Outsourcing HR: What Are the Benefits?

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Small- and mid-sized businesses with limited personnel often find themselves overwhelmed by HR demands. If you feel your company is stretched thin managing critical areas of business, consider getting help. Many HR outsourcing services are specifically designed to streamline business functions, reduce expenses, and help companies meet their operational goals.

What Is HR Outsourcing?

Generally speaking, HR outsourcing involves the use of an experienced third-party provider to assist a business with specific HR functions. These functions may include solutions designed to help your business:
 

• Attract and develop talent
• Maintain legislative and regulatory compliance
• Administer benefits and payroll

In many cases, a relationship with the third-party provider can include access to a scalable HR technology platform, as well as guidance and support from a knowledgeable HR professional.

By shifting your team’s focus from administrative tasks to strategic efforts tied to the company’s mission, your team can make more comprehensive and lasting contributions with the help of HR outsourcing services.

Why Do Small Businesses Outsource HR?

With ever-mounting challenges and today’s economy, small businesses should consider all they can gain if they choose to outsource HR. According to a recent survey, the number one benefit for leaders who outsourced HR administration was having fewer mistakes, cited by 51% of respondents. Other benefits included increased productivity (41%), better analytics and reporting (35%), improved regulatory compliance (35%), and reduced costs (34%).1

There are numerous benefits to outsourcing HR, including:
 

• The Ability to Focus on Business Productivity. More than two in five leaders shared that they outsource to increase productivity.1 Instead of handling routine administrative tasks, employers and their HR teams can focus on more strategic business functions that offer greater potential rates of return.
• Access to an Enterprise-Class Solution. Small businesses may be able to enjoy similar benefits that are on offer from larger employers when they work with a Professional Employer Organization (PEO), which can help them save on costs and compete more effectively for great talent. In addition, more than one-third of the leaders said they receive better analytics and reporting from outsourcing HR.¹

Top 5 Benefits of Outsourcing HR

1. Fewer mistakes
2. Increased productivity
3. Better analytics and reporting
4. Improved regulatory compliance
5. Reduced costs

 

• Help With Compliance. Failure to comply with laws and regulations can lead to serious financial consequences. Outsourcing HR functions to a trusted provider may help business owners understand and comply with these laws and regulations. In fact, 35% of the leaders said they improved their ability to stay in regulatory compliance by outsourcing HR administration tasks and duties.¹
• More Effective Recruitment Efforts. According to the 2022 Paychex Pulse of HR Survey, “hiring, onboarding, and retention were identified by half of the respondents as the least effective HR activities in their organizations.” Outsourcing recruitment efforts to third-party providers offers a practical and cost-efficient method of improving a business’s recruitment strategies.
• Reduced Costs. HR administration can cost a business about $284,000 annually for a company with five to 500 employees, which can jump to over $10 million for larger employers.1 HR outsourcing, and PEOs in particular, could help small businesses with tight budgets.²
• Free Up Time and Resources. HR outsourcing may help businesses lower health costs, reduce HR expenses, process fewer workers’ compensation claims, reduce turnover, and help generate higher revenue growth. Almost seven in 10 leaders reported spending one whole week a month on HR-related tasks. So, outsourcing to a third-party provider could significantly free up time and resources.¹
• Gain Access to Expert Guidance. Today’s leading HR outsourcing providers also offer dedicated guidance from an HR professional. They can educate and guide you through the turbulent waters of laws, regulations, and employee-related matters.

All of these benefits can be achieved without the expense of additional staff while retaining the experience and expertise needed for a business to succeed. HR outsourcing also enables companies with minimal resources to use cutting-edge technology that could otherwise be too costly.

What HR Functions Can Be Outsourced?

An HR outsourcing provider can work with you and your team to provide support throughout the employment life cycle. Depending on the services you’re looking for, an HR outsourcing provider may offer support in the following areas:
 

• HR administration
• Payroll processing
• Employee benefits
• Recruiting and hiring
• HR compliance
• Employee performance management
• Workplace safety and risk management

What Does HR Administration Cost?

 

$233,896 is the average cost to a business with 5 to 500 employees

$10.7 Million is the average cost to a business with 250 to 500 employees

2023 Priorities for Business Leaders, Paychex

When Should You Consider Outsourcing HR?

While leveraging outsourced HR services at any point can be beneficial, how do you know when it’s time to get HR support for your small business? Here are some
tell-tale signs:
 

• Your HR Team’s Entire Focus Is Administrative. When HR staff spends most of their time on data input or forms processing, this may signal it’s time to look at outsourcing or upgrading to more robust HR systems.
• Employees Lack Access to Self Service. HR managers no longer need to conduct every aspect of benefits enrollment, updating employee information, retirement plan information, or employee training. Leading HR technologies can provide employees with self-service portals that help them complete many basic tasks, such as updating their mailing addresses or adjusting retirement plan contribution amounts.
• Your HR System Doesn’t Support Mobility. With many businesses now employing remote workforces, mobility for essential HR services such as employee time and attendance reporting and reporting for new hires is critical. Cloud-based solutions that support off-site access to the company are becoming the norm. For example, your HR technology may need an update if your employees can’t complete essential functions from their smartphones or tablets.
• HR Is Becoming a Cost Center. Ideally, your HR team should function as a critical strategic asset, not a liability. It may be time to ask yourself how external expertise or better technology can help.
• You Struggle to Meet Statutory and Regulatory Requirements. Your HR team needs to understand current federal, state, and local laws and regulations that may affect your business. Companies lacking in-house support in this area may want to outsource.

Find HR Support That Keeps Pace with Your Business

Running a business today means managing mounting labor and employment laws and regulations and demands from staff and team members who are stretched thin. That’s why HR outsourcing may be a great investment for your business this year. Help your business meet larger and more pressing long-term goals with access to scalable, cost-effective HR services and support.

Learn more at paychex.com/human-resources  

Author Bio

Darby Starnes is a Senior Manager of HR Services at Paychex. With over 25 years of experience, she is a passionate HR leader dedicated to helping others thrive.

¹ 2023 Priorities for Business Leaders, Paychex
This national survey was conducted with 450 business and HR leaders who employed from five to 500 employees from a broad cross-section of industries. From August 23 to September 1, 2022, the online interviews were conducted by Bredin, an independent market research company located in Boston, MA.
² For companies with 250 to 500 employees
Professional employer organization (PEO) services provided by Paychex Business Solutions, LLC (Florida employee leasing license GL7), Oasis Outsourcing, LLC (Florida employee leasing license GL42), and their affiliates, which are licensed or registered to provide PEO services where required by law.
 

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