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January 25, 2024

What is HR outsourcing? Understanding the benefits and key considerations

Discover what outsourcing HR could do for your organization and learn what HR tasks could be outsourced.

Summary

  • Why consider human resource outsourcing?
  • Key benefits of outsourcing HR tasks
  • Choosing the best HR outsourcing service

Human resource (HR) professionals juggle several tasks daily, from vetting job candidates and onboarding new employees to running training programs and updating policies. There’s not one task that can go unfinished for an organization to remain compliant and healthy.

So, how do HR departments get everything done without getting burnt out? The answer is HR outsourcing.

Whether or not you’ve thought about the advantages of outsourcing some or all of your company’s HR tasks, there’s no denying that it’s a popular human resource management method. In fact, 80% of companies outsource at least one HR function, according to Zipdo. And of those businesses, there’s a 97% satisfaction rate for outsourced HR recruitment processes.

Discover what this solution is, how it could play a part in your company’s HR management, and what benefits HR support may provide your organization in this article.

Why consider human resource outsourcing?

HR outsourcing involves hiring an experienced third-party provider to assist a company with specific HR functions. Because companies are constantly looking for ways to streamline their processes and maintain a competitive advantage, partnering with a specialist to take over certain aspects of the HR department can be beneficial.

Some of the overarching roles HR outsourcing takes on include:

  • Attracting and developing talent
  • Compensation plan development and ongoing maintenance
  • Managing benefits and payroll administration
  • Special projects – such as ongoing policy and procedure updates
  • Strategic HR services
  • Working to remain compliant with employment law

There are several daily tasks that HR outsourcing can help take care of to remove some of the burden off of your team’s shoulders. Some of these more specific jobs are:

HR administration

Outsourcing workforce administration can provide expert guidance to staff and create personalized policies to guide employees. This area of HR management includes:

  • Compensation system management and merit increases
  • Development, maintenance, and operation of HR information systems
  • Employee benefits management and administration
  • Employee and manager policy and procedure support
  • Employee and manager self-service and customer service
  • Employee data management and records retention
  • Onboarding of staff
  • Performance management and engagement

Having carefully crafted strategic policies and performance management processes can ensure every HR team member is on the same page and operating under the same guidance. These strategies help support employees and give every HR professional time back in their days to focus on other, more pressing tasks.

Payroll processing

Streamline payroll and bookkeeping processes and help maintain compliance with payroll tax laws and regulations by having a specialist help with payroll services. Human errors can be costly, leading to tax penalties or even lawsuits. Getting assistance with this task can lower the risk of mistakes and give your team more peace of mind.

Outsourced payroll services could include:

  • Automatic signatures 
  • Direct deposit
  • Managed payroll calculation, including calculation and administration services
  • Producing and delivering checks and direct deposit
  • Researching and managing taxes
  • W-2 form delivery
Employee benefits

Employee benefits are a selling point for businesses. They provide advantages and resources to people for medical care, long-term financial planning, and assistance programs. The problem is that it can be incredibly difficult to stay up to date with benefits compliance and best practices without devoting hours to research and policy updates.

By getting help through HR outsourcing, teams can ensure benefits are competitive, offering employees extensive health insurance, 401(k) retirement plans, and health savings. Many industries attempt to hire from the same qualified talent pool. Receiving assistance and feedback on your company’s benefits can enable you to compete with other businesses in your sector.

HR outsourcing services can also help your HR department manage open enrollment more efficiently. Integrated employee benefits administration can ultimately save you time and energy by taking the role of data entry and benefits enrollment off your hands.

HR compliance

There are many layers to HR tasks, and one important element is HR compliance—ensuring a company’s policies and actions adhere to labor laws in the country and state. Handling the various regulations without the help of a trained and well-versed professional can be challenging, especially when non-compliance leads to fees that can be costly to the organization.

An HR consultant can provide a breakdown of the necessary rules and laws that must be followed. They can also recommend employment and safety best practices to stay up to date on federal, state, and local mandates.

It pays to have an HR outsourcing firm at your disposal because non-compliance with these regulations can result in hefty fines. For example, employees may seek a jury trial with compensatory and punitive damages up to the maximum limitations established by the Civil Rights Act of 1991. Fines can be based on the number of employees:

  • Companies with 15-100 employees can be charged a maximum of $50,000
  • For those with 101-200 employees, a maximum of $100,000 can be charged
  • Organizations with 201-500 workers can be fined up to $200,000 
  • Businesses with over 500 team members can be charged a maximum of $300,000
Recruiting and hiring

Employee turnover is a challenge in many industries, even sectors with plenty of workers to fill empty positions when they arise. If you notice your company has an especially low retention rate or difficulty finding and onboarding skilled team members, it may be time to consider HR outsourcing for recruiting and hiring services.

An HR consultant can look at your talent acquisition strategy to determine if the necessary gaps are being filled and hiring goals are being met. This individual can help your team create a stronger plan for all hiring and onboarding processes to ensure your company reaches the right people who will further the company and contribute to established initiatives.

On top of that, an experienced HR outsourcing company will have specialists who know the best software for teams to utilize, like applicant tracking systems and other integrated tools. By implementing automation strategically in your organization, your HR team can have more time in the day to focus on tactical talent acquisition and employee relationships.

Key benefits of outsourcing HR tasks

Partnering with an HR consultant to outsource day-to-day HR activity can alleviate some of your HR department's pressure. Whether that looks like outsourcing payroll processing, benefits administration, or compliance management, getting assistance from industry-trained specialists can help companies grow strategically with less stress put on HR professionals.

Here are some of the top benefits companies can expect from partnering with an HR outsourcing company:

Focus on core business functions

Rather than worry about too many tasks and spread your HR staff too thin, let them focus on the most important business matters.  A third-party HR outsourcing company can handle more time-consuming and tedious jobs. With HR outsourcing solutions, HR departments can build an informed talent acquisition strategy.

With this blueprint, teams can emphasize the company’s goals and identify how they can be reached using hiring and employee retention. Without time to think of prudent business targets, team members could be forced to hire reactively. They could scramble to fill roles without putting as much thought into the organization’s long-term goals.

Improve employee engagement and experience

Retention is incredibly important but often overlooked when tasks start to pile up. With the assistance of HR outsourcing, teams can have more time to spend on finding the best possible candidates for a job and work extensively on keeping those people happy and engaged.

Employee experience isn't only a benefit for your workforce. It can also drive revenue for your organization. Gallup found that highly engaged teams outperform the rest in business outcomes that are necessary for the success of a business. That being said, teams that have better relationships with one another and feel a sense of belonging and purpose within the workplace will generally produce more high-quality work, driving revenue that helps the organization’s bottom line. In addition, 72% of organizations polled by Harvard Business Review found that organizations with highly engaged employees have happy customers. This hits home the value of promoting positive work environments to improve employee engagement, which is generally done by the HR department.

Enhance risk management

HR outsourcing can help your team stay updated with the latest laws and regulations necessary for HR departments, ensuring that the best practices and guidance are used to reduce non-compliance. An HR consultant can help your team with educational assistance on employment laws and regulations, workplace safety, and tax and payroll mandates.

HR outsourcing can give your organization the freedom to proactively develop a risk management strategy that helps your team be on the same page to respond to any potential dangers you may encounter. This keeps your HR department from scrambling to find a solution when problems arise, giving them the resources they need to solve the issue.

How to know if outsourcing HR responsibilities is right for your company

While any company could gain positive help from working with an HR consulting specialist, some signs indicate if your company requires outsourced HR:

  • Time constraints: Navigating administrative tasks takes time. If your company lacks the necessary hours to successfully and efficiently get tasks done, it may be time to align with an outsourcing provider.
  • Fast growth: It’s exciting to see your company flourish and grow, but it also means extra work for your HR department. If your company is experiencing rapid business growth that doesn’t seem sustainable with your staff, getting assistance with your HR needs can be beneficial.
  • Time-consuming onboarding: Onboarding is crucial to training and setting new employees up for success. Yet, the onboarding process can be extensive, requiring resources you don’t have. Equip your HR department by outsourcing management to an employee relations consultant.

Choosing the best HR outsourcing service

When you’re in the market for HR outsourcing, it’s important to consider what specific needs your company has as a whole. Some businesses only require help in one area, while others may need a full suite of HR services. It’s also beneficial to hear about the HR outsourcing company's previous successful partnerships to determine if they’ll be a good fit for your organization.

Marsh McLennan Agency provides HR consulting services like compliance and operational reviews and talent acquisition. By partnering with our team, your HR team can have more time to focus on pertinent business functions, transforming how your company serves its employees.

Want to learn more about outsourcing HR functions and discover other important HR benefits? Reach out to a specialist today.