Your Complete Guide to HRO for Small Businesses

Could your in-house HR efforts be hindering the growth of your small business?

An article published by the U.S. Chamber of Commerce says 34% of business leaders spend more than 10 hours a week on HR administration. Leaders of small and medium-sized businesses estimated that the time spent on HR tasks costs $171,997 a year, or $3,308 per week. 

Fortunately, there’s a solution that an increasing number of small businesses are turning to: outsourcing HR functions. This guide is designed for small businesses looking to improve efficiency and operations by outsourcing HR. We'll look at:

• The HR functions small businesses typically outsource.
• Nine key benefits of HRO for small businesses.
• Working with two popular types of HR outsourcing companies—professional employer organizations (PEOs) and administrative services organizations (ASOs).

What HR functions are most commonly outsourced?

HR functions cover a wide variety of responsibilities. For small and medium-sized businesses, these tasks consume significant time and labor that could instead be spent growing the company or improving customer relations.

HR outsourcing can lift a great deal of work and day-to-day worries off the shoulders of a small business team. By outsourcing, you could get help improving your overall business operations and becoming more cost-effective in key HR areas such as:

Risk mitigation

Employers and HR departments must make sure the business is 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. This is one of the most commonly outsourced HR functions.

An HR outsourcing firm can manage 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. According to Gallup, "Pay/Benefits" was the most common single reason employees left their job in 2024. Considering that great benefits are one of the keys to employee retention, outsourcing could pay significant dividends.

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.

Human resources information systems

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 software and hardware problems as they arise.
• Perform maintenance and updates.
• Train your staff on using the systems.

A business can suffer serious, costly problems when it depends on outdated or poorly functioning technology.

Small businesses often outsource HR technology, gaining access to a third party's human resources information system. An HRIS is a cloud-based software system that helps to automate and streamline HR functions.

Businesses can find vendors who will provide just the HRIS or vendors who provide an HRIS as part of a broader HR outsourcing package.

The 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 small business growth.

Human capital management

Human capital management is a business strategy that views a company’s workforce as an asset. An HR provider that uses an HCM approach can address many HR functions in a way that makes employees feel valued. These functions include:

• Employee recruitment
• Onboarding
• Talent development
• Performance management
• Engagement

Most small businesses don’t have the resources to staff a department of full-time in-house experts who can cover every nuance of HCM.

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

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 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. You could reduce 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 to save money while receiving expert HR services.

The cost of outsourcing HR could be substantially less than the cost of hiring an HR manager in-house. You may also economize by not needing 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. You can offer employees better 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 that could increase employee engagement and job satisfaction.

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

Outsourcing can also give employees access to learning management tools to help with individualized training and development. These HCM tools support both the company’s needs and employees’ desire for career growth.

Employees also appreciate:

• The convenience of accessing and updating their HR records on mobile apps
• Enhanced performance reviews
• Convenient communications tools
• A seamless experience for remote working

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. You have more secure 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. Two types of HR outsourcing in particular, professional employer organizations (PEOs) and administrative services organizations (ASOs), may provide:

• HR experts who are well-versed in ongoing changes to labor laws.
• HR best-practices guidance.
• Resources to help you keep up with important filing deadlines and understand requirements.
• Help with managing employment-related claims and limiting your exposure to them.
• Compliance and operations audits. These help you identify any areas where you may have potential liability, so you can address them.

5. You can use 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. You improve time and cost efficiency

Time management and resource allocation is the name of the game at SMBs.

When you outsource HR, you could 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 might integrate with 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 of trying to solve challenging or highly technical HR problems on your own.

Data analytics and expert guidance can help you streamline your entire organization. They can provide insights on:

• Optimizing your organizational structure and financial planning.
• Identifying your staffing needs.
• Enhancing your workplace culture.
• Implementing a human capital management approach (where you increase productivity and employee satisfaction by treating your employees as assets).

7. You can bring new employees up to speed faster

With an HR outsourcing company, you may be able to onboard 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 vendors.
• 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, as well as 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 and provide expertise so you can navigate the employment-related rules and requirements of that location.

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. You can improve 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 more 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 tools that help 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.

What's more, data analytics from HR outsourcers can perform a job analysis on a new position. This can help you identify what skills are needed and which in-house employees might be trained for the role.

9. You gain access to expert HR consultants

HR outsourcing companies should be able to reliably and expertly perform the standard HR tasks. They also might provide teams of specialized professionals and consultants with HR expertise.

These consultants stay vigilant on compliance concerns and could be 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.

You might be able to reach a support professional who knows you and your business by phone, chat and other platform tools. Guides may also be available to answer employee questions and help them with day-to-day HR concerns.

How Can PEOs and ASOs Help My Small Business?

PEOs operate under a co-employment model in which certain responsibilities are allocated between the PEO and the employer. The PEO handles vital HR functions—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 management 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. These businesses, compared to ones that don't work with a PEO:

• Tend to grow twice as fast.
• Are 50% more likely to stay in business in coming years.
• Have employee turnover rates that are 12% lower.
• Report saving an average of $1,775 per employee per year.

ASOs are another 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. You retain full responsibility for compliance and assume all risks and liabilities associated with HR functions. 

ASOs, like PEOs, combine a modern cloud-based technology platform with best-practice guidance from HR experts. ASOs typically offer administrative support services such as payroll processing, employee benefits administration, HR consulting, and regulatory compliance assistance. 

The flexibility inherent to ASOs can enable a business to contract for the services they need and avoid paying for services they don't need.

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 scale with your company as it grows.

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 administering 401(k) plans. Small business owners can spend a significant amount of their time handling employee paperwork. This workload can increase when you factor in 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.

Get Your Time Back by Outsourcing HR

Savings through outsourcing HR can vary greatly, depending 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.

However, you'll need to 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. This provides one point of contact and facilitates full customer service.

TriNet’s PEO and ASO offer 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.

Ready to make your decision? Download our free eGuide: Finding the Best Value in an Outsourced HR Solution. It can help you compare options and choose the HR solution that's right for your business.