You must make every business decision with costs in mind. Outsourcing certain tasks, including human resources (HR), are no exception. You need to know your return-on-investment (ROI) to make sure it's worth your while.
But this begs the question of how to calculate the ROI of HR in the first place.
What is the ROI of Human Resources?
You might wonder exactly how that ROI is determined, especially since there are so many soft costs to HR. Normally, calculating an ROI would be straightforward. You take the initial value of your investment, subtract it from the final value, divide it by the initial cost, and multiply it by 100. For example, if you charge a client $10,000 for a service, and your overhead to provide that service is $7,000, then your ROI is 30%.
The difficulty is that HR has intangible costs involved that are not as easy to calculate. However, you can still track your ROI by looking at how HR impacts your organization's costs and revenue, as outlined below.
7 Ways HR Outsourcing Increases ROI
Understanding the areas of your business that HR impacts can give you a better idea of your ROI through HR outsourcing solutions. Here are seven key areas you may see an increase in your ROI.
1. Lower HR Personnel Costs
Partnering with an outsourced HR solutions provider will cost money, as will any solid investment in your company. Where you save, however, is on reducing the need for additional HR staff. You no longer have the expense associated with the time and money to hire and train new HR team members. Instead, you get access to HR experts who can handle many different issues you may encounter, all at a fraction of the price it costs to employ a single HR expert.
2. Increases the ROI of Employees
When you partner with an outsourced HR company, your employees get better support and more comprehensive answers to the questions and problems they may encounter. Employees will see this investment that you're making in them and return that with increased engagement. Engaged employees are more loyal and efficient employees, increasing your ROI through lower turnover and higher productivity.
3. More Affordable Employee Benefits
Most comprehensive HR outsourcing solutions give you access to their master benefits plan negotiated at scale by experts. This means you get access to better plan options at a lower cost than you would have been able to negotiate on your own. Enabling you to offer a more robust and competitive health benefits package to your employees while reducing expenses.
4. Reduced Workers' Comp Costs
Besides health benefits, an HR outsourcing solution may offer your company access to their workers’ compensation experience modification rate. The experience mod rate is what insurance companies use to determine your workers' compensation premiums. The more past claims you have, the higher your experience mod rate will be, so getting access to a lower rate could provide cost savings in some states.
Your HR outsourcing provider will also cover the deposit premium, which is payable at the beginning of policy inception. Thereby making your premiums payable on a pay-as-you-go basis. In the event of a lost-time work injury, they would also set up a return-to-work program to help lower the costs of each claim by getting injured workers back to work faster.
5. Unemployment Insurance Administration
Unemployment insurance administration can be frustrating to handle, especially when you already have so many other items on your to-do list. Your HR outsourcing provider will handle your unemployment claims administration and make every effort to ensure ineligible claims are denied. They will also represent your company before unemployment agencies, freeing up your time and your internal HR team's time to focus on your core business needs.
6. Relieved Administrative Burdens
HR administration is time-consuming. By shedding this responsibility, both you and your in-house HR staff can focus on creating a great company culture that attracts and retains top talent in your industry.
Your HR outsourcing solution provider will take on many mundane HR tasks including:
By passing this work off, your internal team can focus their time and energy on increasing your employee engagement and your ROI. Through this partnership, you get peace of mind that your complex HR tasks are being handled by HR experts who actively work to keep your company compliant and reduce the likelihood of costly government fines and employee lawsuits.
7. Reduced Turnover
A competitive benefits package will help you attract and retain high-quality employees, which could give you a competitive edge over your rivals, making your company a place employees want to work. Improving company culture helps to keep employees loyal to your organization and gives them the incentive to be more productive and efficient while working.
All of this only happens by shedding complex and tedious HR tasks. Your HR outsourcing solution provider can offer all of these services to help you build a great company where workers want to be.
How to Maximize the ROI of Outsourced HR
The ROI from HR outsourcing requires that you find a solution that offers your company comprehensive services, including the seven listed above. Do not settle for just another outsourcing company, one that may only provide payroll services or administrative services. These solutions are unlikely to give you the best ROI.
A comprehensive HR outsourcing solution reduces costs associated with hiring, benefits, and workers’ compensation insurance. At the same time, they handle unemployment insurance administrative, legal compliance, and administrative burdens such as payroll.
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Tom DiSilva has been providing professional human resource services for over 30 years. As the CEO of Navigate PEO, he actively partners with organizations of all sizes in the Greater New England area and across the country to help their businesses grow. He has expertise in HR and Labor Management, offering guidance and support for key areas of business such as negotiations, operations management, employee coaching, and employee benefits design.