Why Small Businesses Outsource HR Functions

Human resources outsourcing is businesses hire companies to manage personnel functions.  Including the management of health benefits plans, retirement programs, and workers’ compensation insurance plan.  Additionally, it includes hiring, training, and expertise that is legal.

Smaller firms hire them to administer payroll, pay employment taxes, and manage risk.  The size of a company that uses HR outsourcing is 19 employees. The outsourcing firm pools tens of thousands of businesses together.  The economy of scale lowers the price of these HR services.  The recession increased the rate of the type of outsourcing. U.S. HR outsourcing businesses create $136 billion to $156 billion in earnings.  They serve in 156,000 to 180,000 businesses that employed from 2.7 million to 3.4 million people.


HR outsourcing reduces the fixed cost of handling workers.  These resources firms are more effective than hiring new workers.  Infrastructure and talent are in place.  Small businesses save money and time by HR firms that are hiring.

That is a great benefit to small businesses.  They can provide a larger range of the subsequent benefits.

Health insurance options.  These include Health Maintenance Organizations, Preferred Provider Organization, and Health Savings Accounts.

Dental, vision, and health insurance programs.

401(k), retirement plans and credit unions.

Voluntary benefits, for example, cancer, traveling, and long-term disability plans.

Small businesses are more likely to outsource other human resource purposes.  These include payroll administration and recruiting.  Everything is outsourced by a few of these.  They keep the HR staff to communicate with workers in core business areas.

A 2012 research found that businesses that outsourced with peocanada.com/our-solutions/ grew 7-9 percent quicker than firms that didn’t.  But that may also be because businesses are likely to want HR outsourcing.  They also had 10-14 percent worker turnover and were 50 percent less likely to venture out of business.  Their administrative costs were $450 lower per worker.

One study demonstrated that companies saved from 24-32 percent the price of selecting the HR employees in house.  Their HR funding cuts in four years by 40%.  It combined outsourcing to lower departmental costs with different approaches.  A 2011 report showed 32 percent savings from HR outsourcing.

Companies that expand overseas style for HR firms with international expertise.  Many are U.S.-based, such as Accenture, Adecco, IBM Global Business Services, and Hewitt.  A good company is PEO Canada.


The most important disadvantage is poor internal communication.  The company that is outsourcing does not have a fantastic sense of their organization’s culture.  If it’s off-campus, employees can not just drop into the HR office.  Because of this, they may feel disenfranchised. 

Human resource departments facilitate organizational learning.  They supply a thread that supports identity.  They’re more inclined to talk about knowledge when workers feel like they are an essential part of the entire world.  Organizations must adapt to changes in today’s technology-oriented business world.  Outsourcing human resources functions could interfere with organizational learning. 

Employees may start to mistrust administration.  Departments may wonder if they will probably be outsourced.

If employees enjoyed the older HR department, they’d resent the new firm.  But if they did not like the department, they might transfer those feelings into the new firm.

A poorly-run outsourcing firm could create disasters.  It might accidentally leak sensitive company information.  It may not deliver services.  Worse of all, it might go bankrupt and leave the client without any HR services.

A dishonest firm could betray sensitive information.  Human resources departments have secrets regarding strategies and the organization’s personnel.  If the company has clients who are competitors, it may use the information to acquire more business. 

If an outsourcing firm became overly powerful, it could hold the customer hostage.  It may require a fee during contract negotiations.  This risk increases if the company is sold.  The owners might demand a return to pay their acquisition costs.

Before Outsourcing

When studying HR consultants, you will discover ones that offer benefits brokerage services, consulting, optimization, and renewal direction, in addition to something which will take full possession of your HR management.  In the first case, you’re signing on with a seasoned consultant who will help you design and also receive favorable pricing on your benefits; at the second instance, you are essentially taking on a”spouse” who’ll take over day-to-day responsibilities for your HR arm of your company.

Before outsourcing your HR, you need to balance what you can afford with what your company needs to provide in order to achieve the desired position within your industry.  A startup will probably have different needs–and use various tools to attract ability. 

With the current focus on business culture and loyalty, the function of human resources management and the sorts of benefits a business offers are now increasingly important for a business’s future.

However, being competitive in such regions is not always easy for little and small-scale businesses.  HR issues can be thorny, and smaller companies don’t have the budgets to support the employees that are necessary, it requires experts to navigate them.

But, in many cases, even if a business is able to staff an HR department, it isn’t always thought of as the ideal allocation of assets.  If money can be saved using some type of outsourced HR, more money will be available to spend in core activities–places that will, in the long run, fuel success.

That HR Functions Could be Outsourced?

HR covers a whole lot of ground, so it’s not always apparent which works can be outsourced effectively.  A good first step is defining what role you want HR to play in your company.

In general, HR provides the most value on strategic initiatives that have to do with building powerful workgroups, like recruiting, hiring, and growing company culture.  While they are often responsible for key tasks like payroll and handling benefits, these are functions that can be automatic — and left to an outsourced HR and payroll provider.

Here are a few common functions that HR outsourcing could be good for:

payroll outsourcing services

Benefits management, such as health care and 401(k)

Employee Assistance Program (EAP) and counseling 


Employment-related compliance

background screenings

It’s so easy to take an all-or-nothing approach to the outsourcing of HR.  But since each business is unique, one way to simplify the dialogue around outsourcing HR or keeping it in the house is to consider the growth phase of your business.