Outsourcing HR for Small Businesses: A Comprehensive Guide

Your Small Business Guide to Outsourcing HR

September 7, 2023
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 per year handling HR tasks.2 Most business owners would likely agree: Time and resources are their most valuable assets. Yet each year more of those assets are consumed by HR administration tasks. And resources spent on admin tasks means resources not spent on other areas of building the business.

In short, human resources expenses can burden resources needed to grow a business, which can negatively impact the company’s success. To help improve and streamline your business efforts, consider the advantages of outsourcing HR. Companies that count on an HR outsourcing service can get help with those time-consuming HR processes bogging down the business.

In this article, we'll look at HR services to consider outsourcing, nine benefits of outsourcing HR services, and the services of professional employer organizations (PEOs).

Which HR Functions To Consider Outsourcing?

HR staff are responsible for a variety of tasks. When you’re a small or medium-size business, this usually consumes significant time and labor that could instead be spent growing your company or fostering customer relations.

Using a provider for HR support gets you the help with certain HR tasks off your plate, out of your day-to-day worries. Another big advantage: Outsourced HR providers are typically very experienced at comprehensive HR task management. That further supports small business owners in terms of help with compliance relating to payroll processing, payroll tax and employment-related rules and requirements.

By choosing outsourced HR solutions, it could help improve business operations and be cost effective in key areas such as these:

Compliance

Employers and HR departments must make sure the business stays compliant with local, state and federal employment-related rules and requirements. HR compliance requires a good degree of expertise and an ongoing commitment to research and adaptation. Many HR outsourcing companies provide best-practices and guidance to help your company with HR compliance.

Employee relations

Similarly, HR departments are usually responsible for handling internal complaints and employee concerns. They may need to respond to workplace issues. These can be complex and tricky situations. Effective HR solutions include best-practice resources and guidance to help in employee relations, claim responses and management of these situations.

Payroll processing services

A company can't function well without comprehensive payroll processing services that support their employees. An HR outsourcing firm can help with payroll processing, payroll taxes filing and remittance, and are taken care of in a timely manner that complies with the appropriate rules and requirements governing wages and payroll taxes.

Employee benefits

Compensation for full-time employees often includes various benefits. An outsourcing company might offer businesses the access to "big company" benefits that might not otherwise be available to business. Those can include retirement plans, health insurance, more non-traditional offerings and can focus on inclusive benefits. When outsourcing, benefits administration is also one of the outsourced services that an HR outsourcing provider can help a business.

Workers’ compensation

If an employee is injured on the job, the event must be handled appropriately. Common workers’ compensation issues involve paid sick time, disability and policies that cover emergency medical care. Outsourcing HR allows you to streamline this process and helps to reduce issues should something occur.

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. Allows you to focus on core business functions

Most business owners probably don't start a company because they're passionate about HR administrative tasks. Business owners start a company so they can build a product or perform services they’re good at. And that's where your business efforts should be focused: on your product or services, not on the distractions of managing HR. Splitting your attention between daily business needs and handling HR tasks is a good way to fall short on both.

2. Save money on administration costs

While outsourcing HR may come at a cost, it’s negligible when compared to the value the expertise brings. Standard HR departments have many responsibilities, requiring significant staff. As your company grows, your HR department needs to grow with it. When you outsource with a professional employer organization (PEO), you’ll receive access to scalable HR professionals and expertise. And they can expand right along with your workforce.

Outsourcing can be cost effective on total HR overhead costs. Some areas of savings may include payroll processing, training and salaries of the HR experts you’d otherwise have to employ.

3. Offer employees more services

Small to medium-size businesses don’t always have access to many benefits or employee services. This may create issues to recruit or retain top talent. When you use a PEO, you gain access to comprehensive big-company benefits your employees deserve. Access to benefits can also extend beyond medical, dental, vision, life, disability, retirement and transit benefits. These can help enhance employee compensation and satisfaction, and make you more competitive in a tough job market. This can decrease employee stress, improve productivity and strengthen retention.

4. Stronger risk management

One of the most difficult aspects of running a business is staying current with changing employment-related laws at the local, state, and federal levels. Even small changes or updates may require you to make organizational adjustments to stay compliant. An HR outsourcing company can help strengthen the approach of risk management by providing HR best practices and guidance to help avoid non-compliance.

Also, PEOs can provide HR experts who are well-versed in ongoing changes to employment laws and requirements. That helps keep your policies and procedures up to date which helps to protect your organization and your employees.

5. Efficient performance management tools

Effective employee performance management is a critical component of any employer. However, every employee is different—and each responds uniquely to feedback. When you hire 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. Using an outsourcing firm for key HR services doesn't mean your employees will be managed by an external team. You're still responsible for your managing your employees. But you'll gain the tools and support to help make the process more adaptable and efficient.

6. Increased efficiency

One of the most notable benefits of outsourcing HR functions is the time saved within your organization. An in-house HR team may have countless tasks to deal with. Navigating paperwork piles, HR compliance, risk mitigation, employee benefits, payroll processing, employee complaints. Outsourcing HR administration helps to free up that time and helps to increase your company's overall efficiency. It can also help your workforce to focus on advancing business strategic goals, growing revenue streams and improving customer loyalty.

7. Faster ramp-up time for new employees

If you decide to expand to new geographic markets, certain PEOs have the HR expertise to help you onboard new employees in any state and assist you with navigating the complex process of hiring and onboarding outside of your typical locations —all while helping you adhere to local, state and federal employment laws and requirements.

Organizations with a strong onboarding process significantly improve new hire retention and productivity. In addition, an HR provider with the right technology programs makes it easy to help with HR in real-time. From employee onboarding through mobile and desktop apps and workforce analytics driving informed decision making, PEOs can help improve the process.

8. Ongoing training and development

Employee retention is important to organizational efficiency and productivity. Excessive turnover can lead to wasted time, money, effort and expertise. By using an external HR team, you will have access to the tools and guidance that can help better understand how to foster a people-centric workplace that enhances the employee experience.

You’ll also have the resources to offer your employees practical training on important subjects such as improving best practices, business skills, software skills, diversity, equity and inclusion, which can encourage personal and professional development and success.

9. Access to expert HR consultants

Outsourcing offers access to expert HR consulting. Human resources services are complex and dynamic. It's important to make sure personnel have the skills and knowledge to address HR responsibilities in the most effective manner. Human resources outsourcing may be the solution. A PEO provides a team of experienced HR professionals with established, valuable knowledge. They understand the intricacies of processing payroll, benefits administration, HR risk management and other aspects of people management.

How a Professional Employer Organization Helps Your Business

PEOs operate under a co-employment model in which certain responsibilities are allocated between the PEO and the employer. The PEO helps with certain important HR functions for the business. Usually, these are key processes. And they're often labor and time intensive—such as processing payroll for employees and collecting and remitting payroll taxes. Plus, PEOs provide access to PEO-sponsored benefits. PEOs may also help with tools and resources for talent acquisition and onboarding. But don't worry, your organization maintains control over all workforce decisions such as hiring, firing, compensation and 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. 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%.* Those are numbers vital to business owners anywhere.

Several PEOs operate in the marketplace, but they're far from equal. It’s important to ask prospective PEOs several questions before moving forward with a decision. That helps define your future relationship with the PEO. And it determines whether a specific PEO is a good fit for your organization.

Time Sink of Transactional HR: Adding up Administrative Tasks

Administrative HR involves day-to-day transactional tasks on a variety of activities ranging from payroll administration and benefits administration to updating employee records and administrating 401(k) plans. A Small Business Association study revealed that small business owners 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 and training.

Administrative tasks like HR functions are integral components of running a business. Basic HR tasks may not drive your core business objectives and a reputable PEO can deliver solutions for them. When you outsource HR responsibilities, you keep control of your business and there's more time to improve your bottom line.

Getting Back Time by Outsourcing HR

Savings through outsourcing HR varies 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 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. The time saved by multi-provider outsourcing may fall short of 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 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 is a professional employer organization that offers full-service HR solutions to help SMBs across various industries. To learn more about how our HR experts can help your business in a competitive market, contact us today. Understanding the HR services that can be outsourced already provides a clear view of the benefits. For more information, consider how an external HR solution like TriNet can benefit your business.

*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.

This article may contain hyperlinks to websites operated by parties other than TriNet. Such hyperlinks are provided for reference only. TriNet does not control such web sites and is not responsible for their content. Inclusion of such hyperlinks on TriNet.com does not necessarily imply any endorsement of the material on such websites or association with their operators.

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