Businesses of all sizes have to deal with Human Resources (HR) related activities such as recruiting workers, organizing payroll, and dealing with employee disputes.
In small companies, the owner or a non-HR employee often takes on these tasks. Larger companies and organizations often have employees designated for handling HR.
In either case, companies can save time and/or money by choosing to outsource their HR operations. If you’re looking to outsource HR, expect to pay between $35 and $2,500 each month. The exact costs depend on the size of your company and the services you’re looking for.
Why Consider Outsourcing HR?
If you’re a small business owner, you or some of your employees are probably spending time managing HR tasks such as payroll and recruiting. Once you reach a certain number of employees, these tasks can take up a lot of time, especially if you’re also trying to do your bookkeeping.
By outsourcing your HR tasks, you and your employees can dedicate more time to income-producing activities such as sales, production, and marketing.
Also, outsourcing HR can help you save money. Rather than paying an employee $30/hour to figure out payroll and benefits, you can pay a monthly fee to an HR service.
If you’re a large company, you probably have an internal HR employee. If you decide to outsource HR, you may have to pay less than you would if you paid a salaried HR professional.
Studies have shown that outsourcing HR reduces employee turnover, decreases administrative costs per employee, and corresponds with increased company growth (Source).
Finally, by outsourcing HR, you can utilize the expertise and power of HR companies. This not only saves you headaches but also protects you from legal disputes and helps you provide better and less expensive employee benefits.
What Services Do HR Outsourcing Companies Provide?
These companies can handle one or all of your HR needs. Some companies provide a set list of services while others offer customizable packages.
HR outsourcing companies can:
- Recruit, interview, vet, and hire employees
- Administer benefits, retirement, and workers comp
- Deal with employee disputes and lawsuits
- Develop and clarify company culture
- Oversee payroll
Types of HR Outsourcing
Human resources outsourcing can be divided into three main categories: professional employer organization (PEO), general HR outsourcing, and specific HR outsourcing.
Professional Employer Organization
Businesses can partner with these organizations, also known as employee leasing companies, to hand over some of their responsibilities. When a business and a PEO sign a contract, they agree to allocate and share employer responsibilities.
The PEO usually handles aspects such as payroll, taxes, and benefits, while the business handles day-to-day operations. PEOs can also help businesses save on benefit expenses.
It’s possible for an internal HR manager to work with a PEO. By doing this, the PEO can handle payroll and benefits, while the internal manager can focus on company culture and employee disputes.
General HR Outsourcing
With general HR outsourcing, companies handle multiple HR responsibilities including payroll, hiring, and managing disputes. The specific benefits offered vary between company and plan, so make sure to ask for details about what’s included in the plan.
Specific HR Outsourcing
Companies involved with specific HR outsourcing only provide one type of service. For example, some companies handle payroll and others help with recruiting.
It’s possible to work with multiple specific HR outsourcing companies at the same time. However, it might be more cost-effective to work with a general HR outsourcing company.
Factors that Affect the Cost of Outsourcing HR
As you’ve read above, the cost of outsourcing HR depends on a variety of factors.
The larger your company, the more you’re going to pay. Some HR companies charge a flat fee per employee while others charge a percentage of each employee’s income.
The Number of Benefits You Recieve
As mentioned above, it’s possible to outsource all of your HR activities or only specific tasks. The more you outsource, the more you’ll pay.
Also, some general outsourcing companies offer more benefits than others. For example, some companies include drug testing and background checks in the hiring process while others do not.
How and What the Company Charges
As mentioned before, some companies charge a flat fee per employee while others charge a percentage of each employee’s salary. Make sure you know how you will be charged.
Flat fees range from $35 to $220 per employee per month, depending on the features that the company offers.
Companies typically charge 3-8% of an employee’s salary. And obviously the higher your employees’ salaries, the more you’ll have to pay for HR services.
Choosing an Outsourcing Company
Just as there are lots of commercial cleaning companies, there are lots of companies offer HR outsourcing. Some of these companies cater to a specifically sized company, some focus on a certain industry, and others focus on providing a particular service.
When choosing an outsourcing company, it’s a good idea to look for a company that regularly works with businesses your size. Not only will this ensure they are capable of meeting your needs, but it can also help save you money.
For example, companies that provide HR services to larger companies might charge a flat annual fee rather than charging per employee.
Some popular HR outsourcing companies include Accenture HR Services, Aon Consulting, ADP, Gevity, and Hewitt Associates.
Drawbacks of Outsourcing HR
Although outsourcing HR can help your company time and money, there are some drawbacks to consider.
While it’s likely obvious, there are fewer face-to-face interactions when you outsource. The outsourcing organization might not understand your company culture and dynamics, which can lead to miscommunication and disagreements.
Deciding on an HR Outsourcing Company
If you decide to outsource all or one aspect of your company’s HR services, remember that costs will vary depending on a number of factors. These include the size of your company, the services you require, and the outsourcing company you choose.
You’ll pay at least $35 a month per employee, but you’ll likely pay more like $50 to $100 per month per employee. Before you decide on an outsourcing company, make sure to compare costs with completing HR in-house.