What to Know About Outsourcing HR Services for Your Small Business

According to the Bureau of Labor Statistics (BLS), HR specialists have a median salary of $67,650, and HR managers average $136,350. Maintaining a full-fledged in-house human resources department is a large financial commitment that can be especially challenging for small and medium-sized businesses (SMBs) focused on growth. While effectively handling human resources functions is essential for success, your company may find that HR outsourcing services can provide the help you need at a cost-effective price. When you outsource your HR, your company doesn’t need to strain internal resources to implement best practices to stay compliant.

What does outsourcing HR involve?

Business process outsourcing of any kind can be a big help. When outsourcing HR services, you engage a third-party company or a team to assist with some HR responsibilities that would otherwise be performed in-house. This allows you to streamline your HR functions and maximize the efforts of your internal resources while working toward a common goal. Outsourcing covers many of the traditional functions of an internal HR department through an ongoing relationship that offers best practice guidance and supports you as you grow. When you work with an expert team, the return on investment may be substantial, and you’ll find more opportunities to grow your business and develop your team.

What is a professional employer organization (PEO)?

PEOs operate under a co-employment model in which certain responsibilities are allocated between the PEO and the employer. The PEO assumes certain functions such as paying your employees and collecting and remitting payroll taxes for payroll processed through the PEO software and offering access to employee benefit plans. PEOs may also help with tools and resources for talent acquisition and onboarding. However, your organization will maintain control over the day-to-day workforce decisions, such as hiring, firing, compensation and company culture. While many PEOs operate in the marketplace, not all are created equal. Therefore, it’s important to ask questions and evaluate prospective PEOs before moving forward. This allows you to understand what your future relationship will look like and determine whether it will be a good fit for your organization.

What is an administrative services organization (ASO)?

An administrative services organization (ASO) can combines robust HR software with guidance from professional HR experts. An ASO works with small and medium-sized businesses that want to outsource some or most of their HR functions. In that respect, an ASO is similar to a PEO. However, unlike a PEO, an ASO and the client company are not in a co-employment arrangement. The client company remains the employer of record for payroll tax purposes and retains full responsibility as the employer.

What is a human resources information system (HRIS)?

An HRIS is a cloud-based software service that automates HR functions. By itself, it's a software service that helps client companies handle their HR functions in-house, but it also includes HR outsourcing services. Depending on the level of service you choose, an HRIS can help you with payroll tax filing, benefits administration and various aspects of workforce management to streamline operations. An HRIS also provides self-service employee portals and apps to increase both efficiency and employee satisfaction.

How can HR outsourcing services help your small business?

Outsourcing your HR services can result in a range of benefits. Some of the most notable include more time to focus on your mission, access to a broader range of employee benefits, enhanced employee engagement, lower employee turnover, reduced administration costs, stronger risk mitigation and access to a team of HR experts to help you with best practices. You will have more time and energy to focus on strategic initiatives. The overall goal of an HR outsourcing services company is to help your SMB grow and achieve success.

Different functions supported by HR outsourcing

The responsibilities that encompass HR management are vast and far-reaching. They include everything from benefits administration and compliance support to payroll processing and productivity. Some of the most common functions that HR outsourcing services support are:

Payroll services

HR outsourcing services efficiently and simply help process employee payrolls. They can help with payroll tax administration and may remit and file your company’s employment taxes for payroll processed through their system.

Employee benefits

HR outsourcing companies can help you administer employee benefits. They provide self-service portals where employees can get information about their available benefit plans, enroll in the plans of their choice and make changes. Some HR outsourcers provide SMB employees with access to premium benefits that are otherwise usually only available to employees of large companies.

Recruiting and hiring

HR outsourcing services can improve your talent management right from the start of the employment life cycle. Recruitment process outsourcing can help you generate and place ads, and keep track of each candidate's progress through the steps of the application process. After you select your new hires, outsourcing services help get them off to a quick and positive start.

Staffing solutions

As a company grows, it needs to know how many and what types of new jobs to create. Data analytics provided by HR outsourcing services provide valuable information for workforce planning. These HR analytics can help you pinpoint your staffing needs, create job descriptions, identify skill sets to bring in or developed internally and generate targets for compensation and benefits based on regional industry standards.

Employee relations

When a company makes an effort to foster positive relationships with its employees, everybody wins. Employees are more satisfied and engaged with their jobs. Employers may enjoy reduced employee turnover and higher productivity.

Likewise, HR outsourcing services can help create positive employee relations in many ways: by providing timely and efficient processing of paychecks, individualized training and development programs and enhanced ease of communication between coworkers and between employees and their managers. These services also help employers navigate employment-related rules and requirements to help create an environment where employees feel they are being treated respectfully.

Employee training and development

HR outsourcers can help train your workforce by creating individualized training paths. They can identify current employees who could be trained to meet your needs for certain skills in new or expanding roles. This meets the company's emerging needs for additional skills while supporting professional growth and keeping employees engaged, motivated and loyal.

Performance management

When you work with HR outsourcing services, they can also help enhance your performance management. They can track employees’ progress towards specific goals and streamline the performance review process.

HR compliance

Navigating employment-related rules and requirements can be complicated for employers, especially as your workforce grows. By outsourcing payroll processing and other HR functions, you’ll gain access to ongoing insight and expertise regarding these tasks to help navigate these rules and requirements. Working with an HR outsourcing services company can help mitigate your risks of potential fines, penalties and concerns.

HR audit services, conducted by compliance specialists, can help you take a proactive approach to HR compliance. These audits review your HR processes and identify any areas of concern. This allows you to identify potential concerns so you can action.

HR expertise

Small and medium-sized companies generally don’t have the budget to hire a full team of in-house experts with specialized knowledge of HR rules and requirements.

When you outsource HR services, you get a third-party team of HR professionals. They provide you with access to ongoing insight and expertise regarding HR administrative and management tasks. That will free up your resources while mitigating HR issues.

Integrated HR technology

The cloud-based software included with HR outsourcing services brings  automated HR functions together to streamline data entry and provide easier access to information. The HR technology will also sync its data with many popular programs, such as accounting software.

Global HR

If you want to hire workers in another state or country, you must follow the employment and other relevant laws of that other location. This creates a lot of compliance complexity that is difficult for a small or medium business to handle alone. An HR outsourcing services company can be a big help. This kind of company, known as an employer of record (EOR), can hire local workers on your behalf.

When to consider outsourcing HR services for your small business

SMBs face many of the same challenges as large corporations, often without the resources to handle them. Rather than spending your time and money on managing internal affairs, outsourcing HR can help you lighten your workload and reduce the stress that accompanies compliance, hiring, retention, and other administrative tasks. It may be time to consider outsourcing your HR services with an external company if you are facing many of the following challenges:

Heavy administrative workload

If your internal team is spending too much time navigating administrative tasks for HR, you’ll likely benefit from outsourcing. HR tasks are important, but they require a lot of time and energy. This takes away from the resources needed to drive your short- and long-term goals forward. Rather than focusing on administrative tasks, outsourcing can help you focus on strategic HR initiatives and growth. Since you’ll gain access to a network of HR experts, you’ll also save time you would have otherwise spent simply trying to understand dynamic employment-related rules, requirements, and accompanying paperwork.

Inefficient employee benefits

Creating a competitive package to offer your employees can be difficult for SMBs. In addition, it's no picnic keeping up with employee benefits compliance. Due to the smaller size of the workforce, these organizations don’t always have access to the same benefits as larger businesses. Access to competitive benefit options can, in turn, improve overall workplace satisfaction, increase retention rates and boost productivity in the office. By professionally outsourcing your HR administration, you’ll also validate that your workforce is set up for success with optimized training and support to continue developing their professional skills.

Struggling with rules and requirements

Businesses need to adhere to a growing number of local, state and federal employment-related rules and requirements. These are often written in complex language, requiring specialized knowledge and experience to decipher. What’s more, they can often change, making it nearly impossible to stay up to date without dedicated personnel assigned to continually review them. When you have an internal team trying to handle this while juggling other tasks, you increase your risk of non-compliance. By working with an outsourced team of HR experts, you’ll mitigate risks without wasting valuable time.

Expensive internal HR management

When HR administration starts getting more complex, you may need a large team of internal staff to remain effective. This can lead to high overhead costs and limited resources. Working with an HR outsourcing services company can be a great investment that will provide you with both immediate and long-lasting returns. It will allow you to focus your time and investment on growing your business, hiring top talent and providing your employees with access to competitive benefit options.

Help with strategic initiatives

HR outsourcing services can provide scalable support and strategic initiatives to help your company grow. They can contribute to organizational development initiatives that can help guide your organization through periods of change or expansion. PEOs, for example, help create scalable HR infrastructure for growing companies.

To assist you with fostering a high-performing team that’s committed to helping your organization grow, TriNet offers comprehensive HR services. Our HR consulting solutions can help you handle your toughest HR needs while you expand your business. You’ll gain an HR team committed to your growth and peace of mind.

Contact us today to learn more about how we can help support your growth and reach your goals.

¹ Usual Weekly Earnings of Wage and Salary Workers First Quarter 2022, Bureau of Labor Statistics (July 2022)