HR Outsourcing Companies: What’s Right for Your Business?

Small and large businesses alike choose HR outsourcing companies and partners to help fulfill critical HR and business tasks. Here’s how and why.

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Many small business owners look to HR outsourcing companies and other partners to help them fulfill their business tasks. A 2021 Clutch¹ survey estimated that 90% of small businesses planned to outsource business functions in 2022, up from 80% the prior year. This suggests the majority of small companies find outsourcing services with a capable partner to be a good strategy.

However, outsourcing HR services or other areas of expertise is not a decision to take lightly. In this article, we’ll explore what to look for in a partner when considering HR outsourcing companies to perform specific tasks.

Choosing the right HR outsourcing company

There is no one-size-fits-all HR outsourcing service, as small businesses will have individual needs. An HR outsourcing company can fulfill 1 or more HR processes. Common tasks performed include payroll, benefits packages, retirement services, HR consulting, and other HR functions.

Some organizations take a slightly different route, partnering with a professional employer organization (PEO).

When deciding on the best HR outsourcing services for you, first, determine your situation. Then identify a company that offers the level of services you need to fill any existing voids in your organization.

Know your own company

A business should take time to examine its core competencies and consider what it wants to achieve. Next, it should conduct a thorough evaluation of internal strengths and weaknesses before making a final decision about outsourcing.

Tasks not specific to your company’s mission, especially where you lack specialization, are often good candidates for outsourcing. To help determine whether an outsourcing service is a feasible idea, consider the following factors.

Evaluate your needs

Tasks directly related to what you do are likely best kept in-house. However, other non-business-specific or generalized functions are often good candidates for outsourcing. Assess which of the following fall into which category:

  • Payroll processing and administration
  • Benefits administration and health insurance
  • Human resources consulting
  • Cybersecurity and risk management
  • Technology services
  • Employee training
  • Talent acquisition

This is just a partial list of the ways you can outsource HR and related tasks. There are several other business operations, function-specific solutions, and outsourcing services available to help. Today’s top HR outsourcing trends are paving the way for companies to save money while relieving staff of burdens.

Assess your in-house capabilities

If your internal HR team isn’t large enough to handle HR tasks in-house or you don’t have the capital to invest in necessary technologies, outsourcing is a smart strategy. It can increase your efficiency and productivity while offering a cost-effective solution. Questions to ask yourself include:

  • Are you understaffed or is your internal team overburdened?
  • Do your personnel lack expertise in specific HR areas?
  • Can you adequately protect your data and remain compliant?
  • Do you have the technology solutions needed to perform payroll services, benefits management, tax administration, and other HR functions?

Wherever you fall short, outsourcing 1 or more HR services may be a good idea.

Know your budget

Small business HR outsourcing is increasingly becoming common practice. Companies often lack the robust budgets they need to a) hire in-house HR professionals or b) possess the knowledge to handle specific tasks. Understanding what is affordable in-house vs. outsourcing, and what’s more likely to deliver the long-term ROI, is important to consider.

Ask for recommendations

Word-of-mouth recommendations are among the most reliable. Ask fellow entrepreneurs and other businesses if they would recommend a reliable HR outsourcing company. Good questions to ask them include how long they’ve worked with their outsourcing partner, what they like about them, and whether they’ve experienced any issues.

Evaluate the HR outsourcing companies

To find the right HR outsourcing company, the top obvious considerations are cost and quality of customer service. Let’s talk about some other important factors to consider.

What is the outsourcing company’s experience and expertise level?

If you seek HR outsourcing services or have other functional needs, ensure the company you choose is experienced and deemed an expert in their field. For instance, you don’t want to choose an HR solutions company without experience in employee benefits if you know you need assistance in that specific realm.

Does the company have a good reputation?

While your outsourcing partner isn’t a part of your company, they can impact your reputation if they’re not reliable. Choose from HR outsourcing providers with proven track records and low employee turnover rates. High turnover may be a red flag, suggesting employees aren’t happy in their jobs and may not offer top-notch service. Ultimately, if they quit, that could lead to significant disruption for your company.

Do they offer the right services?

Make certain the outsourcing service you choose is capable of performing the tasks with which you struggle. For example, before signing any HR solutions agreements, make sure the HR outsourcing company is fully prepared to fill all your gaps, not just 1 or 2, regardless of experience. Also, consider whether their services can scale as you grow. If it looks like you’ll outpace them, you’re likely better off choosing another HR functions company.

Do they practice good cybersecurity and compliance?

Companies today cannot afford to be non-compliant with industry-specific and data security laws. A single data breach can ruin a company. So when outsourcing HR, it’s important to make sure the HR support and technology comply with all official data and employment laws.

Review the contract and pricing structure

Before signing any agreement, review the contract line by line and thoroughly understand your outsourcing partner’s price structure. This way, you can avoid surprises and not accidentally exceed your budget. Outsourcing should save you money, not end up creating debt.

Many small businesses find outsourcing to be a smart decision

Deciding whether to outsource specific tasks to a 3rd party is a big decision. It’s often a good solution, but you’ll want to make sure it’s the right direction for you. For ongoing tips, tools, and resources for exceptional HR and business management, visit Workest daily.

1 Benefits of Outsourcing for Small Businesses, Clutch

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