How to Outsource Human Resources in 6 Steps

Explore a complete guide on how to outsource HR, from choosing the right provider to managing the transition and maintaining ongoing relationships.



There are many reasons why your business may choose to outsource HR. Perhaps you don't have enough time to complete all of the tedious administrative tasks you have to tackle, or you need assistance staying compliant with labor laws and regulations. Maybe you want to increase your employee retention rate or gain access to better health benefits for your employees.

Whatever the case may be, outsourced HR (human resources) services may be the right solution for you.

Outsourcing HR is a strategic approach that involves trusting a third party to provide HR services for your company. This arrangement allows businesses like yours to focus on core operations while offloading tedious administrative services and having access to specialized expertise and resources in HR management.

By outsourcing your HR needs, you can streamline your processes, reduce costs, enhance efficiency, and ensure compliance with HR regulations.

How Do I Outsource HR Functions?

As a small or medium-sized business, you may be overwhelmed by the number of HR tasks on your plate. While you would love to take advantage of the numerous benefits outsourcing provides, you are not quite sure where to begin.

Here are six steps to help you successfully outsource human resources management to an HR outsourcing team.

1. Determine Which HR Functions to Outsource

Human resources incorporate numerous responsibilities. Depending on your company’s size, the skillset of your existing staff, and those staff members’ bandwidth to meet your company’s needs, you may need just a little or a lot of help.

To begin, consider the following commonly outsourced HR functions: 

  • Payroll processing 
  • Employee benefits 
  • Benefits administration 
  • Human Resources Information and Management System 
  • Other HR technology (applicant tracking, paperless onboarding, online benefits enrollment, etc.)
  • HR compliance, risk management, legal matters, and navigating employment laws
  • Employee training and development 
  • Performance management
  • HR policy development and implementation

Next, assess how your team is currently handling each of these HR functions with the following questions:

  • Is my team administering each of these HR processes accurately and effectively?
  • What is the level of complexity and specialized knowledge required for each function?
  • Would outsourcing create more efficiencies?
  • Am I confident in our current ability to maintain legal compliance standards?
  • What is the cost-effectiveness of outsourcing compared to in-house management?
  • Are all my employees satisfied, or is there room for improvement?
  • What is the strategic importance of the function to be outsourced?

Determining what you want to outsource and assessing how you currently handle your HR functions by answering the questions above will give you clarity and set your company up for success with an outsourced provider. 

2. Identify Potential HR Outsourcing Providers

By now, you should have a good sense of which HR tasks your business should outsource. However, there are still some important items to consider before moving forward.

When choosing an HR outsourcing partner, consider the following factors:

  • Experience and expertise in HR outsourcing
  • Reputation and track record
  • Range of services offered
  • Flexibility to accommodate your specific needs
  • Compatibility with your company culture and values
  • Technology and infrastructure capabilities

There are three main types of service providers for HR outsourcing to consider: Professional Employer Organizations (PEO), Administrative Services Organizations (ASO), and Business Process Outsourcing (BPO). Check out our full HR outsourcing guide to learn more about what each handles so you can choose the right HR partner. 

3. Evaluate Potential HR Outsourcing Providers

It is crucial to not only evaluate what a PEO, ASO, and BPO offer but to research specific companies within those categories. Selecting the right HR outsourcing company is essential to avoid any negative impacts on your business. 

To evaluate potential HR outsourcing companies and providers, consider asking the following questions:

  • How will collaboration and communication be managed when outsourcing HR functions?
  • How will the outsourcing provider ensure data security and compliance?
  • What is the company’s own turnover like?
  • What kinds of technology does the PEO, ASO, or BPO offer to your managers and employees?
  • What can the PEO, ASO, or BPO do immediately to help address your HR concerns?

By asking these questions, you can get a better understanding of the HR outsourcing firm’s values, mission, vision, and culture to ensure that it aligns with your business.

4. Compare HR Outsourcing Service-Level Agreements 

The final aspect to consider when choosing an HR outsourcing partner is the service-level agreement offered by different HR outsourcing companies. This outlines the scope of services, performance expectations, and responsibilities of both parties involved. By carefully comparing the service-level agreement, you can ensure that you choose a provider that aligns with your business goals and meets your specific needs. 

Here are some factors to review and compare: 

  • Scope of services and deliverables 
  • Performance expectations 
  • Responsiveness and support
  • Flexibility and scalability
  • Contract terms and termination (ie. duration, renewal options, and cost)
  • Termination and transition protocols
  • Security and ownership 
  • Client references and online reviews

Take the time to compare multiple providers, review their proposals, and ask questions to ensure you make an informed decision that best supports your business needs. 

5. Implement the HR Outsourcing Solution

To successfully implement an HR outsourcing solution for your business, you should follow these suggested steps with your new HR partner: 

  • Step 1: Start with a thorough knowledge transfer 
  • Step 2: Ensure roles and responsibilities are defined between your company and the outsourcing provider
  • Step 3: Establish effective communication channels for both parties
  • Step 4: Integrate systems and technologies as needed
  • Step 5: Make sure employees are trained on new processes and procedures

By following these steps, your business can successfully implement an HR outsourcing solution. 

Some PEO companies like Stratus HR offer an Implementation Specialist to get the ball rolling. All you need to do is send over any data needed for setup, and the Implementation Specialist will handle the rest. 

We start by sending out any necessary communications for kick-off. Next, we import employee data and facilitate system and payroll training, then handhold through a few payrolls to make sure everything is running smoothly. After implementation is complete, you are introduced to the Service Team. Your certified HR expert conducts the HR roadmap, and your Business Development Consultant conducts a client care meeting after several payrolls have been processed to ensure you've had a positive experience.

6. Evaluate the HR Outsourcing Solution

Measuring the effectiveness of your HR outsourcing provider is a way to validate what many CFOs see as an expense. Some key performance indicators that will help you gauge the success of your efforts may include:

  • Cost savings achieved
  • Accuracy and timeliness of payroll processing
  • Time gained from upgraded efficiencies
  • Employee satisfaction and engagement levels
  • Compliance with HR regulations and policies
  • Reduction in HR-related administrative tasks

Checking in to evaluate the performance of your outsourcing partner will help you ensure that you’ve made the right decision and selected the right outsourcing firm for your business. 

Stratus HR is the best HR service provider for small and midsize companies

How Long Does It Take to Implement an HR Outsourcing Solution?

The duration of implementing an HR outsourcing solution can vary depending on factors such as the complexity or number of HR functions to be outsourced, the number of your employees, and sometimes even the readiness of your data and systems. In most situations, the more data and information the outsourced HR company can get upfront, the quicker the implementation. 

That being said, smaller businesses that have all the information, data, and answers needed for setup will take much less time to get started with HR outsourcing than larger businesses that may need more time gathering information and data. 

Can I Outsource HR Functions if My Company is Small or Midsize?

Yes, outsourcing HR administration is especially beneficial for small and midsize businesses like yours. Outsourcing to HR service providers allows you access to specialized HR expertise and helps you save costs, improve HR efficiencies, and ensure compliance with HR regulations, just like larger organizations.

When choosing an HR outsourcing provider, make sure they understand the unique needs and challenges of your business’s size. Find one who works specifically with small or midsize businesses, or who has experience working with them. The right outsourcing partner will be able to offer tailored solutions that align with your specific requirements and provide scalable services as your business grows.

Get Started with HR Outsourcing Today!

Outsourcing HR functions is a strategic decision that brings numerous advantages to businesses of all sizes. By following the steps we’ve outlined, you can effectively outsource your HR functions and reap the benefits of cost savings, increased efficiencies, specialized expertise, and improved compliance.

Stratus HR is a Professional Employer Organization (PEO) designed to help your business succeed and grow. By partnering with Stratus, you can outsource your HR needs to our certified HR professionals, gain access to our HR software, hand over benefits administration, improve risk management, and so much more. 

To begin outsourcing your HR functions and experience the benefits firsthand, reach out for a consultation

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