Aadmi Logo

An Entrepreneur’s Guide to Compliance and HR Outsourcing

Share This Post

The Human Resource Department serves an integral function in every business with employees. HR is not just in charge of recruiting and benefits but also checks whether companies are adhering to their legal obligations.

The roles and responsibilities of a firm’s HR department include ensuring compliance with laws and regulations set in place at the local, federal, and international levels. It is imperative for all organizations to have an efficient HR department to interact with its staff and resolve relevant issues.

What is HR Compliance?

In an era where organizations are dealing with an increasing number of HR issues, ensuring compliance has become more important than ever. Compliance typically covers the following:

  • Payroll
  • Hiring
  • Termination
  • Compensation and Benefits
  • Risks and safety
  • Employee relations

HR compliance implies forming a set of policies in order to guarantee adherence to laws and legal regulations. While working on HR compliance, a business owner must understand that:

  • Employment laws can be applicable on the local, federal and international levels.
  • Audits are possible from an enforcing agency that has the power to impose penalties or fines for non-compliance.
  • Not knowing about compliance obligations would be unacceptable as a legal defense.
  • A legal settlement could lead to bankruptcy.

No matter the size of your business, timely and proactive HR compliance is vital in preventing consequences of non-compliance.

HR Compliance Checklist

HR compliance encompasses all employee-related matters, such as hiring, payroll, and other employee documentation. Here is a checklist to make sure you are taking care of all HR elements:

Hiring Procedures

This involves hiring new employees through a documented process that includes offer letters, employment and work authorization paperwork, and contracts. It is also important to ensure that your company does not discriminate on the basis of sex, race, religion, or color.


You should have a set procedure in place for recruiting and interviewing new employees. The HR department should be up to date with the job descriptions and the nature of job applications received by the company. The interview questions and procedures should be pre-decided, and there should be a process in place for checking references provided by the candidates.

Policies and Procedures

Make sure you are up to date regarding the policies and procedures of the company, as well as the employee handbook. Keep a check on key elements, such as health insurance, unemployment benefits, equal pay, pregnancy and disability benefits, and rehabilitation services.

Employee Handbook

An employee handbook is a comprehensive source of all company-related policies and guidelines. It contains detailed information about employee benefits, training sessions, and overtime pay. Other aspects that should be included in it are equal employment opportunity policy, cell phone usage policy, internet usage policy, and workplace safety standards.

What is HR Outsourcing?

HR outsourcing is when a business owner and a third-party service provider enter into a contractual agreement to transfer the responsibility and management of certain tasks to the external provider.

Some organizations only outsource selected HR processes, such as recruitment or payroll, while others choose to transfer all HR responsibilities to an external provider.

Human resources can sometimes prove to be costly or time-consuming for a company to handle on its own. By sub-contracting HR tasks to a third party, you can maximize efficiency by getting the HR functions performed by experts in the field.

Outsourcing Options

If you do not find it financially viable to hire an internal HR staff, you can choose HR outsourcing to deal with the complexities of HR management. Here are some common options for outsourcing HR compliance:

  • HR consulting agency: Here, you can find one-time help or continual support to handle HR operations for your business.
  • Independent HR consultant: A consultant can either provide online or onsite help to develop the HR infrastructure of your company.
  • HR tech: This is a software that can be consulted to make your HR tasks easier. It can automate reporting, facilitate payroll, and provide information regarding compliance.
  • HR service provider with tech: This has encompasses all the offerings of HR tech, along with an HR team for professional advice.

Functions of HR Outsourcing

Outsourcing your HR functions to an experienced external provider can help prevent compliance pitfalls. Non-compliance can result in serious penalties that may even cause your company to close down. Outsourcing also helps keep your organization updated with changing legislations. Here is a look at some of the major functions of HR outsourcing:

Payroll Processing

This involves determining monthly salaries by taking into account all relevant deductions, such as taxes and wage garnishments. Mistakes in payroll can land a business in trouble with the court or a government agency, therefore making its handling by professionals all the more important.


It can be frustrating to find an employee who is the right fit for the role as well as for your organization. An external HR service provider can conduct the task of going through applications and setting up interviews. Outsourcing the recruiting process increases efficiency by considerably saving your time.

Employee Relations

A third-party HR team can help you form and maintain company policies. It can also help you manage employee-manager conflicts and amend policies to suit employee interests. Employee relations also include helping compile an employee handbook for your company.

Employee Benefits

A package loaded with relevant and competitive benefits can help your business attract employees and acquire an edge over competitors when it comes to recruitment.

However, benefits administration is no easy task. It involves substantial research on the right plans and compliance with local benefits regulations. With outsourcing, you can delegate these tasks to a third party, thereby allowing you to focus on other business functions.

Performance Management

Salary negotiations, yearly reviews, and other discussions related to performance are important aspects of running a business. While you may want your internal HR staff to deal with these matters, it is likely to require considerable expertise. An external HR service provider can also define your performance goals and determine the disciplinary actions to take in case of poor performance.

Benefits of HR Outsourcing

With increasing focus towards employee well-being and company culture, HR outsourcing contains benefits for both small and large organizations.

Independent HR organizations often combine human resources services with brokerage services to offer a customized package for your business. Here are some of the primary advantages of having your HR management done by a third party:

1.    Cost-Effective

Human resource management can be expensive, especially when you have a large number of employees. You need to hire more HR staff as you hire more employees.

HR tasks such as recruitment, payroll, and compliance cannot be managed by a single HR employee. If you have a large business, you are likely to require an entirely separate team skilled in different areas of expertise to ensure smooth HR management.

The HR department does not generate any revenue itself, making it costly to maintain. Outsourcing your HR functions can help save you a substantial sum of money required to hire and pay an in-house team.

2.    Time-Saving

If you cannot afford an in-house HR team, few employees in your office would need to devote some of their time to handling HR tasks. Managing human resources includes considerable paperwork and several administrative responsibilities.

When you hire an external service provider to manage your HR functions, employees who previously had to take of the tasks would not have more time to focus on their primary tasks. This is likely to enhance your company’s productivity, as you would be able to better focus on generating profits.

3.    Risk Management

Businesses have to follow several state and federal regulations in order to remain compliant. This can prove to be especially difficult for small businesses, as they are constantly evolving and implementing new regulations.

Many company policies need to be updated regularly in order to keep up with legal requirements. By hiring a third-party organization to help you with compliance, you can successfully avoid heavy financial penalties that could stem from non-compliance.

4.    Performance Monitoring

Although managers and supervisors can monitor the performance of your staff, the HR department can also help with this task. An external HR service provider can efficiently compile data on employee performance and check whether the employees are complying with your company’s policies.

Moreover, external HR service providers can also provide in-house training to your employees. Having an independent firm manage HR tasks will help decrease the administrative workload of the managers in your organization and allow them to concentrate on other vital aspects.

5.    Specialized HR Service

If your in-house HR staff is burdened with too many responsibilities, chances are that they may not be able to carry out all the tasks as efficiently. This is especially true if you have a relatively small HR team.

When your HR functions are outsourced, each element is assigned to experienced HR professionals who are specifically skilled in that particular function. Firms that solely concentrate on HR are also likely to have advanced methods and technology for providing HR services. Therefore, outsourcing can help substantially streamline your HR management and maximize efficiency in the discipline.

Challenges of HR Outsourcing

HR outsourcing may save time and money and allow your staff to adopt a more target-oriented workflow. However, there are some challenges associated with outsourcing that you need to keep in mind:

1.    Impersonal

Dealing with a third-party HR service provider rather than an in-house team may seem impersonal. There is a feeling of disconnect with an HR team that is located offsite.

Having an internal team to manage HR can make your employees feel more valued. On the other hand, transferring these roles to an external organization or a computer software can make the employees feel disconnected from the employers, who may not be able to understand their needs adequately.

2.    Longer Problem Solving Time

With a third-party provider in charge of managing your HR functions, it may take a longer time to communicate errors or amendments to the external team.

For instance, if an employee points out an error with the payroll, there may a time lag when informing the HR outsourcing firm about it. A longer time to produce the right results may often lead to an employee feeling frustrated.

Moreover, when you are recruiting a new employee, the training procedure may take a longer time than it would with an internal HR department. An in-house team may be more proactive when it comes to recruitment and training.

3.    Low Flexibility

An HR team within your company can effectively help out employees without delay. They can easily grant flexibility, such as paying employees for unused vacation days in case of an emergency or letting them use up next year’s leaves in advance.

An HR team located offsite may not have a good rapport with employees and may not show flexibility with HR policies. As a result, employees may feel unhappy with rigid policies, which may affect their level of job satisfaction.

4.    Security Issues

HR service providers may be using a variety of web-hosted software to handle your sensitive HR information. This may leave your data at risk of security threats or crashes.

Make sure you check the external organization’s security records and references before you hire it to manage your HR functions. On the other hand, with an in-house team, you can closely monitor the software used and ensure that there is no data breach.

Should You Outsource Your HR?

Companies usually choose to outsource HR management when they are growing quickly but lacking the infrastructure to support an in-house HR team.

Moreover, when companies expand into a previously unexplored market, they may find it easier to maximize efficiency with an external team who knows the local lay of the land. Small business owners can also cut costs by opting for a third-party HR provider.

While outsourcing your HR functions can help you optimize your organization’s efficiency, it is understandable if you have some concerns. If you do not want to outsource all HR functions, you can opt for co-sourcing, where some aspects can be retained with an in-house team and others assigned to a specialist. For more insight about HR compliance and outsourcing, click here to explore our website.



Some other posts you may like