Your company’s human resources (HR) chief is responsible for many critical aspects of your workforce. They’re tasked with finding, hiring, training and assessing the performance of your employees. Your HR team is also responsible for developing an appealing culture and ensuring the company complies with all labor and employment laws. They may also oversee payroll. If you have unionized employees, HR is the liaison between your company and the union. To say that HR carries responsibility for your company’s success is an understatement.
HR outsourcing is exactly what it sounds like. It is handing off some or all of your HR functions to a third party. This can be an alternative to hiring an internal HR department or used in tandem with an in-house HR professional who handles some of your HR responsibilities.
Outsourced HR services depend on the contract between the company and the provider. The client service agreement often asks the contractor to handle payroll by managing all withholdings and taxes. The HR company may also be in charge of releasing all W-2s to worksite employees. You may also use the outsourced service to manage employee benefits or retirement plans.
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When it comes to HR outsourcing, you have a few options. Two of the most common HR outsourcing solutions are human resources outsourcing (HRO) services and professional employer organizations (PEOs). These resources offer similar HR services but they have different employment models:
If your company is growing and HR responsibilities are weighing heavily on you, outsourced HR could be the solution you need. Here are five signs that you should outsource your company’s HR.
There is no escaping that, as a business owner, you have to take on many roles in addition to providing the products or services for which you created your business. But HR problems can be very time-consuming, taking away from revenue-generating activities. The more time you spend trying to learn about employment law or searching for that full-time designer you need, the less you spend doing what your business does.
When you outsource HR, you pay someone else to deal with HR tasks and you free up that much more time to work on your actual revenue-generating functions.
A skilled HR person must have a keen understanding of hiring rules, Equal Employment Opportunity Commission requirements, collective bargaining agreements, recruiting and training ― and they have to be able to find job candidates to fill your staffing needs. Some HR managers oversee payroll as well. The HR manager must understand where you could face liability in hiring or managing workers, and, if they oversee your payroll, they reduce your risk of a run-in with the IRS.
By outsourcing HR, you give responsibility to someone specifically trained in the practical and legal aspects of HR. The cost of just one tax reporting violation could pay for a year of outsourced HR.
Outsourcing offers savings in many ways. For one thing, when you outsource HR, you gain the expertise of someone you won’t have to train or provide with benefits. You avail yourself of that HR person’s organization and its services, which may include time-intensive tasks like payroll.
When you have a competent outside agency handling your company’s HR responsibilities, you spend money, but you also gain time to devote to your core business functions and reduce your exposure to legal risks and violations. The overall effect is a healthier bottom line.
If your HR functions are allocated among managers and department heads, you may get all the HR tasks done, but you may be muddling the lines of accountability too. Employees might not know where to report a problem, managers may be unsure if they are passing along correct information and some HR tasks may get lost in the shuffle.
When you outsource HR, your managers and department heads can deal with their departments without worrying about HR responsibilities and you can be confident that you won’t face legal problems related to the haphazard allocation of HR responsibilities. [Related article: Employee Rights You’re Violating Right Now]
Businesses have to be nimble and responsive to change. When a great opportunity comes along, you may have to find and hire employees quickly to meet your obligations and fuel business growth.
When you outsource HR, you have many more resources at your disposal for finding and hiring the individuals you need quickly. Losing an opportunity due to an overworked HR manager who suddenly has new hiring tasks on top of everything else gives the advantage to your competitors. Outsourcing HR is a great way to keep your business flexible and responsive to new opportunities.
Employers can choose to outsource all of their HR needs or opt for partial outsourcing of specific tasks. The type of outsourcing you need depends on whether you can fulfill each service on your own.
Here are some of the most commonly outsourced HR functions:
Partnering with an external HR provider can help your business in many ways. Here are the common benefits of outsourcing HR.
It isn’t always easy to afford someone who can handle HR responsibilities, especially for a startup. Instead, outsourcing HR functions can often be more cost-effective than maintaining an in-house HR department. You can save on salaries, benefits, office space and technology infrastructure.
Offering comprehensive employee benefits can be key to attracting the best employees. However, benefits can be costly, causing many SMBs to struggle to offer them. When you outsource to a provider like a PEO, you can access comprehensive benefits at affordable rates.
When business owners try to allocate various HR tasks to other non-HR employees, such as by assigning payroll responsibilities to the finance chief or having department heads handle employee issues within their departments, the results can be inconsistent at best and chaotic at worst. Hiring an external HR company can streamline your HR tasks.
HR outsourcing providers typically have a team of specialists well-versed in HR laws, regulations and best practices. They can help you stay compliant by offering expertise in employment law, payroll processing, payroll taxes, recruitment, employee relations and benefits administration. This is especially helpful for growing businesses and organizations that want to expand across multiple states or jurisdictions.
HR outsourcing companies often provide detailed reports and analytics that can help organizations make data-driven HR decisions and track HR metrics more effectively.
If you’ve determined that you need to outsource some or all of your HR functions, the next step is to find a PEO or HRO that aligns with your budget and business needs. Some companies offer PEO and HRO service models, allowing you to transition as your business needs change.
Here are some of the best PEO services to consider:
Here are some of the best HRO services to consider:
When shopping for the right PEO or HRO for your business, compare features, pricing, technology usability and customer support.