The decision to opt for outsourcing HR activities has been prevalent among businesses within the last couple of years. The statistics mention that around 76% of the organizations outsource human resources, and 80% of the respondents say they would do so again.
However, choosing between in-house vs outsourcing HR is a tricky task because there’s no one-size-fits-all approach when it comes to managing your remote employees. Besides, many businesses are used to having separate offline departments responsible for a bunch of functions. Yet, remote work is gaining momentum, and there are many opportunities that weren’t available before.
But how to know what option will fit your company’s needs better? And why you need HR?
In this article, HR Bit addresses the concerns about deciding between in-house HR vs outsourcing to help you choose the option that will make your business grow.
So, let’s get down to the topic.
What is Outsourcing in HR?
HR outsourcing means partnering with a third-party organization to manage some or all of the company’s HR functions and tasks. When outsourcing HR functions, businesses can block their employees’ potential and facilitate their company’s growth.
The partner organization handles time-consuming and complex tasks, such as payroll management, tax filing, and employee benefits. This gives leaders more opportunities to focus on the core business aspects and get the best out of their team members.
The list of outsourcing human resources functions isn’t limited to the mentioned ones because you can discuss them with your HR partner and get professional advice.
Why Outsource Human Resources in the First Place?
Have you thought about outsourcing human resource functions? If your company was established just a while ago, probably not. Usually, this decision depends on your business size and how fast you want to expand.
Human resources is the most common outsourced function in the industry, so why not leverage it?
Back-office operations are as critical as front office tasks. So, once your business starts growing, you need specialists to take care of your people. Outsourcing HR activities is handy because you don’t have to bother with doing pre-screening, coordinating interviews, sending letters, and managing benefits.
Delegating responsibilities is a key to setting up a successful and thriving company as well as keeping your employees happy. It’s hard for one person to manage tasks from different areas, so filling your office with additional HR professionals is a forward-looking decision.
Usually, companies consider outsourcing the HR department because of the following benefits:
You get the opportunity to work with skilled professionals who have sufficient experience in the industry and can define and address issues your company has within a couple of days. Also, you can hire people who specialize in specific tasks, such as talent acquisition or payroll. When outsourcing HR functions, you make it easier for the employees to achieve goals because they’re motivated, which positively affects their performance results.
Employees are the backbone of the company, and that’s a well-known fact. Therefore, it’s critical to keep a healthy working environment and invest in your people as much as they invest in your company’s development. When outsourcing human resource functions, you make your remote team members more engaged and eliminate the feeling of loneliness they might have because of remote work.
There are many laws you have to deal with when advancing your business. It’s time-consuming and overwhelming. That’s why outsourcing HR department functions is like a silver bullet in this case — you get a team of experts who are well-versed in all the HR codes and policies. Whatever it is, a handbook or I9 compliance, they have your back.
It’s hard for small and medium companies to compete with large corporations, but one of the most effective ways to do so is to offer competitive benefits. You’re more likely to attract and retain talent if you have attractive benefits, like insurance, extended vacation, or free professional learning courses.
However, coming up with competitive benefits is hard, especially if you’re a startup. Besides, it’s critical to improve them over time and recognize employees’ needs. So, since it’s essential to stay competitive, the organizations decide to outsource HR functions and access top-level benefits for their team members.
Any business, especially if it’s small or medium, would want to save money. Outsourcing HR is growing leaps and bounds due to providing massive support to the companies and helping them grow.
Hiring an HR manager in the US costs around $80,000–$107,000, while you can pay about $30,000–$60,000 when outsourcing HR functions. Read our guide on HR outsourcing cost.
What are HR Outsourcing Options?
When outsourcing HR functions, businesses usually have to decide between PEO vs HRO. So, you need to understand what these abbreviations mean to choose the right option.
What is a Professional Employer Organization (PEO)?
A PEO is a firm that has a choice of different services it provides for the organizations. These services vary from payrolls and benefits to management and recruiting.
When opting for a PEO, it will become the employer for your company that is on record for tax purposes. This means you have a co-employment model.
- Benefits administration
- Remote Recruitment and hiring
- Payroll administration
- Unemployment administration
- Workers’ compensation administration.
- Drug testing programs
- Family and Medical Leave Act administration
What is a Human Resources Organization (HRO)?
This is an independent company that provides several or all HR needs a business might have. An HRO is capable of delivering both basic and detailed, strategic HR services. This model allows firms to choose what services they want to outsource and what to leave in-house, offering more flexibility.
HRO main functions:
- Payroll and tax administration
- Employee training and development
- Policy creation and workplace safety
- Recruitment and onboarding
- Benefits administration
- Compliance and risk management
Choosing Between HRO vs PEO
If you need a turnkey solution and resources to limit liability — opt for PEO.
If you prefer maximum flexibility and prefer outsourcing specific HR responsibilities — choose HRO.
In-House HR vs Outsourcing — Comparing Key Features
The choice between in-house vs outsourcing HR has to be well-considered because the final choice affects the future of your business. The best way to choose the suitable option is to compare both approaches based on primary factors, so let’s take a look at them.
In-House vs Outsourcing HR: Costs
Many factors affect the salary, so it’s hard to define specific numbers. Still, we can compare hourly costs for in-house HR vs outsourcing.
The average hourly rate for a Human Resources Manager ranges from $46 to $58 (the annual pay is $107,795). However, this option is more cost-effective when you have a bunch of responsibilities you want your HR to handle. Paying full-time salary and benefits is effective only when you have enough tasks to keep your HR specialist busy.
Meanwhile, the average HR outsourcing costs vary between $100 and $200 per hour based on the services you need. All the costs aren’t fixed, giving you more financial flexibility and the opportunity to save money in some cases. Usually, companies spend around $5,000 to receive help with specific tasks, while a $10,000 check means covering all their HR needs.
In-House HR vs Outsourcing: Time Expenses
When keeping HR in-house, you’ll quickly realize it takes a lot of time, and it’s hard for you to devote so many time slots to handle HR tasks. Usually, small business owners spend one day a week or more on managing HR issues, and even if you ask a specific employee to handle these tasks, one will require more than 13 hours a week.
However, managing HR tasks isn’t a revenue-bearing activity, so it’s more effective if your employees are fully engaged in core business tasks.
You can focus more on responsibilities that bring revenue and facilitate your business when outsourcing HR functions. Also, the companies specializing in HR require less time to handle these tasks because they have sufficient experience and knowledge.
When cooperating with outsourced HR managers, you can stay on the same page with constant changes. Besides, it’s easier to make sure your remote employees feel comfortable even if their surroundings become altered.
In-House vs Outsourcing HR: Monitoring
Keeping an eye on each employee to see if they need your help is forward-looking because you can tackle the issues at their roots. Besides, it’s easy to stay engaged with the team either directly or via your HR specialist. Face-to-face conversations help to stay in the loop and discuss employees’ ideas and insights the moment they arise.
Speaking about outsourcing HR, you’ll be less autonomous because the vendor will be the one that communicates employee issues to you. However, it can give suggestions, and you can follow the recommendations to keep strong bonds with your team members.
In-House HR vs Outsourcing: Expertise
When hiring an in-house HR manager, you’ll need to evaluate one’s professional capabilities to understand if they are qualified to handle the tasks. However, small companies rarely have dedicated HR managers because it’s too costly. In this way, you or someone else must take on the HR burden, and lack of time and competency might expose your company to risk.
If you don’t want to undermine your business, opt for an outsourced HR provider. It will fill in all the knowledge gaps, provide general and specialized services, and help you manage the company without financial losses.
Outsourcing Human Resources Functions: What Tasks Can Be Outsourced?
There’s a vast pool of outsourcing HR activities you can choose from, so be it paperwork or talent acquisition — your vendor has got you covered. When opting for this solution, you can get the primary HR tasks covered in a short period. These are some of the most commonly outsourced HR services that can help to complete your HR strategy.
Filling the open positions and finding the people that fit your company takes a great deal of time. Besides, you need to be well-versed in going through dozens of applicants, tracking down talent pools, selecting the CVs that comply with the requirements, and using creative recruitment strategies. So, it’s much easier to outsource this function than deal with it yourself.
Payroll and Related Tax Services
This is probably the most time-intensive task that poses significant challenges. Still, the company must deliver accurate and on-time payroll that complies with federal and state payroll tax regulations
When outsourcing HR department functions, you can transfer these tasks to the specialists, receiving high-quality help with the ins and outs of payroll, like tracking paid time-off and automating direct deposits.
Small and medium businesses have too many tasks to address, and offering top benefits to their employees might be too expensive for them. But when outsourcing HR services, they get access to competitive advantages similar to those that enterprises afford.
Also, your remote employees should be aware of the available benefits, and HR specialists will ensure they’re aware of the available perks.
When hiring and onboarding newbies or offboarding team members, you need to operate tons of employee data. It’s better to have an outsourced HR company to manage the administrative tasks related to your workforce. The company has to update employee data rather often, but following all the requirements is time-consuming.
Happy and motivated employees are the prerequisite for the company’s success. They need to feel valued and included because remote work often makes people feel desolated. Also, you should help employees to develop to their full potential. Having a professional outsourced HR by your side will help you see what tasks you do well and what can be improved to strengthen relationships within the company.
Employment Law Compliance
There is an array of state and federal laws your company has to comply with. These are related to hiring processes and various working regulations. A remote HR manager will ensure your business complies with these laws to eliminate any troubles.
Employee Assistance Program (EAP) and Counseling
Companies need to help their employees with personal and work-related problems. These include financial strains and family issues. Also, many remote workers struggle with mental health challenges and stress, so it’s essential to offer help to them.
EAPs and counseling can make a big difference, making employees happier and healthier.
What Kind of Businesses Should Outsource Human Resources?
The size of your business and your plans regarding its expansion are the primary metrics that will determine the in-house vs outsourcing HR choice. Here are a few tips on selecting the right option.
Small Businesses: 0-10 Employees
According to statistics, around 60% of HR outsourcing companies are those that have fewer than 30 full-time employees. They prove that even if you’re running a small business, it’s still hard to be a Jack-of-all-trades because you eventually lose focus and might oversee specific issues.
Besides, if your business is newly-established, you’ll need time to talk to investors, handle core business tasks, and build the product, so when will you have time to manage benefits, payroll, onboarding, and a dozen of other jobs that never seem to end?
A business owner should focus on revenue-bearing tasks that can skyrocket its company but not be scattered over too many areas.
So what should you do in this case?
It is better to use HR outsourcing services at this stage.
Professional Employer Organizations (PEO) is the best option.
Growing Businesses: 10-50 Employees
When your business is constantly developing every day, you need to stay compliant and handle a bunch of payrolls and hiring tasks. Companies of this size usually have an HR manager, but when the number of employees grows, they need help. And it’s more effective to get help from an outsourcing vendor than selecting any available employee and loading them with tasks.
So what should you do in this case?
It is better to use HR outsourcing services at this stage.
Human Resources Organizations (HRO) is the best option.
Mid-Sized and Large Businesses: 50-500 Employees
Companies of this size have many roles that need to be filled in, so they’re likely to hire developers in other states, cities, and countries. This requires an increased focus on compliance because there are contrasting regulations in different locations and opposite cultural backgrounds and approaches to work.
In this case, you need several in-house specialists because they’ll create strategies to keep employees healthy, offer development opportunities, and create employee handbooks. However, there’s no need for them to spend time on payroll because it’s too time- and cost-intensive.
So, it is better to have a Hybrid HR Model at this stage.
In other words, consider an in-house HR team + HRO or PEO for managing Payroll
Companies with 500+ Employees
These companies are similar to mid-sizes and large businesses because they usually have an in-house HR department to handle most of the functions. Such an approach gives them a competitive advantage and ensures the smoothness of all the processes.
So what should you do in this case?
It is better to have Full-In-House HR Department
Pro Tip on Deciding Between In-House vs Outsourcing HR
When unsure about in-house HR vs outsourcing, ask yourself the following questions:
- Do any of your tasks take too much time that you would like to offload to an HR partner?
- Do you think you or your managers are bogged down in administrative tasks?
- Are your in-house HR managers busy enough, if you have such?
If you answered “yes” to questions №1 and №2 and “no” to question №3, you need to outsource human resources.
Outsource Human Resources with HR Bit
Hr Bit is an experienced human resources outsourcing company that can fix your remote team communication issues. We’ll tackle any issues your company faces and take care of your most valuable asset — your employees.
Reach out to us and let us focus on the HR activities while you focus on growth.