Few resources are more important to your company than your employees. When you properly tend to your employees, you improve the daily experience of the people you count on to execute your day-to-day business tasks.
As necessary as proper employee management is, not every company has the capacity (or desire) to handle it all in-house. That’s why many business owners outsource HR. In this guide to HR outsourcing, we’ll walk you through situations in which HR outsourcing may help, the many kinds of HR outsourcing functions that third-party HR companies offer, and the pros and cons of outsourcing HR.
What is HR outsourcing?
HR outsourcing is an arrangement through which a business owner hires a third-party company to oversee some or all of the business’s HR functions. You can outsource your company’s payroll processing, employee benefits administration, talent acquisition, or all of the above and more.
Types of HR outsourcing
If you plan to outsource your HR, you have two main options – HR outsourcing (HRO) or a PEO (personal employer organization) – to handle your HR tasks. The services each option provides overlap heavily; it is the way they are legally structured that differs.
- A PEO uses a co-employment model, which means your employees will appear on the books of your PEO provider for legal and tax purposes. However, you still have control over your employees in terms of what they are working on, whether they can be promoted or fired, etc. A PEO typically handles all of your HR tasks, though some providers allow you to pick and choose the specific services you want them to take on. With this model, the PEO bears the full legal and financial weight of all your company’s employment practices.
- An HRO does not use the co-employer model, which means your employees will remain on your business’s books and you bear the legal responsibility for their actions. There is a bit more flexibility in the services an HRO handles for you – you can outsource one or two tasks, if that’s all you need, or all of them.
Who is HR outsourcing for?
In theory, HR outsourcing is for any business that needs it. You might need HR outsourcing for your company if you face the following challenges with handling your HR tasks in-house:
- Disproportionate amount of time spent on HR tasks compared to other business needs
- Prior or predicted lawsuits or liability exposure
- Lack of money to hire new employees or pay and cover benefits for in-house HR staff
- HR functions spread among employees from other departments
- Not enough in-house HR staff to properly balance hiring tasks with employee management
What functions does HR outsourcing provide?
If you think your business might benefit from HR outsourcing, use the below list of common HR outsourcing functions to determine how your needs overlap with what third-party HR professionals offer. (These are just the most common HR outsourcing functions – some providers offer a host of additional services.)
Payroll processing
Payroll processing may well be the most commonly outsourced HR function. Calculating all the deductions to withhold from your employees’ paychecks yourself can quickly get confusing and complicated, and you certainly don’t want to make any mistakes in this area. In addition to benefit premiums, payroll deductions include wage garnishments and taxes, so errors can lead to trouble with courts and the IRS. This is why many companies choose to pass off the task to payroll professionals rather than handle it themselves.
Employee benefits administration
A strong employee benefits package – one with health insurance, a retirement plan and more – can keep your current employees happy and give your company a competitive advantage in recruiting. That doesn’t mean administering benefits is easy. Many companies outsource their employee benefits administration to relieve themselves of the work that accompanies researching plans and complying with benefits regulations.
Employment law compliance
As a business owner, you’ll need to comply with more rules than just benefits and tax laws. You also have to follow equal employment opportunity (EEO) laws and workers’ compensation regulations. Hiring HR compliance experts can keep you in line with all EEO and workers’ comp guidelines on a day-by-day basis with little to no extra work on your end.
Employee relations
If you lack the time to tend to employee-manager conflicts and create company policies, you may need to outsource your employee relations tasks to a third-party HR team. A dedicated outside HR department can mediate conflicts and modify long-standing company policies to reflect employee concerns. As part of employee relations, your HR outsourcing company can even help you create your employee handbook.
Talent acquisition
When you’re eager to find that perfect new employee, you might not be as thrilled about the prospect of working through stacks of applications and setting up interviews. To take this workload off your plate, you can outsource HR professionals to oversee your talent acquisition process.
Performance management
Annual reviews, salary negotiations and other performance-related conversations are an inescapable part of running a business. While you’ll likely want your own team to lead these conversations, you may not have the time or expertise to prepare for or work through these moments. If that’s the case, outsource your performance management tasks to a third-party company. Your HR firm of choice can also help you determine your performance goals and disciplinary routes for poor performance.
Background screening and reference checks
When hiring employees, it is always good practice to conduct background screenings and reference checks. This helps give you a clear picture of the person you are welcoming into your business. However, both these processes – especially the phone calls often involved with reference checks – can be quite time-consuming. That’s why so many companies rely on third parties to conduct their background and reference checks. [Read related article: 32 Reference Check Questions You Should Ask]
Risk management
HR teams don’t just oversee anti-discrimination efforts and employee relations. They minimize the risks of worst-case scenarios in these and other important employee management matters. To avoid workplace conflicts or even lawsuits, you can outsource your risk management efforts to HR experts so your team stays happy and you have less work that isn’t strictly business-related.
Drug testing
Although HR experts have debated the merit of drug testing in recent years, you can still hire an HR consulting or outsourcing firm to handle this task for you. The provider you choose will walk your employees through the process, send all samples to a laboratory for testing and report the results back to you. If the results call for disciplinary action or termination, you can task your HR consulting firm to carry out these actions as well.
Employee counseling
Perhaps the most recent addition to the services that comprise HR, employee counseling is the practice of helping your staff access mental health services. Employee assistance programs (EAPs) are common routes for connecting your employees with short-term counseling, and third-party HR teams can manage these programs on your behalf. These programs can promote your employees’ attendance, productivity and morale.
Should You Outsource HR?[BusinessNewsDaily]
