It’s hard to know how big your HR team size should be, especially when there are no clear answers. Start by determining your necessary HR tasks.
Why Your Company Should Outsource HR Functions
Discover the benefits of outsourcing HR functions, how outsourcing HR functions boost your company's efficiency, & why it's a strategic move for success.
“Why would I want to outsource HR?” I can’t tell you how many times I’ve answered this question over the last 20 years. The most surprising thing? Most business owners don’t understand what’s involved with outsourcing – it’s like “HR” is some mystical acronym with no meaning.
While I’m not going to spend the rest of this article explaining what “HR” is, I am going to give you my top 10 reasons why you should consider HR outsourcing.
What is the Role of HR in Businesses?
A Professional Employer Organization (PEO) is a third-party organization that provides businesses of all sizes with a wide range of HR outsourcing services. By partnering with a PEO, you can leverage HR expertise and resources to streamline transactional and administrative HR operations, reduce costs, and ensure compliance while focusing on your core business goals.
What HR Tasks Can Be Outsourced?
As small and medium-sized businesses grow, so do HR responsibilities. Outsourcing HR tasks to a PEO can help your HR team with the following:
- Payroll services administration
- Recruiting, onboarding, and training
- Benefits administration, procurement, and enrollment
- Performance management
- Risk management and workplace safety
- Employment and labor law compliance
With a general understanding of the types of HR tasks that can be outsourced in mind, let’s take a deeper look at the benefits of HR outsourcing.
10 Powerful Reasons to Outsource HR Tasks
There are many reasons why your business may decide to outsource HR. Businesses like yours benefit from HR outsourcing in a variety of ways, including cost savings, faster response times, time efficiency, uninterrupted operations, improved benefits and technology, unemployment support, and compliance with employment regulations.
Overall, HR outsourcing services can increase productivity, profitability, and liability. Here are the 10 main reasons why you should consider outsourcing HR:
1. Increased ROI
As a CEO, numbers, and percentages speak to me. A study released in 2019 showed that the annual return on investment of outsourcing to a PEO is 27.2% in cost savings alone. This study also supported previous findings that PEO clients have lower employee turnover and higher revenue growth than their non-outsourcing counterparts.
2. Quicker response time
PEOs are staffed with certified experts in each major area of HR (payroll, workers’ comp, risk management, benefits, and human resources) who consult companies across a variety of industries.
Those experts have the background to know how to handle even the most complex of situations. And when they come across a situation they’ve never personally experienced before, they have a team of certified experts that can be used to bounce ideas off each other to give you an appropriate solution. In other words, outsourcing your HR helps you maximize productivity.
3. Cost savings
Numbers guy chiming in again: when broken down by an hourly rate and compared to what you would be paying for a full-time, benefited employee(s), HR outsourcing is significantly cheaper.
For example, hiring an HR manager would cost an average of $80,003 per year for their salary, whereas with a PEO, you gain access to a full team of HR experts at a fraction of the cost.
An outsourced option also means your in-house contact person can do a quick review of the work done by the PEO and then move on to the next project.
Your staff spends less time doing transactional HR and gets more business-related projects done (with fewer employees) because of the shift in duties.
4. Time savings
While this could be lumped into cost savings, it deserves its own bullet to point out the significant time savings in not having to spend hours looking up employment laws and not having to answer employee questions about paychecks or benefits or time off balances.
You (or your employees) can simply contact the PEO rep or log into the web-based application to answer their questions themselves. They’ll love having answers available 24/7 and you’ll love not being interrupted.
5. Uninterrupted results
When an internal employee leaves the company or is out sick or on vacation, priorities have to shift to deal with the interruption of daily operations. However, when outsourcing HR, you don’t have to worry about an integral HR task being delayed because you still have an entire HR team for your support.
6. Retraining not needed
When employee turnover happens within a big, in-house HR department, you’re hiring and training and then paying for the new employee to get up to speed on the intricacies of your company. When you outsource HR, the administrative operations are much easier to transition in times of turnover.
Why? Because your company’s information is already mapped out for the PEO’s team servicing your company. Ultimately, this lowers your labor costs.
7. Better benefits administration
While this is especially true for smaller companies, even larger companies can appreciate having a wide variety of benefits to offer their employees. Outsourcing HR services provides businesses like yours with access to better benefits administration.
What sweetens the deal is these benefits are available at economies-of-scale pricing, and that makes you a more attractive employer to help with your recruiting and retention efforts.
8. Better technology
It gets expensive to invest in the latest high-efficiency HR technology like applicant tracking or performance management, and it’s hard to find time to even consider the options. Outsourcing to the right PEO will provide you with a suite of HR tools that not only make your life as an employer easier, but also provide meaningful metrics and are fully integrated from all available platforms.
9. Unemployment support
If you’ve never had to fight a frivolous unemployment claim, consider yourself lucky. PEOs are your best ally to provide you with the resources and support for a difficult termination. They’ll also ensure you have appropriate documentation to defend your case in a potential unemployment claim.
Staying up-to-date with all the federal, state, and local employment laws that apply to your business is a full-time job. While laws are regularly being updated or changed, there are existing laws that may not apply to you now but will as your company grows.
How do you stay on top of it all? Outsource to somebody whose job is to be in the know. You’ll also discover a sense of relief knowing the fiduciary responsibility falls on the PEO, which reduces your overall liability.
At the end of the day, outsourcing your HR helps you increase profitability, maximize productivity, save time, reduce liability, and lower your labor costs. But not all PEOs are created equal.
How Can I Determine if Outsourcing HR Is Right for Me?
To determine whether or not outsourcing HR functions to a PEO is the right solution for your business, consider the following recommendations:
Assess your company's HR needs
It's important to evaluate and assess your company’s current HR processes to identify pain points and areas that could be improved or benefit from HR outsourcing.
Perhaps your business needs HR support to stay compliant with labor laws and regulations. Maybe your small business isn’t equipped to hire its own internal HR team.
Whatever the case may be, by assessing the current status of HR processes, businesses can determine whether or not they’re equipped with the necessary resources and expertise to handle HR tasks effectively and efficiently.
Evaluate the potential ROI
To further determine if HR outsourcing is the right move, businesses can, and should, conduct a cost-benefit analysis to see if outsourcing will result in increased efficiency and cost savings. Businesses that partner with a PEO for HR services can benefit from reduced labor costs and improved productivity.
Analyze the suitability of outsourcing based on company size and industry
Businesses like yours should take into consideration the size and nature of the business as well as the industry they are in. Outsourcing HR may be beneficial for small and medium-sized businesses in need of HR expertise and resources, or for larger businesses with complex or complicated HR requirements.
By carefully considering your HR needs, your business's industry and size, and the potential ROI of partnering with a PEO like Stratus HR, you can make an informed decision about whether or not outsourcing HR functions is right for your business.
The right PEO partner will be able to scale with your business, allowing you to ensure that you have all of the support you need to grow and succeed.
Should Small to Mid-Sized Businesses Outsource HR?
Yes, they should. Small to mid-sized businesses face a unique set of challenges when it comes to offering their staff the necessary support for human resources responsibilities.
For example, small businesses need the basic elements of HR such as payroll processing for their employees, but their team might not be large enough to take on a complete HR department.
As a mid-sized business, you may be able to support basic HR functions like onboarding, payroll, and benefits. However, your team may lack the expertise needed to tackle compliance, labor laws, talent management, or any form of strategic HR. As a result, your HR department can get stuck between a staffing rock and a budgetary hard place.
By outsourcing your HR responsibilities to a Professional Employer Organization (PEO), you can alleviate the stress of administrative tasks with a team of certified experts that are ready to help you navigate challenging HR struggles.
Now, you can focus on the core activities of your business without compromising the well-being of your employment processes.
How Can I Choose the Right HR Outsourcing Provider?
Choosing the right HR outsourcing provider is an important decision that can impact your business. When choosing a partner to outsource HR services, you should conduct thorough research and examine outsourcing criteria to make an informed decision.
To choose the right HR outsourcing firm, you will need to define their HR needs, research and evaluate providers, assess their approach, check references, and evaluate cost and value.
Potential Challenges of Outsourcing HR and How to Overcome Them
Businesses like yours can avoid potential challenges associated with outsourcing HR functions and ensure a successful partnership by carefully choosing an HR outsourcing firm, communicating with employees effectively, implementing strong data security measures, and ensuring compliance with legal and regulatory requirements.
Maintaining company culture and employee engagement
Try to choose HR outsourcing services that align with your company culture and goals, openly communicate expectations, and engage with employees regularly through open communication channels, training programs, and recognition initiatives to foster employee engagement.
Addressing potential resistance to change
When outsourcing HR functions to a PEO, this change may be met with resistance from employees who may be used to certain HR processes. It's important to maintain positive employee relations during this time as positive employee relations will remind your current employees of their value to the company.
To overcome this challenge, communicate the benefits of outsourcing HR, involve your employees in the important decision-making process, and support them with training and development to adapt to the changes.
Ensuring data security and privacy
Outsourcing HR involves handing off sensitive employee data which could raise concerns about data security and privacy. You will need to thoroughly analyze the PEO’s protocols and security measures, implement data protection policies, and conduct audits regularly to ensure compliance.
Navigating potential legal and regulatory issues
Legal risk is a major concern when outsourcing HR. Laws and regulations change frequently which can make it difficult to keep up with the latest contract trends, older language in contracts may not include newer topics like handling personal information or data breaches, and insurance provisions in contracts require transferring legal risk to the HR outsourcing firm.
To avoid any potential legal and regulatory issues, make sure you do your research on the PEO you’re looking into. A rule of thumb is that it's always better to opt for third parties that use secure software for their HR operations to comply with all the laws and regulations surrounding HR, and review their risk management strategies closely.
Are You Ready to Embrace Outsourcing Your HR Management to a PEO?
Ready to take your HR management to the next level with a trusted PEO? If so, it's crucial that you carefully evaluate your options to ensure your business receives the best, customized services and resources available.
At Stratus HR, we understand the unique challenges that your business faces and have over 20 years of expertise to help you succeed. It’s time to take the first step towards a streamlined HR process by booking a free consultation with our team of HR experts today.