though PEO and EOR both use the term “employer of record,” there are key differences between the two. Whereas a PEO works with a business in a co-employment agreement and shares liability on employment-related matters, an EOR assumes full liability for hiring and managing employees for businesses it works with.

HR outsourcing services cover a broad spectrum, from day-to-day HR functions to long-term, strategic initiatives.

HR outsourcing services include:

Payroll Services Administration

Taking care of payroll tasks can feel like a full-time job. Outsourcing to an HR support team that manages all the moving parts – including time-tracking, benefits deductions, payroll tax filing, reporting, and more – allows you to spend more time on strategy and revenue-generating efforts for your business.

Recruiting

By outsourcing your company’s recruiting efforts, you can build a pipeline of experienced talent, enabling you to hire team members who will deliver long-term benefits for your organization.

An HR outsourcing services provider such as G&A Partners will proactively manage one or all aspects of your hiring process from sourcing, to vetting, interviewing, and hiring candidates.

Benefits Procurement and Administration

An HR outsourcing provider, such as a PEO, can provide you with access to high-quality, affordable benefits that allow you to better compete for top talent and provide employees with the health and financial benefits they need. Once you’ve settled on the benefits you want, a PEO can assist you by administering your employee benefits program, which requires specialized knowledge and a keen attention to detail.

Performance Management

Today’s business owners recognize the need to invest in human capital management. Outsourcing your company’s training and performance management programs can help you make that investment and proactively develop your employee talent base while increasing job satisfaction and engagement.

Risk Management and Workplace Safety

Providing your employees with a safe work environment is a top priority. When you partner with an HR outsourcing firm, especially a PEO such as G&A Partners that has in-house expertise, you will have tools in place to help prevent workplace accidents and combat employee fatigue. HR consulting services can also help you develop custom workplace safety protocols, emergency procedures, and ensure your company is compliant.

Employment and Labor Law Compliance

The U.S. regulatory landscape is in a constant state of change, and new employment laws are passed (or amended) on a regular basis. The best HR outsourcing providers have deep regulatory experience that will help your business stay compliant with employment laws and all federal, state, and local workplace requirements.

When considering outsourced HR services for small businesses, it’s important to assess your company’s needs so you can determine the strategy that will best serve your business. Several factors – such as company size, stage of growth, or current HR staff – play a role in shaping a strategy that provides the right level of HR support for you and your team.

To get a better feel for the HR outsourcing option that can work best for your organization, consider these questions:

Are your company’s HR needs currently being handled by you and/or other staff members, in addition to regular duties?

For many small businesses, HR administrative tasks are handled by the business owner or shared amongst a few staff members – who are juggling their other day-to-day responsibilities as well. Those tasks can quickly take over and prevent you from focusing on your core business.

In this situation, a full-service HR outsourcing solution such as a PEO can be a game-changer. Through a unique co-employment relationship, a PEO administers many HR tasks on your behalf, allowing you to devote your time to growing your business. G&A, for example, has teams of HR experts with significant knowledge to guide you through complex employee issues and strategic HR initiatives such as improved employee engagement, retention, and recruiting.

Do you have a team with HR expertise that is currently managing human resources in house?

If so, you may benefit from outsourcing a specific HR project or task (such as talent acquisition) that your team doesn’t have the capacity to complete. You can also partner with a third-party vendor for HR technology to streamline processes.

An administrative services organization can support your in-house HR team as well. For example, an ASO could assist you with benefits administration or compliance, freeing up your HR staff to handle other administrative tasks. An ASO also offers the added benefit of integrated technology, which eliminates the need to reenter HR data across multiple platforms.

Is your company quickly growing and finding it difficult to scale HR at the same rate?

Choosing what type of HR outsourcing fits your needs often depends on your stage of business growth. A fast-growing company may struggle to accommodate its employees’ HR needs, especially if your staff is quickly expanding. In this case, a full-service HR outsourcing solution such as a PEO gives you a flexible option that can scale seamlessly with your company as it grows.

A more established company may already have HR processes and people in place but is ready to explore a more strategic approach to HR, such as improving retention, recruiting, or employee engagement. For these companies, outsourcing a single service or working with an HR consulting firm may be more appropriate.

How much of your budget will you devote to outsourced HR services?

The cost of outsourced HR will vary based on which service or provider you choose, so knowing your budget will help determine which options are viable.

An HR technology provider such as a payroll-only service that helps you streamline some HR processes may come with a smaller price tag, but it will require in-house staff. This option also comes with less customer support. An administrative services organization, on the other hand, may cost a bit more, but it will give you access to HR technology, the flexibility to choose which HR services you need, and HR expertise and support.

A professional employer organization is a cost-effective, comprehensive HR solution that can increase operating efficiencies and streamline processes. The level of support a PEO offers can vary significantly, so it’s important to compare PEOs when considering this option.

How confident are you that your business is compliant with employment-related laws?

If keeping up with ever-changing employment laws and regulations has you overwhelmed, partnering with an HR outsourcing provider is an effective strategy that can help protect your business. With an ASO or a PEO like G&A, you gain access to a team of HR experts who can help you understand how the latest laws impact your business. They also provide guidance on how to maintain compliance, which can minimize potential fines or lawsuits.

Despite its many benefits, HR outsourcing remains a commonly misunderstood business practice. Through the years, HR outsourcing has become incorrectly synonymous with “offshoring,” which refers to a company sending jobs overseas and eliminating internal staff.

Outsourcing is not offshoring. It is simply the process of obtaining goods or services from an external source or vendor – such as human resources outsourcing (HRO) companies – so you and your employees can focus on growing your business.

In fact, recent industry research shows that businesses that use HR outsourcing services grow 7-9% faster than those that don’t, and companies of all sizes in various industries outsource HR functions – even those with HR professionals on staff.

If you’re on the fence about HR outsourcing or concerned about what it might mean for your organization, check out the following list of the most common myths of partnering with a PEO. Arming yourself with accurate information about HR outsourcing will help you make the best decision for your company.

Myth: My company is too small to benefit from partnering with an HR outsourcing provider.

Small business owners – and growing businesses – are responsible for carrying out the same HR tasks as larger or more established companies, just on a smaller scale. It’s often difficult for small companies to find money in the budget to hire the staff needed to efficiently manage the scope of HR services required to keep your employees safe and your company compliant with workplace rules and regulations. An HR outsourcing firm gives you access to a dedicated team of HR specialists for about the price of one, full-time employee.

Myth: My company is too big to benefit from partnering with an HR outsourcing provider.

Even if you have a larger, more established business, you’re always searching for ways to improve HR processes and minimize costs. Partnering with a trusted, experienced HR outsourcing firm such as G&A Partners will free up time for your HR team to focus on the strategic initiatives that will benefit your company’s bottom line rather than tedious administrative tasks. Also, the more employees you have, the more vulnerable your company is to compliance issues, unemployment claims, and even lawsuits. Working with a team of HR specialists is a proactive way to keep problems at bay.

Myth: If I outsource my human resources, I will lose control of my business.

Many business owners are concerned that outsourcing HR services would lead to a loss of control over HR functions. Your HR outsourcing provider works for you, not the other way around. Businesses that outsource their HR tasks have as much control of their business as those who don’t outsource HR tasks. There’s one significant difference between the two: Companies that outsource HR services have more time to focus on their core businesses because their daily administrative tasks – and many others – are covered.

Myth: HR outsourcing is too expensive.

Hiring an HR outsourcing firm may, at first glance, feel costly, but doing so can actually save you money. The average cost of managing HR and administrative functions in-house is approximately $2,500 per employee, per year, according to the Society for Human Resources Management (SHRM). Depending on the number of employees your business has, these costs add up and can quickly become overwhelming. Industry research reveals that companies that outsource some or all of their HR tasks reduce their administrative costs by approximately $450 per employee.

Myth: The way we've been taking care of HR functions ourselves (in house) is fine.

Sticking with the status quo is comfortable, particularly if it’s working relatively well. But it makes sense to outsource some or all of your company’s HR services if it results in a more efficient, strategic, and cost-effective solution. Consider this: If you’re not a legal expert and need legal advice, you retain an attorney. If you’re not a numbers person and need help with financials, you hire an accountant. If you’re not an HR expert, it makes perfect sense to hire an HR outsourcing company that gives you access to a team of dedicated HR professionals.

As your company grows, increased HR responsibilities can quickly take over, potentially resulting in the need to hire one or more employees to handle those needs. The costs associated with adding internal HR staff can eventually outweigh the benefits. Outsourcing some or all of your HR tasks will free up time for you to focus on your company’s core services, and it offers benefits that are difficult to achieve internally without placing a heavy burden on your bottom line.

Here are some common benefits of HR outsourcing:

Lower Your Costs

Your employees deserve quality HR support, but many small and medium-sized businesses can’t justify the expense of operating an entire HR department. The average cost of managing HR and administrative functions in-house is approximately $2,500 per employee, per year, according to the Society for Human Resource Management (SHRM). The National Association of Professional Employer Organizations reports that companies experience a 27.2% return on investment when they partner with a PEO. In other words, for every $1,000 spent on PEO services, an average client would save $1,272, yielding a net (cost savings) benefit of $272 for every $1,000 spent.

Boost Employee Morale

Payroll, benefits, career development, and more are vital to maintaining and improving employee morale and productivity. HR outsourcing means you have access to human resources experts who will help you care for the employees you have. This can help you reduce employee turnover and recruit new people to the team. An HR support team can also negotiate a better benefits package for your business, saving you money as an employer and saving your employees money on their premiums.

Maximize Business Efficiencies

It’s challenging to focus on a long-term business strategy when you and/or your employees are busy with day-to-day HR processes and tasks. With HR outsourcing, you can unload daily responsibilities such as running payroll, cutting checks, reviewing insurance claims, and administering benefits. You can also access customizable HR technology solutions such as online self-service platforms that will help save time, increase productivity, eliminate errors, and help you better manage work schedules.

Attract and Retain Qualified Employees

A PEO or HR outsourcing firm can help your company take a more proactive and targeted approach to recruiting by actively sourcing and vetting candidates and managing your hiring processes. Building a solid pipeline of talent offers many long-term benefits, including lower recruiting costs, a solid experience base, and a more robust company culture.

Connect with a Team of HR Experts

You started your business because you’re an expert in your chosen field and you wanted to bring that expertise to bear with a quality product or service that your customers need. Still, compliance demands placed on your business can be confusing and time-consuming.

When you work with an HR outsourcing company like G&A Partners, with comprehensive, in-house expertise, you reduce the risk of noncompliance. You also gain access to a dedicated team of HR and back-office administration specialists who know the HR industry’s ins and outs and can help you stay on top of laws and regulations that impact your business and industry.

In this article, we’ve explored the different types of HR outsourcing providers, the types of services they provide, and strategies for outsourced HR. The next step? Choosing a provider.

Below are 6 steps to consider when evaluating HR outsourcing services:

1. Assess your HR needs.

   Determine what HR services you need. This will vary for each business, so consider factors such as:

   • Do you have an in-house HR team or are staff members managing HR in addition to their primary responsibilities?
   • Do you need basic HR support, HR technology only, or a comprehensive HR solution?
   • What is your budget for outsourced HR?
   • Do you need employee benefits or help reducing benefits costs?
   • What level of client support do you need?
   • What gaps do you currently have with your in-house HR expertise?
2. Research potential HR outsourcing providers.

   Compile a list of providers who operate in your state and offer the HR services you need. Then research each company’s reputation, years of HR outsourcing experience, Net Promoter Scores, customer satisfaction, and experience in your industry and location.

3. Consider each provider’s HR technology options.

   No matter whether you’re considering a technology-only service, such as payroll service provider, or a comprehensive HR solution, you should explore the technology platforms each provider offers. Look for integrated, user-friendly, and secure platforms that utilize industry-leading technology and protect employee data.

4. Determine what type of client support is provided.

   Will you have a dedicated HR expert who gets to know your business and needs? Or is support provided through a call center? If your employees have HR-related questions, are they able to contact the HR provider directly? The level of support amongst HR outsourcing companies varies greatly, so it’s important to understand what type of service you’ll receive and ensure it aligns with your needs.

5. Request quotes.

   Once you’ve narrowed down your list of providers, it’s time to request a quote. Depending on which type of HR outsourcing provider you’re considering, the process to obtain a quote might be complex.

   For example, most PEOs customize their quotes to each prospective client. To ensure you know exactly what HR services are included in the quote, ask prospective providers for a detailed list. For example, are recruiting services included or will the payroll service provider file payroll taxes on your behalf?

6. Assess how each provider aligns with your company.

   Choosing an HR outsourcing provider may be the beginning of a long, valuable relationship with your company. As such, assess each provider’s values and ensure they align with those of your company. For example, a provider that consistently demonstrates how it values its employees is likely to prioritize customer service for its clients.

Managing HR means managing the employee lifecycle from hire to retire – all while ensuring you’re providing a safe and inclusive workplace that is compliant with employment laws and regulations. Therefore, there are a variety of reasons businesses choose to partner with an HR outsourcing provider.

Below are some common HR outsourcing examples:

• Help sourcing, vetting, and hiring new employees
• Onboarding new hires
• Processing payroll
• Administering benefits
• Acquiring more comprehensive and affordable employee benefits
• Improving employee engagement through strategic initiatives
• Assisting with compliance for local, state, and federal workplace requirements
• Providing employees a safe and inclusive work environment
• Developing a performance management plan
• Implementing learning and development for employees

Building and maintaining an in-house HR team requires significant upfront costs like salaries, benefits, and office space. So, outsourcing HR can be a financially attractive option for small and mid-sized companies.

HR outsourcing companies can offer economies of scale. They spread their HR expertise across multiple clients, reducing the per-client cost, and providers such as PEOs utilize their buying power to negotiate better employee benefits at more affordable prices. That buying power also extends to state-of-the-art HR technology, workers’ compensation, and more – leading to additional cost savings for you.

An HR outsourcing provider also seamlessly grows with your company. As your business grows, you need more HR resources to manage the needs of your employees. With HR outsourcing, however, your provider already has the resources in place to scale with your company.

The overall cost scales, too. For many HR outsourcing services, businesses are billed either based on a percentage of their payroll or the number of employees. In either case, the cost to outsource your HR grows and contracts as your needs change. As you add employees, the cost increases. If you reduce your workforce, the cost decreases. In comparison, your costs for an in-house HR team are fixed, rather than changing as your business fluctuates.