A Complete Guide to Outsourcing Your Human Resources
Owning and operating a small or medium-sized business involves wearing many hats on your job. Employees do so much more than performing their specific tasks like doing all the admin work, taking charge of the HR responsibilities, including keeping a count of absences, taking care of the payroll, training the new recruits and drafting all the paperwork.
Apart from being extremely time consuming, these tasks actually affect your company’s productivity. When everyone is doing everything other than what they specialize in, your core business activities suffer. You can’t grow or achieve your business targets.
But outsourcing the human resources operations can help. HR outsourcing services take charge of your HR responsibilities so you can solely focus on your business goals. You will be relieved from all the administrative tasks.
HR service providers relieve you of your HR tasks and help cut all the work by more than half. They only focus on the employee related tasks while you are holding the leash of your main business. They are not involved in any of the decision-making processes.
This is a complete guide to outsourcing your HR where we will answer all questions related to HR outsourcing. We have also included the benefits and risks involved in HR outsourcing. Let’s dive right in, shall we?
What is HR Outsourcing?
HR outsourcing or contracting services involve hiring an outside party to perform the HR tasks of your business that are traditionally performed by your in-house HR department. The reason why human resources activities naturally fit for outsourcing is because these activities are not directly responsible for generating revenue. They are only there to manage your workforce, which can also be done by an outside party.
HR outsourcing is a common practice now and is done to save costs and time that goes into running an entire HR department. HR partners are ideal for small businesses as they can help seriously reduce all the administrative tasks from your plate.
Here’s why companies prefer outsourcing HR services rather than hiring an in-house team:
- Limited budget.
- No personnel for running the HR operations.
- To focus on achieving the business goals.
- To process the payroll and do all the other paperwork involved in HR operations.
- To help find, filter and recruit new employees.
- To help train and onboard the new employees.
- To manage any attendance related issues.
- To help with appraisals and benefits.
- To help with creating HR manuals.
Which HR Functions Can Be Outsourced?
A typical HR outsourcing company offers nearly all the HR solutions. However, not every company opts for all services. Companies that have a small in-house HR team only opt for certain HR solutions like recruitment. Some tasks that your in-house HR team can do include:
- Employee training and counseling
- Making the hiring decisions
- Visa sponsorship
- Completing the I-9 forms in the U.S. or other overseas work authorization requirements
- Dealing with FLSA job classifications in the U.S. or its equivalent overseas
- Setting and implementing the employee safety standards
However, a full-fledged HR service provider, also known as a professional employer organization (PEO) could be perfect for small businesses. Here’s why hiring a PEO could be beneficial for your company:
A specialized PEO can take on the payroll responsibilities like processing or withholding, payroll tax return filing, remitting payroll taxes, managing the payroll deductions, and dealing with any discrepancies related to payroll.
PEOs have an online platform where both the employer and employees can access their timesheets, check their payroll/paycheck, file for any discrepancies, and fill out any necessary forms. This platform can streamline all payroll related tasks and help everyone coordinate with the HR manager.
Benefits and Appraisals
Employee appraisals and benefits are a time-consuming job. Apart from planning the benefits and maintaining the expenses, you also need to conduct appraisal meetings every year, which can take weeks. A PEO will not only help you create an affordable benefits plan, but also manage the entire appraisal and benefits process so you can focus on the core business.
Compliance with Labor Laws and Regulations
A business owner should make sure that all their obligations regarding the labor laws and government regulations are being met. Staying on top of these is important for the success of your business. A PEO can help you comply with the national and state/provincial employment laws and regulations. They will also warn you about any red flags and prevent you from being subjected to fines and penalties. They will study the laws, stay updated with any changes and assist you with the required compliance to save you valuable time and money.
Here’s how a PEO can help, in the United States, for example (similar services overseas as well):
- Administering the unemployment claims
- EEO services
- Training for HR liability management
- Assisting with employee terminations
- Setting and implementing the safety standards
- Creating drug-free policies and conducting drug tests
- Resolving the employee compensation claims
- Employee insurance
- Hazard and safety training
Talent management involves looking after the everyday administrative tasks to overlooking employee performance. Hiring your employees is one thing but making sure that they are performing well and not costing your hundreds of dollars in losses is another. HR service providers can help you create tools and training needed to support your talent and boost their productivity.
Here’s how a PEO can help you manage your team:
- Conducting performance appraisals
- Monitoring employee performance
- Creating and providing the learning resources
- Hiring support
- Conducting employee training sessions
- Creating employee handbooks
- Engaging employees in trainings
- Boosting employee morale
- Managing promotions
How Much Can HR Outsourcing Cost?
The biggest reason why businesses do not opt for HR outsourcing is because they assume it would be expensive. However, running an in-house HR department can cost you much more. Think of all the costs involved in salaries, bonuses, and benefits that you will have to give to your HR team. Add to that the taxes, insurance costs, overhead costs, paid leave programs and other costs.
On the other hand, a PEO can cost you much less. HR outsourcing cost depends on many factors. It depends on your business size, the number of employees, the employee compensation and benefits packages you offer as well as other factors. PEOs would usually charge you a percentage of your gross payroll.
When searching for a PEO, you should look at the direct costs and compare them with what you pay now. These direct costs include the payroll taxes, benefits, and employee insurance. You should also consider the administrative fees that a PEO is charging. These include the technology used in doing HR tasks, administrative costs, safety training, etc.
Now, evaluate the value you are getting in return. Is the PEO offering person-person or on-demand service? Are they able to fulfill your requirements and support you fully? Do they have the resources and technologies to streamline the HR functions? Do they offer multiple pricing structures depending on the size of your business? Although we can’t tell you exactly how much HR outsourcing can cost. But these factors are a few things that you should look out for when hiring a PEO.
Consult with multiple PEOs because each of them would price their services differently. Make sure they are being absolutely transparent about their pricing and ask them about how they would calculate the price and charge you? They need to be transparent about their process if you are trusting them with your HR department.
How Can an HR Partner Help with Compliance?
An expert HR service provider is aware of all the compliance aspects that you need to abide by. They will study your business from the start, understand its nature, overlook the accounts, and suggest you how to abide by the regulations and limitations. HR partners are aware of your customers and your offices in all the regions to make sure that you are keeping up with all the regional and federal laws. They keep track of everything because if a business fails to comply with these regulations, you can lose your business and face penalties.
Always look out for an HR services provider who also helps you with all the compliance related tasks. These include:
- Managing the harassment cases in your company by keeping a record, processing the claims, and managing the disputes.
- Managing the wage disputes by keeping track of the hours worked and meeting any discrepancies claimed by employees.
- Creating and delivering a handbook of office policies.
- Setting the training and safety standards.
Therefore, be careful of who you trust when outsourcing HR activities.
What are the Disadvantages of HR Outsourcing?
Although there are many benefits of outsourcing your HR operations, there are also a few pitfalls. Therefore, before you go ahead and hire an outsourcing partner, make sure you are aware of the following aspects of HR outsourcing:
Don’t hire an HR service provider that doesn’t align with your company culture. One of the reasons why employees feel confident and motivated in their companies is because they are aware of the company culture. They know what their level of involvement is in the decision-making processes. But it is equally important for your HR partner to understand the culture. They need to know the do’s and don’ts of your company. Make sure that the partner you are hiring respects your company culture and is open to learning about it.
An HR service provider would promise you to keep your employees satisfied and ensure that their needs are met. But you need to monitor whether they really are fulfilling these promises. Ask your employees whether their needs are being met. Inquire if there has been any injustice. Make efforts to maintain a good relationship between your employees and your HR service provider.
Outsourcing your HR services is meant to make employees focus more on their actual jobs. But evaluating how effective your outsourcing decision is your job. Communicate with your employees to check how the outsourcing decision has impacted their performance.
Having an outsourced HR service provider does not mean they are in control of all the key decisions of your employees. You should have the final say in every decision, especially when recruiting or terminating an employee.
The reason why you have consulted with an outside party is so you can leverage their specialized knowledge and experience in the HR field to help divide your tasks. They are only there to help you and make recommendations. Therefore, make sure you remain the final decision-maker in all operations. And always communicate with your employees in person if there are any disputes.
We hope this complete guide to outsourcing your HR answered some of your questions. If you own a small to medium sized business, you should definitely consider outsourcing your HR functions so every employee can focus on their real job. To help you consider your options, contact us at www.aadmi.com.