What HR Outsourcing and Bundled Models Work Best for SMBs?

Businesses that are looking to outsource or for bundled human resources services have several models to choose from, including:

• Professional employer organization (PEO)
• Administrative services organization (ASO)
• Business process outsourcing (BPO)
• Human resources outsourcing (HRO)

Many businesses outsource HR as part of an overall strategy for growth. The HR outsourcing market is experiencing its own robust growth and is projected to reach up to $69 billion by 2032.

What's driving this shift to outsourcing? Cost reduction needs and compliance complexity. Small and medium-sized businesses just don't have the resources to manage HR while addressing core business functions.

But those who choose outsourcing have to be savvy. Different outsourcing and bundled models offer varying services, cost structures and levels of control. Businesses need to find the solution that aligns with its size, industry requirements and strategic objectives.

In this guide, we're going to look at the different types of HR outsourcing and bundled models and how to choose one that's right for you.

What Is HR Outsourcing and Why Do Companies Consider It?

HR outsourcing is getting support on specific HR functions and administration from an external service provider. Additionally, bundled solutions can provide a comprehensive solution for HR support services. These types of support can make sense for a wide range of businesses for several reasons. Let's take a closer look at why companies choose this option.

Cost efficiency

One of the primary motivations is the cost effectiveness. Maintaining an internal HR department requires substantial investment in:

• Salaries
• Benefits
• Training
• Technology systems
• Ongoing professional development

Utilizing other providers can help leverage economies of scale by serving multiple clients. They can spread infrastructure costs across a broad base and offer services of what it would cost to build and maintain these capabilities internally.

Businesses can access enterprise-level HR capabilities without needing to significantly expand their internal staff and invest heavily in technology to perform HR functions. For growing companies, this also provides more predictable costs. They can sign a contract with an external HR outsourcing company and set their budgets for their HR costs.

Compliance challenges

Federal, state and local employment-related rules and requirements change frequently and carry severe penalties for non-compliance. From wage and hour laws to workplace safety requirements, staying compliant requires expertise and constant monitoring.

HR solutions providers may provide expertise in navigating compliance across multiple jurisdictions and industries. Their staffs may include experts on the compliance challenges of particular industries and specific elements of HR, such as payroll, workers' compensation and benefits. They are well-equipped to provide best practices to businesses on, documentation and other compliance support.

Scalability needs

As businesses grow, their HR needs become more sophisticated and resource-intensive. A startup with 20 employees has vastly different requirements than a company with 200 or 2,000 employees.

Internal HR capabilities often lag behind business growth. HR outsourcing and bundled solutions can provide scalability. It allows companies to access comprehensive HR services that can expand or contract based on business needs without the long lead times and costs associated with building internal capacity.

Q&A on HR Outsourcing and Bundled Models

Now that we're clear on why businesses may need HR outsourcing or bundles solution, let's examine some of the most popular HR outsourcing and bundled models.

What is a PEO?

A professional employer organization (PEO) is a comprehensive HR solution where the client company and the PEO are in a co-employment relationship. The PEO becomes the employer of record for payroll tax purposes while you maintain control over the day-to-day management and direction of your employees.

Within this structure, the PEO can help handle certain HR functions, including:

• Payroll processing for payroll processed through their platform
• Payroll tax compliance support
• Workers' compensation
• Benefits administration
• HR expertise

Your company retains authority over:

• Hiring decisions
• Job assignments
• Workplace policies
• Overall business operations

Even small businesses can get access to enterprise-level benefits packages and cost effective rates. This arrangement also means the PEO helps mitigate certain risks. 

PEO services are particularly well-suited for small to mid-sized businesses that want comprehensive and bundled HR support which in turn lets the internal HR department resources be devoted elsewhere.

What is an ASO?

An administrative services organization (ASO) is an HR outsourcing model that provides administrative support and services while you remain the employer of record for your employees. Unlike a PEO, there is no co-employment relationship with an ASO. However, like a PEO, you maintain complete responsibility and control and maintain your workforce while the ASO supports specific administrative tasks.

ASOs typically offer services such as:

• Payroll processing
• HR software solutions
• Employee benefits administration
• HR expertise
• Compliance support

An ASO can also apply economies of scale to provide services in a cost-effective way. With an ASO, you retain full control over employment decisions and workplace policies. You remain responsible for managing any risks and liabilities associated with HR functions.

This model provides more flexibility than a PEO arrangement because you can select specific services to outsource based on your needs rather than adopting a comprehensive package. For example, you might use an ASO only for payroll processing while you sponsor your own benefits program.

This model is often preferred by companies that have some internal HR capabilities but need support with time-consuming administrative functions or specialized requirements.

What is HRO?

HRO typically involves outsourcing specific HR functions such as payroll processing, benefits administration, recruitment, and training tools . Companies may choose to outsource one or more HR functions based on their needs

The outsourcing provider does not become the employer of record. The client remains the sole employer responsible for all obligations related to their employees.

Human resources outsourcing services may encompass a broader range of functions than typical ASO arrangements. This includes:

• Payroll processing
• Benefits administration
• Recruitment and training tools
• Performance management tools
• HR expertise
• Strategic HR support

 Depending on the specific agreement, the HRO provider may share be responsible for the services they provide. However, you retain primary responsibility for compliance.

HRO solutions can be tailored to businesses of various sizes, but they may be more commonly used by larger organizations that have specific HR needs or want to streamline certain processes.

What is BPO?

Business process outsourcing (BPO) is the practice of contracting specific business operations and responsibilities to external service providers. BPO involves engaging with specialized third-party companies that can perform certain tasks more efficiently or cost-effectively. These business functions might include:

• Customer service
• Accounting
• Data entry
• Technical support
• Procurement and logistics
• Human resources

BPOs operate on the principle that businesses should focus their internal resources on core activities that directly drive revenue and competitive advantage. Non-core but essential functions are entrusted to experts who can perform target tasks in a cost-effective manner. These external providers have the expertise and infrastructure to deliver services that may be more costly for individual companies to maintain internally.

HR outsourcing represents one segment of the broader BPO landscape. Whether you choose a PEO, ASO or HRO model, you're engaging in BPO by working with a provider to provide support your HR functions.

What is a human resources administrative system (HRIS)?

A human resources information system (HRIS) is a software platform that centralizes and manages employee data and HR processes within an organization. It serves as the digital backbone for HR operations. In one accessible database, it can store, based on what is inputted in the system, comprehensive employee information, including:

• Personal details
• Job history
• Compensation
• Benefits enrollment
• Performance records
• Attendance data

Technology integration in modern HRIS platforms can automate routine HR tasks such as:

• Payroll processing
• Benefits administration
• Time tracking
• Leave support
• Compliance reporting

These systems typically include employee self-service portals where workers can request time off, access pay stubs and enroll in benefits without the need for direct HR oversight. This is particularly helpful for companies with employees in multi-states.

An HRIS provides managers and HR professionals with analytical tools and reporting capabilities to track workforce metrics and identify trends. Subsequently, they can make data-backed decisions about hiring, retention and organizational development. Integration capabilities allow HRIS platforms to connect with other business systems like accounting software, applicant tracking systems and performance management tools.

The key distinction between an HRIS and HR outsourcing models like PEOs and ASOs is that an HRIS is a technology tool you use to help manage HR processes, while outsourcing involves support with services.

Many HR outsourcing providers offer HRIS platforms as part of their service packages. However, a company can outsource just the technology, using an HRIS for process optimization and data security controls while keeping HR functions in-house.

What is human capital management?

Human capital management (HCM) is a strategic approach to managing and optimizing your workforce as a valuable business asset. Unlike traditional HR practices that focus primarily on administrative tasks, HCM views employees as investments that require deliberate development.

HCM encompasses the full employee lifecycle, from talent acquisition and onboarding through performance management, skill development and retention strategies. This approach includes collecting and analyzing workforce data to make informed decisions about employee management and the overall business.

HCM often relies on integrated technology platforms that combine HRIS functionality with advanced analytics, artificial intelligence and predictive modeling. This combination provides insights into workforce trends, employee satisfaction and performance metrics. The tools help leaders make data-driven decisions about resource allocation, organizational design and talent investment.

If HCM is part of your company's culture, it will be important to find an outsourcing provider that shares that approach.

What is co-sourcing?

Co-sourcing is a hybrid HR outsourcing approach where you maintain an internal HR team while working with external providers to handle specific functions or provide specialized expertise.

With co-sourcing, your internal HR staff typically handles strategic functions, employee relations and day-to-day management. External providers typically provide specialized services such as payroll processing, benefits administration or recruiting for hard-to-fill positions. This model allows you to leverage external expertise and capacity during peak periods while maintaining direct relationships with employees and control over HR strategy.

Co-sourcing works particularly well for mid-sized companies that have established HR capabilities but need additional support in specific areas. It also works well for businesses experiencing rapid growth where internal resources are stretched thin. For example, you might co-source recruiting process during expansion phases.

Do consultants do HR outsourcing?

HR consultants typically provide advisory services, project-based work and strategic guidance rather than full HR outsourcing. While consultants may handle specific initiatives like compensation studies, policy development or compliance reviews, they generally don't manage ongoing HR operational responsibilities.

Some larger consulting firms offer HR outsourcing services as part of their portfolio, essentially functioning as HRO providers. These arrangements involve the consulting firm taking over substantial HR operations. They provide strategic consulting expertise alongside administrative services.

HR consulting may focus on advising and enhancing your internal HR capabilities, while HR outsourcing involves supporting actual HR responsibilities to external providers.

Choose the Right HR Outsourcing or Bundled Model for Your Needs

TriNet offers a comprehensive professional employer organization (PEO) solution that supports a wide range of HR tasks, while clients retain control over their day-to-day operations.

Beyond traditional PEO services, TriNet offers a service level option approach to HR support through its HR Plus ASO services. We provide different levels of administrative support for companies along with its HRIS—HR platform.

Our available solutions allow businesses to choose the model that best fits their needs, from comprehensive PEO co-employment solution to administrative services solution.

Want to find out more about how a PEO can help your small or medium-sized business? Download our new eGuide: Top 5 Reasons SMBs Choose PEOs