HR covers many responsibilities, making it difficult for in-house teams to keep up. This “jack-of-all-trades, master-of-none” trap is why many small businesses outsource their HR needs.
Choosing the right partner is key. Options include a PEO (professional employer organization), business process outsourcing (BPO), and software-as-a-service vendors.
If you run a small business, finding the time and money for HR professionals is often difficult. Yet, your company’s bottom line could suffer without strong employee management practices.
An experienced HR outsourcing partner can save your company significant costs, even on a routine basis. For example, a payroll mistake that results in overtime pay can cost your company thousands of dollars.
When an HR firm manages your payroll, it can make necessary corrections in minutes. However, HR firms must also comply with state and federal privacy laws and may have to wait a while for an answer if you ask them to amend sensitive information.
HR workers must handle a variety of responsibilities, so many choose to be generalists rather than specialists. This creates a “jack-of-all-trades, master-of-none” trap that causes employees to be unable to perform their jobs well. In comparison, an HR outsourcing partner offers consistent access to specialists.
Outsourcing services to a PEO or Employer of Record also saves on overhead costs that come with maintaining an in-house HR team. In addition, providers typically offer pricing models that include a per-employee-per-month fee. This allows you to budget accordingly and avoid any surprises. This is especially important for small-scaling businesses whose HR needs are increasing rapidly. This way, you don’t have to spend extra on new software programs developed due to the increased demand for HR services.
When HR services are outsourced, a company can lower its costs while having access to seasoned experts who can handle these functions competently. Studies show that companies save over 20 percent compared to in-house HR management. This money can be redirected to other business initiatives like increasing customer service offerings or improving products and services.
A provider of HR services also has a variety of resources that they can use to streamline processes and create efficiencies. For example, they may have a software program that automates tasks like tracking applicant information or collecting employee data. Additionally, they can provide a central location for employees to find answers to questions. This will give employees peace of mind knowing they can get answers without stopping by the HR department.
Outsourced HR professionals are also current on the latest employment and labor laws. This can help a company mitigate risk and avoid costly litigation due to compliance issues.
If you’re unsure whether to outsource, start small and outsource only one or two processes with a BPO or PEO to see how it goes. Then, you can gradually expand your partnership to other HR functions as needed. This will help you determine if the arrangement works for your business and how much control you want to retain over these processes.
More Time for Strategic Planning
When a company outsources HR services, it leaves the internal team with more time to work on higher-level strategic projects. This allows them to find new ways to connect with top talent and boost productivity.
Moreover, outsourcing frees up valuable resources from time-consuming administrative tasks like processing payroll and remitting employment taxes. These tasks often require hours of a business day and can be incredibly tedious.
As a result, many small businesses are willing to outsource these functions to save their internal employees’ time and reduce the risk of compliance issues. HR-related government regulations are constantly changing, and a business must stay up to date to avoid costly lawsuits. Outsourcing allows a company to rest easy knowing that these tasks are handled by professionals who understand current and ongoing compliance rules.
Some companies offer full-service HR outsourcing packages, a one-stop shop for all of a company’s human resource needs. Others, such as PEOs, specialize in specific HR tasks like benefits or employee payroll. In either case, outsourcing can be a great way to save money while still getting high-quality service. However, some employers worry that their outsourced HR partner won’t understand their company and may not give them the level of service they need.
Better Performance Management
One of the top reasons companies seek HR outsourcing services is the ability to manage risk better. It can be hard for in-house employees to stay up-to-date on federal and state employment laws, and these professionals may only sometimes fully understand the impact of a change on a company. In contrast, third-party providers specializing in HR must remain aware of any changes and help their clients navigate the implications for their businesses.
Additionally, outsourcing certain HR tasks can allow internal teams to better focus on other strategic business issues, boosting productivity. This can lead to greater revenue and a stronger competitive advantage.
Many businesses need to gain control when outsourcing HR tasks to an outside firm. Still, reputable HR firms are highly experienced and have multiple security measures to keep sensitive information safe. They are also required to adhere to strict data privacy regulations.
Another benefit is that HR companies experience economies of scale and can provide more services than a small to medium-sized company could afford. This often means that you can access a specialized service, such as recruiting, without the expense of hiring a full-time employee. This allows you to expand your services and attract a larger talent pool.