Your Small Business Guide to Outsourcing HR

On average, a small business spends up to one day a week or more on human resources-related tasks.¹ The costs can add up quickly, too. It’s estimated that, collectively, small businesses spend some $27 billion a year handling HR tasks.² When time and resources are spent on administrative tasks, there’s less time available to use to build the business. Fortunately, there’s a solution that an increasing number of small businesses are turning to: outsourcing HR functions to a third party that helps handle these tasks efficiently and economically.

If you’re considering outsourcing HR or want to know more about what it involves, this article is for you. It’s a concise guide designed for small businesses looking to enhance efficiency by outsourcing their HR functions. Covering the basics of HR outsourcing, this article provides insights, benefits, and considerations tailored to the unique needs of small enterprises. We'll look at which HR functions you should consider outsourcing, nine benefits of outsourcing HR services, and what it’s like to work with two popular types of HR outsourcing companies – professional employer organizations (PEOs) and administrative services organizations (ASOs).

Which HR Functions To Consider Outsourcing?

HR staff are responsible for a variety of tasks. For small business and medium-sized businesses, this usually consumes significant time and labor that could instead be spent growing the company or fostering customer relations.

Using an external provider for HR support takes certain HR tasks off your plate and out of your day-to-day worries. Another big advantage: Outsourced HR providers are typically very experienced with comprehensive HR management. That helps small business owners navigate compliance and ever-changing rules and requirements for payroll processing, payroll tax, and employment-related.

By outsourcing, you could get help improving your HR business operations and becoming more cost-effective in key areas such as:

Risk mitigation

Employers and HR departments must make sure the business are compliant with relevant local, state and federal rules and requirements. HR compliance requires a good degree of expertise and an ongoing commitment to research and adaptation. For example, workers’ compensation issues may involve paid sick time, disability and policies that cover emergency medical care. Many HR outsourcing companies provide best practice guidance to help your company navigate HR compliance and mitigate risk.

Payroll processing services

A company can't function well without comprehensive payroll processing services that support its employees. An HR outsourcing firm can help with payroll processing and payroll tax filing and remittance. It will take care of these in a timely manner that complies with the appropriate rules and requirements governing wages and payroll taxes.

Employee benefits

Some outsourcing companies offer access to "big company" benefits that might not otherwise be available to small businesses. An HR outsourcing provider also takes the hassle out of benefits administration by automating repetitive functions and providing mobile apps with self-service employee portals where your workers can get information and enroll in plans themselves.

HR expertise

In addition to the major functions we just reviewed, a human resources department must handle personnel management and use best practices for employee recruitment, engagement and retention. Doing all of these effectively requires best practice guidance from professionals with expertise in a wide range of HR functions. Most small businesses don’t have the resources to staff a department of full-time in-house experts who can cover every complex aspect of HR.

By outsourcing HR, you can gain access to teams of HR experts when you need them. This is a cost-effective way to get expert best practice guidance when you are faced with challenging HR issues.

Technology platform

Staying up to date with the latest HR technology is difficult for small businesses. It’s expensive and time-consuming to research and purchase new software, troubleshoot problems as they arise, perform needed maintenance and updates in-house, and train your staff on the changes. Depending on outdated or poorly functioning technology could cause serious and costly problems.

When you outsource HR, you can gain access to a top-tier cloud-based HR technology platform that helps handle your HR functions efficiently and smoothly. Your outsourcing company takes care of all the maintenance, repairs, updates, and other technology headaches for you. The platform may also provide you with advanced features, such as data analytics and artificial intelligence, that go beyond the day-to-day tasks and provide valuable input to enhance strategic planning for business growth.

9 Benefits of Outsourcing HR

Many key HR services can be improved by using HR outsourcing providers. Here are nine ways your business could benefit from outsourcing your HR:

1. You can focus on core business functions

Small businesses have to be nimble and make the most of their limited time and resources. When your employees spend precious time and energy on repetitive HR administrative tasks, there’s less time available to work on initiatives that help your company grow.

Outsourcing HR frees up your time and creative energy. That lets you focus on what you do best – providing the products or services that your customers want and making strategic plans for your company’s future.

2. Save money on administration costs

Staffing and maintaining a full-fledged HR department is an expense that small businesses are usually unable to comfortably afford. By outsourcing HR, you may be able too save money while receiving expert HR services. The cost of outsourcing HR is usually substantially less than the cost of hiring an HR manager in-house. You mayalso save money by not having to buy, maintain, update and troubleshoot your own HR software system. Further savings may come from the reduced clerical workload and the ease of storing, retrieving, and cross-referencing information. For example, the average small business can reduce the time it spends processing payroll by half using an outsourced technology platform.

3. Offer employees more services

A small company does not have the same resources that a large firm does to provide services that help attract and retain top employees. HR outsourcing companies help even the playing field. They provide services to employees in small businesses that help increase employee engagement and job satisfaction.

This can include providing access to learning management tools to help with individualized training and development that support both the company’s needs and employees’ desire for career growth. Employees also appreciate the ease of accessing and updating their HR records on mobile apps, enhanced performance reviews, convenient communications tools and a more seamless experience for remote working.

Some outsourcing companies can use economies of scale to provide access to employee benefit plans that are otherwise available only to large businesses.

By providing a broader range of services to employees than small businesses can offer on their own, HR outsourcing companies can help your company meet its goals for employee recruitment, retention and workplace diversity.

4. Stronger risk management

One of the most difficult aspects of running a small business is staying current with changing employment-related rules and requirements at the local, state, and federal levels. Employers are subject to many requirements such as minimum wage, overtime, workplace safety, benefits compliance, time off, labor relations and more.

Even small changes or updates may require you to make organizational adjustments to be compliant. Professional employer organizations (PEOs) and administrative services organizations (ASOs) provide HR experts who are well-versed in ongoing changes to employment-related rules and requirements. They provide HR best practices guidance to help companies navigate compliance. They provide resources so you can keep up with important filing deadlines and understand compliance requirements. Some outsourcing companies also help you manage employment-related claims, if any do arise, and help to limit your exposure.

Some outsourcers also offer compliance and operations audits. These help you proactively identify any areas where you may have potential liability, so you can address these concerns.

5. Efficient performance management tools

Effective employee performance management is a critical business component. However, every employee is different — and each responds uniquely to feedback. When you engage an HR outsourcing company, you gain access to a variety of performance management tools. Robust HR technology helps companies gain feedback and insights on how to retain employees by improving their overall experiences.

Examples include engagement surveys, exit interviews and even onboarding questionnaires during the hiring process. This helps improve overall organizational efficiency and communicates a company's investment in employees’ growth and satisfaction.

Working with an HR outsourcing company can make your performance review process more efficient by making it easy to schedule the reviews at optimal intervals, enhance communication between managers and employees, and set and track employee goals.

6. Increased efficiency

When you outsource HR, you get an up-to-date HR software platform that helps to processes your tasks more efficiently than doing them by hand or using outdated programs. The platform also integrates with certain existing applications, reducing the time spent on data entry and making it easier to access information.

Self-service employee portals and mobile apps let your employees access information and update their own records, reducing the burden on the HR staff. Payroll processing can be done with just a few clicks, with earnings, deductions and payroll taxes syncing throughout.

In addition, with a PEO or an ASO, you can get the best practice guidance of expert HR professionals, saving you the time and hassle where you can solve challenging or highly technical HR problems on your own more quickly.

Data analytics and expert guidance can help you streamline your entire organization. They can provide insights on optimizing your organizational structure, identifying your staffing needs, enhancing your workplace culture and implementing a human capital management approach, where you increase productivity and employee satisfaction by treating your employees as assets.

7. Faster ramp-up time for new employees

With an HR outsourcing company, you may be able to complete onboarding new employees in as little as 10 minutes. Using the service provider's advanced cloud-based technology platform, the whole onboarding process can be done online, including:

• Drafting offer letter templates.
• Initiating background checks with background check vendor.
• Having new employees enter their payroll and benefits information themselves using mobile apps.
• Generating payroll tax documents from the information the new hires provide.

New-hire information is automated and synced with benefits, payroll processing, scheduling and other functions of the technology platform and outside applications to provide a smooth and efficient process that gets new employees off to a great start.

If you decide to expand to new geographic markets outside your state, some HR outsourcers can help you with the hiring and onboarding process with the new employees and providing expertise so you can navigate local employment-related rules and requirements.

Organizations with a strong onboarding process significantly improve new hire retention and productivity. An HR outsourcing provider makes this possible for small companies by providing the necessary technology and expertise.

8. Ongoing training and development

While competitive compensation and benefits greatly help to attract and retain good employees, providing an opportunity for career development is also crucial for retaining your top talent. If your most ambitious employees don’t think they can grow within your company, they are likely to jump ship and work somewhere else.

Small businesses may not have the extensive in-house training resources that large firms enjoy. However, HR service providers can help small companies with training and development in many ways by providing learning management tool that helps with:

• Creating individualized training paths that help employees master new skills that satisfy both their own goals and the current needs of the company.
• Keeping employees motivated by tracking progress on their development paths and providing rewards for achievement milestones.
• Providing online training material and information about outside courses. This makes it easy for employees to find and access relevant educational resources.

Data analytics from HR outsourcers can perform a job analysis on a new position, which helps you identify what skills are needed and which in-house employees might be trained for the role.

9. Access to expert HR consultants

PEOs and ASOs go beyond performing routine HR tasks. They also provide teams of specialized HR professionals and consultants. These consultants stay vigilant on compliance concerns and are available to help you with employee relations problems when they arise. They also can help you hone your business strategies, activate your mission and get the benefit of your employees’ full potential.

HR outsourcers also provide support to your employees. They are available to answer employee questions and help them with day-to-day HR concerns.

How PEOs and ASOs Can Help a Business

PEOs operate under a co-employment model in which certain responsibilities are allocated between the PEO and the employer. The PEO helps with HR functions that are key processes for small businesses. They're often labor and time-intensive — such as processing payroll and collecting and remitting payroll taxes. Plus, PEOs often can provide access to premium employee benefits. PEOs may also help with tools and resources for talent acquisition and onboarding. But, don't worry, your organization maintains control over day-to-day workforce decisions such as hiring, firing, compensation and workplace culture.

It's an oversimplification to say a PEO merely "helps" with things like payroll processing or HR services. Look at the bigger picture: The National Association of Professional Employer Organizations (NAPEO) reports significant benefits when small businesses work with a PEO. On average, businesses tend to grow 7% to 9% faster.* They're 50% more likely to stay in business in coming years. Employee turnover runs 10% to 14% lower.* And the return on investment brings a cost savings of 27.3%.*

Many PEOs operate in the marketplace, but they're far from equal. It’s important to carefully consider prospective PEOs before making a decision. That helps define your future relationship with the PEO and determines whether a specific PEO is a good fit for your organization.

ASOs are another great option for small businesses that want to outsource some or many of their HR administrative functions. When you work with an ASO, you do not form a co-employment relationship the way you would with a PEO. Instead, your company remains the employer of record for payroll tax purposes.

ASOs, like PEOs, combine a modern cloud-based technology platform with best practice guidance from HR experts. With teams of professionals available to provide you with HR best practice guidance, you can feel confident that your HR needs are being  helped without your having to try to cover all your bases with in-house staff.

Working with an ASO helps you manage your time and workflow. The flexibility inherent in ASOs will most likely allow you to contract for the services you need and avoid paying for services you don't need. The efficiency of the ASO may help you reduce your operating costs. The ASO’s data security measures may provide peace of mind, knowing that your sensitive employee data is secured in its platform. You’ll be able to leverage the ASO’s technology to gain more advanced functions than a small business would usually be able to obtain on its own. An ASO also has the flexibility to work with your company as it continues to grow.

Time Sink of Transactional HR: Adding up Administrative Tasks

Administrative HR involves day-to-day transactional tasks on activities ranging from payroll administration and benefits administration to updating employee records and administrating 401(k) plans. Small business owners can spend a significant amount of their time handling employee paperwork. This can increase when adding time spent on other HR tasks, such as recruiting, hiring, training and workforce management.

Administrative tasks like HR functions are integral components of running a business. However, they take time and resources away from fulfilling your core business objectives. A reputable PEO or ASO can deliver solutions that enable you to meet your HR obligations while gaining more time to improve your bottom line.

Getting Back Time by Outsourcing HR

Savings through outsourcing HR vary greatly. Much depends on how many providers you use and how much administration you retain through in-house HR staff. A multi-provider approach — using different vendors for different administrative tasks — is sometimes useful. But factor in the time required for soliciting, reviewing, and comparing different vendor proposals. Then add the additional time requirements of managing a multi-provider network, along with its necessary IT integrations. You might find that the costs of multi-provider outsourcing exceed its potential gains.

To overcome multi-provider inefficiencies, a growing number of companies are consolidating HR outsourcing functions into a single provider's integrated solution. These companies use PEOs that are professionally and technologically equipped to help with the full range of HR services. This provides a single point of contact and facilitates full customer service. Those are the efficiencies that can be cost-effective.

TriNet’s PEO and ASO offer full-service HR solutions to help small businesses across various industries. To learn more about how our HR experts can help your business in a competitive market, contact us today.

*Individual business results may vary.

This communication is for informational purposes only, is not legal, tax or accounting advice, and is not an offer to sell, buy or procure insurance.

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