When Should You Outsource HR?

When Should You Outsource HR?

by on 20 Dec, 2021

If you’re considering outsourcing your HR, you’re not the only one. There are numerous benefits of outsourcing HR. To name a few, it’s time-saving and cost-effective (45% of small business owners spend 15% to 20% of their work time — one day per week — on administrative HR issues). Outsourcing also gives you access to better benefits, improved ROI, and much more.

However, it can be hard to tell at what point you should outsource a particular HR function. For instance, small and medium-sized businesses benefit from outsourcing payroll processing, but larger companies (those with over 500 employees) may find it more cost-efficient to do payroll in-house. 

The ROI of HR outsourcing for your company depends on your particular needs. The more comprehensively you outsource HR, the higher the ROI will be. You can tell when to outsource HR functions by looking for five warning signs.

Before getting into warning signs, it is essential to understand the potential scope of HR outsourcing. 

What HR Services Can Be Outsourced? 

HR plays a significant role in the satisfaction of your employees and improving company culture. However, you cannot outsource the support of your employees during challenging times or the talks that must be had with employees about their expectations and needs (and how you can fulfill them). You also cannot outsource the de-escalation of conflicts among workers.

On the other hand, you can outsource the following HR functions to open up more time for in-house HR to take care of employees:

  • Payroll Processing

  • Benefits Administration

  • Risk Management

  • Employee Benefits

  • Employee Assistance Programs

  • Employee Handbooks

  • Regulatory Compliance

  • Workers’ Compensation Insurance

  • Unemployment Administration

Taking care of employees is far from the only reason you should outsource HR. When you dive deeper into the common red flags, you may even realize that comprehensive HR outsourcing will solve a host of issues your company has been facing.

5 Signs You Should Outsource HR  

If your business can relate to one or more of the five signs below, then it’s time to outsource HR. 

1. Hiring Another HR Employee Is Not Cost-Effective 

When HR gets stretched thin due to administrative work, employers must increase their staff or outsource those functions. If you choose to add more employees to your in-house team, you’re looking at additional costs not only in competitive salaries but also benefits, training, hiring costs, and more.

HR outsourcing costs a fraction of that amount. In fact, the National Association of Professional Employer Organizations (NAPEO) reports that comprehensively outsourcing HR can save you as much as $450 per employee compared to traditional HR teams.  

2. HR Doesn’t Have Time to Deal with Employee Relations 

Maintaining a positive culture is one of HR’s most important duties. If employee conflicts arise that HR cannot immediately address, HR needs time freed up. Outsourcing administrative functions give HR the extra time to ensure that employees can be taken care of and the work environment remains positive and inclusive.

When employee conflicts go unresolved, you don’t just risk the unhappiness of your staff included in and surrounding the conflict. You also risk missed deadlines, lower morale, decreased productivity, and higher employee turnover. 

3. Your Employee Benefits Aren’t a Competitive Advantage 

Employee benefits are essential in today’s market if you want to attract or even retain top talent. When using a comprehensive HR outsourcing solution, you can access their benefits master plan negotiated by experts using economies of scale. This means access to Fortune 500 benefits at a cost affordable to small and medium-sized businesses.

Since research shows that employees prioritize benefits, it isn’t an area you want to lack. According to Glassdoor, 63% of employees look for benefits when considering a position on a job board. Best Money Moves adds that studies reveal about 30% of employees are dissatisfied with their jobs, with almost 4% leaving because of unsatisfactory benefits.

4. You Have Multiple HR Software Vendors

Suppose you’re not using expensive, best-in-class HR software. In that case, you will need multiple vendors — i.e., one vendor for technology related to benefits administration, one vendor for payroll software, and another vendor for time and attendance measurements.

Comprehensive HR outsourcing services provide HR software that integrates payroll, time and attendance, benefits enrollment and administration, and more. Consolidating as much of your HR into one software:

  • Reduces the amount of data re-entry  

  • Lowers cost  

  • Adds convenience and ease (one vendor relationship versus multiple to keep up with) 

  • Offers a consistent user experience by providing employees with a single platform to access HR tasks

5. You’ve Received Non-Compliance Fines or Warnings

Navigating complex HR rules and regulations takes expertise that may not be available to SMBs. It requires staying up to date and monitoring local, state, and federal laws to ensure your business complies.

Outsourcing HR compliance is the best way for any company to avoid penalties. This is especially true if your company has already had some run-ins with non-compliance fines or warnings.

Even something as simple as a payroll error indicates that you should consider outsourcing to experts. These mistakes suggest that your HR staff doesn’t have the much-needed time to keep up with research and ensure your small business is in compliance.  

 What is the ROI of comprehensive HR outsourcing?

There are at least seven ways HR outsourcing increases ROI and benefits your bottom line. They include lowering HR personal costs, increasing the ROI of employees, making employee benefits more affordable, reducing worker’ comp costs, assisting with unemployment insurance administration, relieving administrative burdens, and reducing turnover.

While the ROI from outsourcing just payroll can still be positive, it will not be as high as the ROI of comprehensive HR outsourcing. According to a 2019 study by NAPEO, the average ROI of the most comprehensive HR outsourcing solutions is 27.2%. This means that for every $1,000 you spend, you save $1,272.

And that’s only a fraction of the actual value of making the investment.

Outsourcing administrative burdens will ultimately help your business thrive as opposed to simply getting by. This is especially true if any of the above warning signs apply to your company.


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Disclaimer: this article does not represent expert advice and is provided for informational purposes. Please get in touch if you would like expert HR advice.

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