Is it Cheaper to Outsource HR?

How much does it cost to outsource HR?

Running a small or mid-sized business often means operating with limited resources, and it’s important to investigate how much HR outsourcing costs when considering it as part of your business model.

The reality is that outsourcing HR services to a third party can be a cost-effective solution. It can also help you minimize risk and streamline processes to increase efficiencies, while offering potential savings on benefits, workers’ compensation, and more.

So, how much do outsourced HR services cost per month? The cost can vary widely based on the services you are receiving and how many employees you have.

For example, if you’re seeking help creating an employee handbook or conducting training for your employees, you’ll likely pay a flat rate that will depend on the complexity and scope of the project.

Besides charging a flat rate for some HR services, many HR outsourcing providers charge in one of two ways:

• As a percentage of total payroll (typically between 3-8 percent)
• As a flat per-employee-per-year (PEPY) fee.

The fee or percentage will depend on which services the HR outsourcing company will provide or manage on your behalf. An HR solution that is focused on only providing payroll software will be significantly less per month than a full-service solution – such as a professional employer organization (PEO) that is managing your payroll, administering benefits, handling workers’ compensation and unemployment claims, assisting with compliance, and providing HR expertise.

Generally, though, the cost to outsource your HR to a PEO is about the cost of one, full-time employee.

To learn more about the cost of HR outsourcing for your business, contact our HR experts at G&A Partners.

How does HR outsourcing reduce costs?

Companies typically spend $2,000 annually per employee to manage HR and administrative tasks with an in-house team. As your growing business adds more employees, those costs quickly increase, as does the amount of time required to complete HR-related functions.

Below are a few ways that partnering with an HR outsourcing provider can reduce the cost per employee:

Lower HR costs
When an HR outsourcing provider is handling most of your HR tasks – such as payroll processing, benefits administration, and HR management – you don’t need to hire a dedicated HR team. Or it allows your employees who are juggling HR tasks on the side to focus on their core responsibilities.

Better, more affordable benefits
If you’ve shopped for benefits on the open market, you know it can be difficult to find plans with the right coverage and network at a price you and your employees can afford. That’s where a PEO like G&A Partners comes in. PEOs are co-employers to hundreds and thousands of worksite employees, giving them the ability to negotiate better rates on higher-quality plans. Those savings often offset any administrative fees from your HR outsourcing provider.

Streamlined processes for improved efficiency
With streamlined HR processes, your employees gain back time to focus on their jobs, leading to increased efficiency, higher productivity, and ultimately, more revenue.

Lower risk of noncompliance penalties
Workplace laws and regulations dictate everything from classifying employees, 401(k) participation, paid leave, and more. Staying on top of these ever-changing workplace requirements is challenging, especially if you lack in-house expertise. And the time spent on these tasks can take focus away from growing your business. Outsourcing HR can help minimize the risks of noncompliance, which can help you avoid costly fines or lawsuits.

Consolidation of vendors
Are you already outsourcing some HR services, each to a different vendor? Many business owners begin by outsourcing one service, such as payroll, to one provider, then another service to another provider, and so on. Over time, you end up working with multiple vendors, each providing an individual HR service. And those costs can add up quickly. Consolidating your outsourced HR to a single provider – such as an administrative services organization or PEO – can reduce your overall HR costs.

Better employee retention
Replacing employees is costly for small and mid-sized businesses, ranging anywhere from 30-150% of the employee’s annual salary. When you outsource HR to a PEO, for example, you can minimize employee turnover by 10-14%, according to industry research. An HR outsourcing provider improves employee retention by helping you provide high-quality, competitive benefits packages and develop a company culture that shows employees they are valued.

So, is outsourcing HR cheaper?

As noted above, small and mid-sized businesses typically spend $2,000 per employee, per year, when managing HR in house. Is it cheaper to outsource HR rather than keep it in house?

The short answer is, yes. When you outsource some or all HR tasks to an HR outsourcing provider such as PEO, you can save approximately $450 per employee. In fact, the average annual return on investment (ROI) is 27.2% according to the National Association of Professional Employer Organizations (NAPEO).

Should I outsource my HR?

Deciding whether to outsource your HR isn’t a one-size-fits-all answer. But for many small and mid-sized business owners, spending long hours each week on administrative HR tasks isn’t the reason you started your business.

That’s why the cost of HR outsourcing isn’t the only factor to consider when deciding whether to outsource. It’s an investment that can also benefit your business by giving you and your team time back to focus on core business functions and growing your business.

Consider these additional statistics from NAPEO about the benefits of partnering with a PEO:

• Businesses that work with a PEO grow 7-9% faster than businesses that don’t.
• Companies that partner with a PEO are 50% less likely to go out of business.
• Outsourcing HR with a PEO can reduce employee turnover by 11-14%.

When deciding whether to outsource your HR, take time to assess your company’s needs and budget, then consider the many benefits your business may realize in addition to the cost of HR outsourcing.