Employees are a business’s most valuable asset, and strong employee management practices significantly impact their day-to-day experiences. However, not every company has the capacity (or desire) to handle employee management entirely in-house. That’s why many business owners choose to outsource HR.
If you’re wondering if HR outsourcing can help your team, this guide is for you. We’ll explain outsourcing’s pros and cons, the most commonly outsourced HR functions, and the best HR outsourcing partners to consider.
HR outsourcing is an arrangement through which businesses hire third-party companies to oversee some or all their HR functions. You can outsource your company’s payroll processing, employee benefits administration, talent acquisition, human capital management or all of the above — and more.
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If you plan to outsource HR, you have two primary options: a PEO (personal employer organization) or an HRO (human resources outsourcing) provider. PEO and HRO services overlap heavily but have different legal structures.
You may need HR outsourcing if your business faces the following challenges with handling HR tasks in-house:
Even if these situations don’t apply to you, consider outsourcing HR if your company just isn’t big enough to hire an in-house HR person or team.
If you think your business might benefit from HR outsourcing, consider the following list of typical HR outsourcing functions to determine how your needs overlap with what third-party HR professionals offer. (These are just the most common HR outsourcing functions — some providers offer many additional services.)
Payroll processing is one of the most commonly outsourced HR functions. Calculating payroll deductions from your employees’ paychecks can be confusing and complicated. Payroll deductions wage garnishments and payroll taxes as well as benefit premiums, so errors can lead to trouble with courts and the IRS. Many companies pass off the task to payroll professionals instead of handling it themselves.
A robust employee benefits package with health insurance, a retirement plan and more can keep current employees happy and give your company a competitive advantage in recruiting. However, benefits administration can be complex. Many companies outsource their employee benefits administration to relieve themselves of the work that accompanies researching plans and complying with benefits regulations.
Business owners must comply with equal employment opportunity (EEO) laws and workers’ compensation regulations. Hiring HR compliance experts can keep you in line with all EEO and workers’ comp guidelines daily with little to no extra work on your end.
If you lack the time to tend to employee-manager conflicts and create company policies, you may need to outsource your employee relations tasks to a third-party HR team. A dedicated outside HR department can mediate conflicts and modify long-standing company policies to reflect employee concerns. As part of employee relations, your HR outsourcing company can even help you create your employee handbook.
Even when you’re eager to find that perfect new employee, you might not be as thrilled about the prospect of working through stacks of applications and setting up interviews. To take this workload off your plate, outsource HR professionals to oversee your hiring process.
Annual reviews, salary negotiations and other performance-related conversations are an inescapable part of running a business. While you’ll likely want your team to lead these conversations, you may not have the time or expertise to prepare for or work through these moments. If so, outsource your performance management tasks to a third-party company. Your HR firm can also help you determine your performance goals and disciplinary routes for poor performance.
When you’re hiring employees, it’s always a good practice to conduct reference and background checks. These will help you understand the person you’re welcoming into your business. However, both processes — especially the phone calls often involved with reference checks — can be time-consuming. That’s why so many companies rely on third parties to conduct their background and reference checks.
HR teams don’t just oversee anti-discrimination efforts and employee relations. They minimize the risks of worst-case scenarios in these and other essential employee management matters. To avoid workplace conflicts or lawsuits, outsource your risk management efforts to HR experts so your team stays happy and you have less work that isn’t strictly business-related.
Although HR experts have debated the merits of drug testing in recent years, you can still hire an HR consulting or outsourcing firm to handle this task. The provider you choose will walk your employees through the process, send all samples to a laboratory for testing, and report the results back to you. If the results call for disciplinary action or termination, you can ask your HR consulting firm to carry out these actions.
Employee counseling is the practice of helping your staff access mental health services. Employee assistance programs (EAPs) designed to relieve workplace stress can connect employees with short-term counseling. Third-party HR teams can manage EAP programs on your behalf.
If you’re considering outsourcing HR, it’s crucial to consider the benefits and downsides.
HR outsourcing pros include the following:
HR outsourcing also has downsides, including the following:
The following top HR and PEO solutions are a great place to begin your HR outsourcing search.
Whether you’re just starting a business or running a massive enterprise, outsourcing can relieve burdens and streamline operations. HR and PEO outsourcing solutions assist with benefits, payroll, legal compliance and much more. Your ideal outsourcing package depends on your business’s size and specific HR needs. In general, however, outsourcing to a third-party HR service can save you time and money — and keep your business moving.
Natalie Hamingson contributed to this article.