If you’re looking to take your HR functions to the next level, you may want to consider outsourcing. Check out our guide on how to hire an HR outsourcing company that empowers you and your employees.
Human Resources has been a department or function of business since the beginning of the Industrial Revolution. Ensuring that all basic needs of your staffing are being met is important for legal and regulatory reasons as well as employee satisfaction.
However, HR is a constantly evolving skill and area of expertise. As diversity, inclusion, and open and honest transparency are becoming priorities for employees, businesses are looking to outside experts to ensure that their employees are happy and that their business continues to thrive. As a result, now it is much more common to outsource HR needs to experts. This article will explore how to hire a Human Resource company that fits your business needs.
What Is HR Outsourcing?
Human Resources Outsourcing is when a company decides to hire an outside company to complete some or all the functions of what a traditional HR representative would do for the company. There are many different forms of outsourcing including using external software to track payroll benefits to using a recruiter to find the perfect candidate for the role you need to fill. Similar to outsourcing any service for your company, there are many things to consider before making the right choice.
What HR Functions Can Be Outsourced?
With the advent of technology, many different human resources functions can be outsourced to service providers. What is great about technology and efficient communication is that your business will not lose the “human touch” to human resources no matter which services (or even if all) you chose to outsource. Below we share the general functions that you can outsource to an agency:
Benefits Administration
Benefits Administration is a functional area that focuses on the perks that an employer provides. This includes insurance, retirement contributions, paid time off, and parental leave.
HR Management
Human resource management focuses on managing the people at a particular workplace. This includes managing relationships between employees, ensuring staff feels comfortable in their work environment, and standard training. The focus of this functional area is to make sure that staff can focus on their work objectives and goals.
This department is typically in charge of training and educational materials tools (e.g., training on sexual harassment in the workplace), mediating, legal compliance, and overseeing talent management and recruitment. It is commonly referred to as human capital management.
Payroll Administration
This functional area focuses on ensuring staff is getting paid by the employer on time and consistently. It is a separate functional area from HR management, as it is a major expense for employers and needs additional oversight to ensure DOL regulations are met.
There is some debate on whether payroll falls into HR or Finance. Commonly, it is an area that has cross-over for most companies but traditionally falls in HR.
Regulatory/Risk Management
Risk and Regulatory management involve looking out for potential risks to your business and figuring out the best solutions to handle them. This could be employee dissatisfaction, HR-related laws (e.g., FMLA), or issues between employees.
Proper HR risk management does not just focus on entry-level employees. Everyone from part-time employees to c-level managers is considered to help HR measure risks and potentially stop problems before they start.
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What Types Of Companies Should Outsource HR?
Any industry, size, private, or public institution can outsource its HR needs. Who “should” outsource, however, depends on the needs and budget of the business. Typically, large companies can afford to have a large HR department and potentially house their own software.
However, mid to small-sized businesses typically outsource some part of their HR needs to an agency or software. For example, there are many laws and regulations that cover HR within a company, on the state and federal levels. Depending on the size of your company, you may only have one HR staff member and their expertise may not lie in compliance. Outsourcing HR can support this.
Most businesses, regardless of size or industry, outsource some part of their HR process. We suggest researching where your risks and weak points are in your HR process and targeting that as the area where you will outsource your HR needs.
Should I Hire An ASO, PEO, Or HRO?
If you need HR support with a few basic administrative tasks, like payroll and benefits management, an HRO or ASO might be your best option. If you would rather have an expert company shoulder the full legal and financial responsibilities of employing your staff members, hire a PEO.
How Is HRO Different From PEO?
While there are different functional areas that can be outsourced, there are generally three different types of HR outsourcing: HRO, PEO, and ASO. Here is a rundown of the differences and how you can choose which options are best for you:
PROFESSIONAL EMPLOYER ORGANIZATION (PEO)
A PEO acts as a co-employer. The organization acts as an employee on record, meaning that they pay employees on behalf of another company (e.g. your company). As a result, the PEO takes all responsibilities that come with payroll, including W-2s, tax liabilities, worker’s compensation, and more. PEOs provide the following benefits administrative services:
- Negotiations with carriers
- Employee enrollment
- Legal notifications
- COBRA administration
By using a PEO, you are working within the co-employment model, where the PEO acts as the employer on record. As a business, you still control standards and business decisions, but the PEO will have the responsibility of staying compliant with IRS and DOL.
ADMINISTRATIVE SERVICES ORGANIZATIONS (ASO)
ASO is not a co-employer of a business’s employees. Administrative services organizations function similarly to PEOs, in that they can act as an all-in-one service provider, but they generally do not become the employer of record. As a result, while they do not offer traditional PEO benefits, they will assist you in securing additional coverage like workers’ compensation should you need it.
Businesses can select the responsibilities of an ASO. These responsibilities can include payroll, benefits management, and other administrative functions.
HUMAN RESOURCES OUTSOURCING (HRO)
HRO is not a co-employer of a business’s employees. Like, ASO, this usually makes their services more flexible. Instead, an HRO fulfills specific roles for businesses, typically the “human” aspects of HR vs administrative tasks like benefits.
Businesses can pick and choose the responsibilities of an HRO. The opposite to the services of an ASO, HROs can provide recruitment and training. If you are having an issue with a particular employee, the HRO would be able to come in on-call and support with coaching and providing guidance to the employee
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Positives Of PEOs |
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IT IS ALL IN ONE PEO service providers can manage and maintain as many or as few human resources functions as you need, including HR administration, payroll processing, workers’ compensation, employee benefits management, risk and compliance management, or training and development. Also, PEO’s typically work with a lot of clients, so their expertise is unlimited. |
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YOUR COMPANY CAN MITIGATE RISK PEOs are experts in legal compliance for your state and industry, so they can reduce your company’s potential for lawsuits. Although many PEOs come with online portals that employers and employees can use to easily access their benefits and HR self-service, the best companies also offer mobile apps and one-on-one customer service. The best PEOs are accredited by the Employer Services Assurance Corporation (ESAC) and the Internal Revenue Service (IRS). |
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Negatives Of PEOs There are a few downsides to consider when you are thinking about employing a PEO service to handle your company’s HR tasks. |
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OUTSIDE INFLUENCE Since a PEO acts as part of the team, they can have considerable influence on your company culture. While this is not inherently negative, this can be a disadvantage for employers that want to maintain strong control over their organization’s culture. |
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PERCEIVED LACK OF SEC When hiring any outside agency or freelancer, there is always a security risk. However, part of the reason why you may hire an HR agency is to mitigate the risks of not having an HR expert handle important staffing needs within your organization. Knowing this, most PEOs use high-security measures with very secure communication protocols and databases. If hiring a PEO, we suggest focusing on a quality, reputable company versus a “cheaper” one for this reason. |
Why You Should Hire An HR Outsourcing Company
You may have a small HR team or even no one dedicated to HR tasks. So, by hiring an agency, you are armed with the necessary skills to complete required human resource programming.
One common complaint from staff is that they do not feel supported enough in their professional growth, or do not feel adequately trained for their job. A great reason to outsource your HR needs would allow you and managers the time to focus on professional growth and training for staff so that the work culture is overall more positive.
Here are some other reasons:
- Access to HR expertise.
- Support with compliance to match necessary regulations.
- Faster response time to employees on their needs, such as benefits enrollment and payroll.
There are also typically technological benefits. For example, using a service provider that provides and maintains software (e.g., ADP), will ensure that any HR functions between employees and the company are quickly and efficiently dealt with.
PRO TIP
If you are a company just starting out, here are some things to consider:
KNOW THAT YOU DO NOT KNOW IT ALL
A business enters the world of HR as soon as it hires its first employee. There is no way that you would be able to know or understand everything as it relates to HR. However, not knowing about a particular regulation or requirement is never a defense against violating it. By hiring a PEO or HRO (most likely an HRO in this case), will save you a headache and keep you compliant.
UNDERSTAND THE BASICS OF HR
While you will end up outsourcing your HR needs, it is still your responsibility to ensure all functions are met. Have a basic understanding of payroll, recruitment standards, management of benefits and PTO, and protocols for employment terminations.
HUMAN RESOURCES NEVER ENDS
As long as your company is in business, you will need the function of HR. Because HR is dealing with humans and human nature, it evolves over time. Lean into your HRO or PEO for new regulations and best practices and stay on top of it yourself.
Hiring An HR Outsourcing Company
Here are some tips to consider once you get to the contract phase with an HR outsourcing company:
Scope Of Services
This would include which services from the company you need. If you chose a PEO, this would be all-encompassing, but if you choose an ASO or HRO, the services expected would be more specific.
Cost
Knowing your budget will help you narrow down which type of agency you use, as well as the functions they provide. Evaluate the payment frequencies, project scope, and overall service costs to find prices that realistically fall within your bandwidth.
Service-Level Fundamentals
As part of the contract, delineate the protocol of communication, software used, contacts, timeline, and any steps that you want the agency to follow or use while working with you as a client.
Exit Plans
If you are not satisfied with the services of the agency you choose, make sure that you and the company have a written plan of how the relationship would end, so you do not incur any additional cost or risk.
How Much Does It Cost To Hire An HR Outsourcing Company?
As with any service provider, the cost of hiring a third party for their services varies. For HR outsourcing companies, the cost varies on the HR service and the number of employees. Here we break it down by PEO, ASO, and HRO.
- PROFESSIONAL EMPLOYER ORGANIZATION (PEO)
The costs to hire a PEO range from 2% to 12% of payroll or $500-$2000 PEPM (per-employee-per-month) annually.
- ADMINISTRATIVE SERVICES ORGANIZATIONS (ASO)
The cost of hiring an ASO ranges between $600 to $1,800 per employee annually. They usually charge a flat rate per employee and per service used. Because of this, it can be easier to project and budget the cost of an ASO.
- HUMAN RESOURCES OUTSOURCING (HRO)
HROs range of cost is considerable. HRO’s provide a variety of services to their clients, which means their packages and frequency also range. As a result, we recommend doing specific research on the type of HRO you are looking to hire.
How To Find An HR Outsourcing Company
UpCity has this taken care of for you. We have curated a list of agencies that will fit your needs. If you are looking for an award-winning firm, you can also find them here.
Of course, you can also begin with looking at HR trade organizations, like the Society for Human Resource Management (SHRM) as well. And again, this method is like using UpCity in that you can compare locations, various specializations, see previous work, and more.
Likewise, take some time to read reviews across many different locations on the web to get a feel for what working with these partners is like and if they might be a good fit with your organization.
And then there’s good old-fashioned word-of-mouth. Reach out to your network and ask who they have used for their development needs in the past. This is where you will likely get the most candid responses, which is important when considering an investment of this magnitude.
Skills To Look For In An HR Outsourcing Company
The type of skills you look for in your service provider depends on the type of HR freelancer you choose and the functions you are looking to fill. However, here are some key take-aways:
How To Find An HR Outsourcing Company
UpCity has this taken care of for you. We have curated a list of agencies that will fit your needs. If you are looking for an award-winning firm, you can also find them here.
Of course, you can also begin with looking at HR trade organizations, like the Society for Human Resource Management (SHRM) as well. And again, this method is like using UpCity in that you can compare locations, various specializations, see previous work, and more.
Likewise, take some time to read reviews across many different locations on the web to get a feel for what working with these partners is like and if they might be a good fit with your organization.
And then there’s good old-fashioned word-of-mouth. Reach out to your network and ask who they have used for their development needs in the past. This is where you will likely get the most candid responses, which is important when considering an investment of this magnitude.
Skills To Look For In An HR Outsourcing Company
The type of skills you look for in your service provider depends on the type of HR freelancer you choose and the functions you are looking to fill. However, here are some key take-aways:
COMPLIANCE-BASED NEEDS
When looking at this type of need, ensure that there are lawyers on staff and that they have a catalog of resources on federal and state HR law.
RECRUITMENT
When looking at the company’s website, how engaging is it? Is it somewhere you would go if you were looking for a job? If not, it is unlikely that the type of recruit you are looking for would go there either.
TRAINING
When looking at companies that provide training, ensure that they have staff with a background in education. Look through their website and see if it is user-friendly. If not, it is unlikely the training they provide is up-to-date or useful.
CREDENTIALS
PEO’s typically have accreditation from the IRS or ESAC but ensure that the company you choose is part of associations (like SHRM) or has accreditation through them as well.
If, however, you choose a PEO for your HR needs, you would be looking for a company that can do it all, including HR administration, payroll processing, workers’ compensation, employee benefits management, risk and compliance management, or training and development. They should also be able to do it with ease and transparent communication. Look at what software they use to track employees and communication. As they will function as co-employer, you need to be sure that they understand your company culture and standards.
Post-Hiring Expectations
If you have already decided to hire an HR outsourcing company, you can expect them to gather information, identify key opportunities, and use the information collected to build out the deliverables.
After signing with an agency, you can expect:
Conversations around business goals and objectives
Conducting a site audit of current HR policies and SOPs, to identify content gaps and technical opportunities
Establishing a communication protocol that instills collaboration and consistency
Follow the project management model established in the project management proposal
Regular reports on successes and opportunities for change or growth
Do you have any questions about hiring the best HR outsourcing team for your business? Check out our picks for the top Human Resources firms in the United States and in Canada for further information.