HR Outsourcing 101

HR Outsourcing 101 Here’s a brief guide on what exactly human resources outsourcing

is, as well as the benefits and the pitfalls.

Table of Contents .01 – What is HR Outsourcing?

.02 – HRO vs. PEO

.05 – Outsourcing Benefits

.07 – Outsourcing Drawbacks

.08 – Fast Stats: HR Outsourcing

HR Outsourcing 101

What is HR Outsourcing?

HR Outsourcing Is:

when a company designates certain human

resources tasks to an outside service provider.

A Human Resources Firm Can:

recruit and screen potential employees,

navigate government regulations and

employment laws and more, all under an

employer's direction.

Access to Expertise:

has ranked consistently high as the number

one motive for outsourcing human resources.

Page .01 HR Outsourcing 101

© 2013 Business.com Media, Inc. All Right Reserved.

HRO vs. PEO





HRO: Human Resources Outsourcers

HRO Firms Can:

can address all or only a few human resources

tasks. Companies can choose which

responsibilities to outsource and which to

manage in-house.

Most HRO Companies Offer:

services individually so that clients can pick

and choose which HR responsibilities they

want to outsource.

HROs can manage:

a business’s needs including payroll, benefits

administration, training, risk management and

recruitment.

PEOs Are:

agencies that provides a service under which an

employer can outsource all employee management

tasks.

• A hired PEO becomes a co-employer with a client

company. The PEO serves as the administrative

employer, while the client business acts as the on-site

employer.

• A PEO assumes all associated liabilities and legal

responsibilities for its clients.

• Since the PEO is the employer-of-record, it is

responsible for federal and state taxes, as well as

workers’ compensation.

PEOs are able to provide a broad array of HR services at a lower cost, saving their small business clients at least 21% on HR administration1.



PEO: Professional Employer Organization

1. Professional Employer Organizations: Fueling Small Business Growth, NAPEO, Sept. 2013

Benefits and Drawbacks



HR Outsourcing as a Tool

Small and medium-sized businesses often view HR outsourcing as a tool that

relieves them of HR responsibilities and enables them to focus on what they do

best.

Lowered Costs

Lower overhead and other labor costs by allowing your HR firm to handle the

paperwork and mandatory training.

Reduced Liability

Reduce company liability that comes with hiring (and firing).

Improved Office Performance

Improve office performance by setting more descriptive job qualifications and

expectations with insight from an HR team.

Increased Company Efficiency

Increase company efficiency by allowing employees to focus on the business

instead of payroll and paperwork.

Studies show that the average small business owner spends 20-40% of his or her time on human resources tasks.



Benefits of Outsourcing HR

From unexpected costs to poor-quality hires,

there a few things to consider when determining if

HR outsourcing is a good fit for your business, such

as:

» Secondary costs

» Candidate quality

» Company culture

» Training time

Keep in mind that through trial and error and

comprehensive research into which HR firm has

worked with companies similar to yours and clear

communication, your business can avoid many of

these drawbacks.

Secondary Costs

Secondary costs, such as trainings or orientations,

are sometimes hidden.

Candidate Quality

Candidate quality may not be up to your company

standards, without clear and continuous

communication.

Company Culture

Company culture could be affected if the HR firm

doesn’t have a clear understanding of your office

dynamics.

Training Time

Training time can be more extensive through the

outsourced company than it would be in-house.



Drawbacks of Outsourcing HR

The most common resources for outsourcing include reduced operating costs,

reduced legal compliance risks, and more streamlined HR functions. The biggest

drawback, according to an SHRM study2 is a lack of face-to-face contact.

75% of those who outsource HR say that HR is able

to focus more on core business functions and 66%

say outsourcing allows HR to spend more time on

strategy development and execution.



Fast Stats: HR Outsourcing

1. “Human Resource Outsourcing Survey Report,” SHRM, July 2004