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What Is HR Outsourcing?

HR outsourcing (HRO) is the process of transferring one or more of the HR activities to an external, third-party provider.

When a business comes to a decision to outsource an HR function or activity, they are allowing HR companies to make decisions and deliver on set outcomes associated with that specific activity.

HR outsourcing companies obtain work previously done by employees within the client company.

There are many factors an organization should consider prior to outsourcing human resources (HR) and these may vary wildly, depending on the organization's goals, brand & corporate culture, size, location and more.

Since people are the most important asset of any organization, the said organization may choose to outsource anywhere between 1% of 100% of its functions and job positions. Generally, HR functions which are not critical are routinely outsourced.

HR outsourcing internet concept
Businesses that invest in candidate experience boost the quality of new hires by 70%

What Do HR Outsourcing Companies Specialize In?

Outsourcing human resources is becoming a growing trend and many large firms are getting their HR activities supplied by third-party providers.

Typical areas of HR that are commonly outsourced include, but are not limited to:

  • Recruitment and/or temporary staffing
  • Payroll services/administration
  • Screenings, psychometric testing, interviews, references checking, backgrounds
  • Onboarding and training
  • Creating or updating employee manuals
  • Relocation processes
  • HR Auditing
  • Employee assistant services
  • And more

When it comes to developing more complex workforce strategies and managing the employees’ life cycle within a company, most organizations keep it in-house.

What Is The Difference Between In-House HR And Human Resources Outsourcing?

Before we weigh in on the benefits of outsourcing human resources, we should first determine what makes it different from your typical in-house team.

With in-house HR, you’ll certainly maintain a greater control over the major aspect of your organization and your employees. This can be beneficial to staying on top of any issues that may emerge and negatively affect your workplace.

This way, your employees have a direct link to you and/or your HR team, which allows you to stay engaged with them. Having face-to-face conversations with your employees gives you a firsthand insight into their mindset.

On the other hand, when you hire a company to manage HR duties, you get the fresh perspective, suggestions and recommendations that can help you scale your business.

HR outsourcing companies have both the general (and often certified) HR knowledge and specialized expertise to make sure you’re managing your employees correctly. This can be particularly useful if you operate in an area where it’s challenging to find qualified HR talent.

If you’re considering human resources outsourcing vendor, you shouldn’t dive in head first. HR is multifaceted, so you don’t have to hire a full team of HR experts. HR companies can help you fill possible knowledge gaps within your own in-house team.

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6 Reasons To Hire HR Outsourcing Companies

HR outsourcing is ideal for organizations that:

  • Are small to mid-size (up to 100 employees) and for whom it can be costly to hire a senior-level in-house HR team
  • Want to focus on more essential/strategic activities to scale their business
  • Want to effortlessly keep up with the latest HR trends and changing laws (hiring, taxes, etc.)

Besides these, there are many additional benefits that businesses worldwide utilize when it comes to hiring, recruiting and staffing. Here are several additional crucial perks to take into consideration.

1. Free Up Your Time

Whether you already have a dedicated HR team or not, with HR outsourcing companies’ help you’ll have access to a highly professional team of experts who can offer insight whenever it’s needed and find solutions as potential problems emerge.

The main advantage of HR outsourcing is that it allows your employees to focus on core operations, business growth and/or long-term goals, imperative for your company.

2. Obtain Expert Perspective

With HR outsourcing you’ll not only improve the work environment for your staff but also receive a comprehensive review of your current HR policies and practices and with it, guidance on which ones need to be updated and/or revised in order to be in compliance with federal, state and/or local laws.

3. Improve Employee Relations And Streamlines Hiring Orientation

Organizations that invest heavily into quality candidate experience boost quality of new hires by a whopping 70%!

Maintaining good employee relations is one of the core HR functions important for any business, however, it can be very time-consuming. HR outsourcing services will be available for your employees, focusing on relations 24/7.

HRO will also be able to offer efficient and professional new hire orientation.

4. Acquire Quality Onboarding, Training And Professional Development

Of all employees who quit shortly after being hired, 23% say that if they had received clear direction about their roles and duties, their decision might have been different.

Employee training (after onboarding) should be done routinely, both for new hires, as well as for current, or even veteran employees who desire to grow personally and professionally. HR outsourcing covers all of these bases, from supervisory training to performance management and progress reports.

5. Handle Administration For Time-Consuming Tasks

Managing PTOs, unemployment claims and other mundane, everyday HR tasks is what eats most of the time. This can be extremely stressful if you or your in-house team isn’t familiar with the proper forms or latest legal protocol.

An HRO will help you get back on track, keep you up to speed on the procedures for types of claims or repetitive administrative work, saving you both time, money and energy to focus on running your business.

How Much Do HR Outsourcing Services Cost?

For most small to mid-size business owners, the price of human resource outsourcing is going to play a major role in deciding which HR company to choose.

Putting an exact price on HR outsourcing services can be challenging as most HR outsourcing companies don’t offer project-based or hourly rates per se.

However, since HR outsourcing services are highly customizable (based on client needs) it is important to highlight that those outsourcing costs can vary anywhere between $40 to $1,500 per month (based on the number of employees, as well as the selected specific service but on average it’s around $150 per month, per employee).

Charges can range from 4% to 10% of each employee’s pretax monthly salary, which ultimately means that the total cost varies on your size.

Keep in mind that there are numerous factors that can impact the overall cost of HR outsourcing such as the company’s:

  • Size
  • Location
  • Services you choose

In some cases, HR services can be outsourced for a flat monthly fee, although some companies also charge the initial start-up or annual fee in addition to the monthly rate you pay.

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How To Choose The Best HR Outsourcing Services

Here are 5 tips you should take into consideration when selecting your future HR outsourcing partner:

1. Level of service

You need to make sure your HR outsourcing provider offers a worry-free experience for their clients. Depending on your unique business needs, you should find out about their service model

2. Cost

The price plays a big role in deciding which provider you will select. After evaluating factors like your budget, the complexity of your situation and the type of service you need, you should talk with the vendors about the custom pricing structure.

That way, you avoid paying for the services you don’t actually need and focus solely on needed solutions inherent to your business.

3. Reputation

As mentioned, your people are your business’s greatest asset, so you’ll want to make sure your partner has a good reputation or, in other words, proven track record of establishing quality employee relations and setting up your company for success.

Ask prospective HR outsourcing companies for references from clients in the same (or equivalent) industry as you.

4. Experience

Experience goes hand in hand with reputation, yet since HR issues can be complex and their consequences may have a negative impact, it’s imperative that your provider has the necessary experience to keep you in compliance with workplace rules and regulations.

Additionally, you may want to check whether HR outsourcing staff is licensed and certified by major industry organizations.

5. Cultural Fit

Bringing an outside player to handle and lead your HR functions will most definitely impact your workplace culture. To avoid any potential, disconnect with your staff, look for HR companies that respect and build upon the established culture you’ve nurtured so far.

15 Questions To Ask HR Outsourcing Companies Before You Hire One

To make sure that a potential HR outsourcing company is fully qualified and suits your needs, make sure to ask the following questions:

  1. Will we be assigned one professional or a team for our HR needs and can we meet them beforehand?
  2. What is the experience and educational background of the staff that would be working with us?
  3. Do you offer on-site or virtual consulting?
  4. Is there a hotline available for urgent needs?
  5. How frequently would you provide reports for us?
  6. What size company do you typically support and have you worked with clients in our industry before?
  7. What services do you support - recruiting, benefits, administration, etc.?
  8. What additional support services do you provide, and what are the costs?
  9. How does each specific service work?
  10. How do you stay current on compliance issues, and how would you communicate those to us?
  11. How would you handle our partnership if we’re located out of the area?
  12. What administrative support would you require from us?
  13. What technology do you use for outsourcing, and would we have access to that?
  14. How long does the implementation typically take from the time the agreement is signed?
  15. Do you offer performance guarantees and what do they cover?

Takeaways On HR Outsourcing Companies

An HR outsourcing company manages a wide range of human resource functions including recruiting, training, payroll processing and more.

Advantages of partnering with human resourcing outsourcing providers are numerous but the ones you should especially consider are:

  • Time-saving
  • Expert perspective
  • Employee handbook optimization
  • Enhanced employee relations
  • Quality training and professional development
  • Streamlined administration

However, before you choose to partner with one, you should review your prospective HR outsourcing services, as well as their:

  • Level of expertise
  • Pricing
  • Reputation
  • Experience
  • Cultural fit

Best of luck!

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