Why Should a Company Consider HR Outsourcing?
59% of businesses are outsourcing HR functions in 2022 to save on costs. The human resources function is a time-consuming, yet vital part of any business. Many companies are realizing the function can easily be outsourced, freeing up time, resources, and budgets for core business activities.
HR outsourcing can be as easy or as complicated as your business needs. There are businesses that need agencies to hire global remote workers or companies hiring locally. There are outsourcing agencies for every type of HR activity you can think of.
But, what do you really know about HR outsourcing? Why should your company consider it? Keep reading to learn more about how it can benefit your organization.
What Are Outsourced HR Services?
Outsourced HR services are provided by a third party. A business employs a third-party provider to manage all human resources functions for their company. Businesses can choose to outsource one HR function or all of them.
Many agencies offer a full range of HR services, but some are specialized and only focus on one area. The type of services required will depend on your business needs. You must understand what HR requirements and activities are needed for your business before outsourcing the function.
Who is HR Outsourcing For?
Any company can choose to outsource the HR function. There are some instances when it’s best to outsource the HR function even if your business has the resources and team available to manage the workload. Those include:
- Eats up too much time
- Liability exposure
- Potential lawsuits
- Lack of funds for existing employees
- No dedicated department for HR
- Not enough resources to hire a full-time HR staff
Most times, small to mid-size companies outsource HR functions. It’s not uncommon for larger organizations to rely on third-party agencies for their HR needs.
HR outsourcing is a great option for your company if you don’t have the time or money to dedicate to a full-time, in-house HR staff.
Outsourcing HR: Services Available
You can pick one specific HR function to outsource or all of them. Some of the most common services that companies pay for are as follows:
- Employee relations
- Recruitment and hiring
- Screening and background checks
- Drug tests
- Performance management
You can discover more about each of these areas below.
There are many payroll providers available for businesses to choose from. Payroll includes the process of paying employees on a regular schedule (monthly, bi-monthly, weekly). Providers will also take care of calculating taxes, benefits, and other deductions.
A key part of processing payroll is ensuring compliance with federal and state labor laws. This means accurately reporting taxes, hours worked, and wages. This is often a very time-consuming aspect of human resources.
Payroll is probably the most commonly outsourced HR function. Calculating deductions and taxes can quickly become a complicated task if you don’t have the right people on your team. Working with a third party to handle the payroll eliminates that concern.
Employment laws are diverse and complex. There are many different laws for companies to follow, including:
- Workers’ compensation
- Equal employment opportunity laws
- Benefits laws
- The Civil Rights Act
Adhering to employment laws is a requirement for businesses. There are many penalties and fines your business will face if you fail to meet the requirements. You can avoid the headache related to compliance issues by working with an outsourced agency.
They will have compliance experts on staff to ensure your company meets legal requirements. The agency will ensure issues are reported and investigated in alignment with federal and state regulations.
Conflict is a common occurrence in the workplace. You need to have someone on staff to manage these conflicts through mediation or other means. Hiring an outsourced agency can give you this benefit without the need to hire an internal professional.
Employee relations also involve setting employee-related policies and programs. This is especially important with ongoing issues that continue to pop up among your team members. Resolving these problems proactively with new policies will go a long way toward maintaining employee satisfaction.
Do you need a solution to help monitor employees and ensure they spend their time wisely? Check out this article on the top monitoring solutions.
Recruitment and Hiring
Sourcing talented candidates is a time suck. You have to post job openings, write job descriptions, go through applications, and more. You can outsource this and have a team of expert recruiters source and hire your new team members.
When you outsource this function, you no longer have to worry about perusing resumes or scheduling interviews. There is one specific concern with outsourcing the recruitment and hiring process.
Having a team that fits into your culture is a must. The outsourced agency may not understand your culture, as well as an internal professional, would.
Do you want to attract the best candidates there are? You have to have the best benefits packages to recruit top talent. Benefits are often the deal-breaker for many candidates.
You can make sure your benefits packages are comprehensive and attractive by working with an outsourced agency. Agencies often have access to more benefits and can get you lower premiums. You can create a competitive advantage for your organization with the right benefits.
Many benefits packages include health insurance, pet insurance, and life insurance. Retirement plans are another option to provide as an employee benefit.
Screening and Background Checks
It’s a best practice in the HR industry to conduct background and reference checks on potential employees. You don’t want to hire someone who is potentially dangerous or could cause issues in your organization. This is a very time-consuming process you can easily outsource for your company.
Taking the time to call and check references for each new hire takes a lot of time. It’s an additional time commitment to complete a background check. You can streamline both of these processes with an outsourced HR provider that offers this service.
Your company may or may not complete drug testing on new hires. You can outsource this activity to save your company time. The outsourced agency will coordinate the testing and submit the results to you once completed.
Outsourcing your performance management function is another option for HR outsourcing. With this one, the company would handle:
- Salary negotiations
- Annual reviews
- Performance conversations
These can be especially time-consuming for leaders who have heavy workloads and limited time.
Benefits of HR Outsourcing Services
Businesses will see many benefits to outsourcing HR services. Not only will there be more time to focus on core business growth and expansion, but they can allocate overhead to other areas.
You’ll also gain access to systems, experts, and processes you may not be able to otherwise. When you work with a specialized team of HR professionals, you don’t have to worry about mistakes or failure to comply with laws. You can improve the quality of your HR function and increase employee satisfaction with outsourced services.
The biggest benefit companies see is cost savings. Businesses save on costs that may not be expected, such as:
- Salaries for an internal team
- Ongoing training and development
- Office supplies
Managing human resources is a costly endeavor. The cost of HR goes up with the more employees you have, so it’s a growing cost. When you partner with an HR agency, you transfer the tasks to them so you can allocate your team to other areas of business.
Most HR departments are overworked with too many areas to focus on. It’s impossible for a single, or few, HR employees to handle all HR tasks. You can avoid the need to hire additional staff with outsourcing.
With a centralized and streamlined agency to handle HR, you increase efficiency. The HR agency will have existing processes in place your company can adopt to save time and money. When your team has less to balance and more time to focus, productivity and efficiency both improve.
There are many nuances to employment and labor laws. It can be challenging to keep up with these regulations, especially for smaller businesses. Laws change all the time and your company has to maintain its knowledge of them to succeed.
Working with an outsourced HR agency ensures your organization stays up to date on changing employment laws. Compliance issues can lead to serious financial consequences that could potentially end your business. Adhering to regulations also protects your employees.
No company wants to be known for having unsafe or illegal practices. Imagine what that would do to your company’s reputation. Intentional or not, failure to comply is unacceptable.
Eliminate the headache of managing employment laws and partner with a team of experts to guide your operations.
Lowered Expenses and Premiums
Working with an agency gives you access to better benefits packages and small premiums. You’ll also have lower expenses per employee. The outsourced HR agency can negotiate deals on your company’s behalf to get the best prices.
One of the top reasons companies outsource the HR function is to gain access to current technologies. HR technologies can improve all processes and related operations to make the entire department more efficient. But the cost of these technologies is a big investment for some smaller companies.
Partnering with an outsourced agency gives you access to the technology and a team of experts. They’ll maintain industry knowledge and know what technologies are emerging to make processes better. You gain the benefit of the agency meeting current trends without paying the cost.
Top 3 Outsourcing Agencies
As discussed above, there are many HR outsourcing agencies available for companies. The three we are highlighting are found in our comparison guide as top providers of HR services.
If you have a small business with limited resources, you may want to consider Paychex Flex. Paychex Flex offers the core HR functions a business needs:
Paychex doesn’t require long-term contracts and even gives businesses the option of having staff on-site. Packages start at $60 per pay period and there is a $200 setup fee.
Oasis is a great company for small businesses with few employees. The company offers a variety of HR services, from consulting on the strategy to full benefits administration. Oasis offers easy-to-access account options and doesn’t require long-term contracts.
Oasis covers most HR functions, including:
- Performance management
- Employee relations/issues
The packages at Oasis start at $39 and go to $500 per month. The price depends on what services you obtain for your business and the level of commitment required.
Insperity offers customizable plans for companies to share their HR department the way they want. Available services include:
- Background checks
- Risk management
- Benefits administration
Packages start at $230 per employee. You get to choose what services you want to be offered without additional charges for bundling.
Compare Top HR Outsourcing Companies Today
Now that you understand the benefits of HR outsourcing services and know about a few companies, we hope you can make a more informed decision for your organization. You can choose to outsource HR functions or the entire department. You get to determine the best move for your company.
HR outsourcing is a cost-effective and efficient way to manage your HR operations. We compared three top HR agencies, but there are many providers available.
Interested in learning more about the best-outsourced HR services? Check out this comprehensive comparison guide.