When Should I Outsource HR? A Guide for Making the Switch

March 22, 2024・8 mins read
When Should I Outsource HR

Small and medium-sized businesses often struggle to manage their HR functions. These essential functions can be time-consuming and often require a level of expertise that smaller businesses may not have in-house. Getting it wrong is not an option. The potential consequences may include demands, penalties, fines, and potential negative reputation that may cause the inability to attract or retain the top talent you need.

Certain problems and difficulties tend to crop up when businesses don't have the HR support they need. It's important to realize that a wide range of HR service delivery solutions are available.

HR outsourcing is one of the most popular HR trends. When you outsource to an HR outsourcing third-party provider, they provide support to help with your HR functions. The provider generally specializes in helping with HR functions for other companies. Its HR professionals are usually experts in the HR area, and their technology is usually up to date. You could opt for outsourcing payroll processing, outsourcing a few major HR functions, or signing up with a professional employer organization (PEO)for a more comprehensive HR outsourcing help with your HR responsibilities.

In this article, we'll answer a key question in the evolution of a business: When should I outsource HR? We also will provide outsourcing tips and discuss which functions are commonly outsourced, as well as reviewing common outsourcing options and HR best practices for outsourcing.

HR Functions to Outsource

It takes a lot of work to manage, hire, engage and retain employees. Human resources tasks that are most commonly outsourced may include:

  • Processing payroll and recordkeeping of payroll records
  • Administering employee benefits
  • Recruiting and onboarding new employees
  • Training and developing employees
  • Helping with HR administrative functions

When Should I Outsource HR?

Many basic issues spur owners and managers to think about getting outsourced HR help. They can be grouped into a few key areas.

Trouble handling HR functions

HR paperwork can be overwhelming. The time that leaders and staff spend on HR responsibilities can reduce the time they have available to focus on core business tasks. And as your workforce grows, so does the HR workload. Consider that recruiting, hiring and onboarding are crucial to your success in a very competitive labor market. Are these major HR functions being done on an ad hoc basis?

If you are starting to feel the pinch, you might want to take action before things snowball.

Even if your company has HR staff in-house, they can become overwhelmed with managing and administering insurance and benefits. Responsibility for HR functions is also often spread among different employees, and there may be no consistency or accountability for performance.

Outsourcing can allow your leaders and staff members to put their energies to optimal use. Employee data can be centralized. Key HR processes can be done consistently. If you want to optimize HR staffing levels while keeping up with all your HR needs, then outsourcing may be a convenient and cost-effective solution.

Falling short on hiring and personnel

Your company’s growth and success may depend on getting the right employees when you need them. It may be time to consider outsourcing if you can’t fill open positions quickly, can’t attract top-tier talent, or have a high turnover rate.

Another sign of trouble is having an onboarding process that is inconsistent, counterproductive, or non-existent. A survey by Hibob found that 64% of employees are likely to leave a new job within their first year after having a negative onboarding experience.

The right outsourcing company may be able to streamline and optimize the recruitment lifecycle process, from recruitment through onboarding and training. The result will be a motivated workforce with the skills you need — obtained with less effort and cost on your part.

Holding back growth

Sometimes, when companies are ready to expand beyond their state or internationally, they may hesitate because of requirements complexities as it relates to that state. They would have to understand the employment-related rules and requirements in every state where they to do business. They may also need to adjust their hiring, onboarding, and training practices based on the specific requirements.

If you see that such challenges might make your business miss valuable opportunities, it may be time to outsource human resources functions. Consider an outsourcing company that provides the expertise to help you navigate the HR requirements at the federal, state, and local levels in the states you are doing business or one that provides a global workforce solution to help you unleash your company’s potential for growth.

Risk Mitigation

Is your business concerned about certain risk? HR compliance concerns can be complex. Failing to get them right may be costly and can result in fines and penalties. Outsourcing to companies that have HR expertise can go a long way toward protecting your business.

Even companies without special compliance concerns can benefit from outsourcing. Any company that has even one employee is subject to numerous federal, state, and local employment-related rules and requirements. Most small- and medium-sized companies aren’t able to keep up with all the changes. Outsourcing can help you stay on top of these changes so you can navigate and comply.

Lack of flexibility

In the business world, things are constantly changing. Companies that are nimble and can take advantage of change increase their chances of coming out ahead. If you find that you can’t respond to change as quickly as you’d like, that’s a good sign that an outsourcing company can help.

To stay competitive, you need the right tools and strategic human resource management. If your company can’t access or keep up with the newest HR technology, you could fall behind. An outsourcing company generally provides advanced systems to help you handle your HR functions, giving you the benefit of tools that you might not be able to afford to purchase or lease for in-house use. An outsourcing provider may also provide tools to capture HR analytics with your HR data and HR metrics to help you optimize your company’s knowledge and so you can use it for strategic HR solutions that will help you grow.

Options for Outsourcing HR

HR outsourcing providers can provide different levels of service to a company. An outsourcing assessment of your company’s needs and budget can help you decide which would be best for you. Two popular options are professional employer organizations and administrative services organizations.

Professional employer organization (PEO)

A PEO provides a comprehensive HR outsourcing solution. It’s a good choice if you want a full-service HR solution. When you work with a PEO, your company and the PEO are in a co-employment relationship. That means the PEO is the employer of record for payroll tax purposes and handles specific employer-related responsibilities as described in the client agreement. Your company retains all control of business strategy and decisions regarding your employees.

Administrative Services Organization (ASO)

An ASO is a type of business process outsourcing. Unlike a PEO, an ASO does not become the employer of record. However, an ASO does help handle the day-to-day HR functions that you choose to outsource. When you outsource your HR functions to an ASO, that may be referred to as “managed services” to distinguish it from “shared services,” which centralizes HR functions in-house. An ASO can be a good choice if you want more flexibility about which functions to outsource, whether that's just outsourcing payroll processing or outsourcing the full range of HR functions. ASOs may also be a good choice for companies that are on a tight budget or don’t need some of the extra features that PEOs provide.

Your HR Outsourcing Solution

TriNet provides a wide range of HR outsourcing solutions to help companies with their human resources functions. As a PEO, we can provide a full-service HR outsourcing solution.

And for those looking for SaaS HR solutions, we offer HR Platform. You can automate HR administration, empower HR and deliver a better employee experience with our modern, all-in-one technology platform.

In addition, our HR Plus service is an add on to the HR Platform and provides an enhancement to your HR outsourcing needs in addition to the technology platform. The different tiers of HR Plus are based on the level of services you need.

Outsourcing is a big step. If you choose to work with us, we will guide you through the transition to a thoroughly modern HR solution. Start by calling us, booking a demo, or filling out our contact form to learn more about the many advantages of HR outsourcing.

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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