Businesses of all sizes must fulfill human resources functions, such as onboarding and administering benefits, but not every company can hire full-time human resources professionals or staff. The best HR outsourcing (HRO) services can help. HRO partners can help businesses streamline human resources functions and offload crucial responsibilities, allowing owners and managers to focus on growth and achieving goals.
Discover how HRO services work, the types of businesses that can benefit from them, and how to select an HR outsourcing partner that fits your needs and budget.
What is an HRO service?
A human resources outsourcing service is a third-party HR provider that can manage some or all of a client business’s HR functions. Most HRO services allow you to bundle HR functions or select services a la carte.
HRO partners typically offer the following services:
- Employee onboarding
- Employee benefits and administration
- Payroll administration
- Employee training and development
- HR auditing and consulting
- HR compliance and risk mitigation
- HR policy development
- Tax administration
- Workers’ compensation management
- Administrative HR tasks
An HRO service is similar to a professional employer organization (PEO). However, PEOs use a co-employment model, while HRO services act as an outsourced HR department that provides specific HR functions without sharing legal responsibility for employees.
Who needs HRO services?
HRO services can help businesses in many industries, including the following:
- Construction
- E-commerce
- Education
- Entertainment
- Financial services
- Healthcare
- Life sciences
- Marketing
- Manufacturing
- Nonprofits
- Retail
- Technology
Still, some businesses may benefit more from help with their human resources functions than others. Consider the following business types that may find HR outsourcing providers especially valuable:
- Small- and mid-size businesses (SMBs): Although SMBs might employ one or more HR professionals, they typically don’t have entire HR departments, which may leave gaps that an outsourcing organization can help fill. HROs can also automate and streamline administrative HR functions that an SMB might have trouble managing.
- Large organizations and enterprises: Even if your large organization has an internal HR department, outsourcing one or more HR functions, such as benefits administration or payroll, can be beneficial. HROs can also help large organizations automate daunting tasks like hiring or terminating several employees at once. Additionally, outsourcing is often more cost-effective than hiring more HR staff.
- Startups and quick-scaling businesses: The chaos that often accompanies running a startup or quick-scaling business can often result in HR challenges. Instead of trying to keep up with expanding HR requirements yourself, an HRO can take the reins and ensure you don’t miss any essential steps.
- Remote or hybrid organizations: Remote employees can be a significant business asset, but they also bring HR challenges. Keeping up with various employment laws and regulations as you hire workers nationwide or globally can be challenging. An HRO can manage these complicated functions for you.
- Highly regulated businesses: Companies operating in highly regulated industries such as finance, healthcare, construction and manufacturing can benefit from the assistance of an experienced HR outsourcing provider. These businesses often have unique compliance and safety requirements that an HRO is skilled at navigating.
How much does HR outsourcing cost?
Partnering with an HR outsourcing service can cost anywhere between $50 and $1,500 per employee per month. Costs are typically dictated by the services you need and how many employees you have. HRO pricing usually involves the following:
- Monthly fees: HRO services typically charge a fixed monthly per-employee fee, although some charge based on a percentage of each employee’s monthly salary.
- Eligibility minimums: HRO providers may require an employee or payroll minimum threshold before a client business is eligible for their services. However, these minimum requirements aren’t an issue for most companies.
- Billing: HRO services are billed monthly or annually, with annual billing receiving discounted rates.
What are the benefits of HR outsourcing?
While specific benefits will vary by services needed, partnering with an HRO provides five primary advantages:
- HR outsourcing can save time and money. Administrative HR functions are necessary but time-consuming. Outsourcing specific HR services to a third party can take the burden off a business owner’s plate, freeing up time to focus on crucial aspects of running a company. HROs also excel at automating HR functions and streamlining processes, saving client businesses even more time and money.
- An HRO provider helps maintain legal compliance. Staying current with evolving employment laws and regulations governing human resources is daunting for any organization, especially those with employees or contractors in multiple cities or states. An experienced HRO provider will stay on top of legal changes, helping businesses comply with all HR requirements. They can also audit a business’s current HR processes to ensure everything is legal and above reproach.
- An HRO provider streamlines employee recruitment. The hiring and onboarding process plays a crucial role in any business’s success. An HR outsourcing service can help you find and hire the best employees while ensuring compliance with all labor and employment laws. An HRO can also help you create, distribute and store essential new-hire documents.
- An HRO provides valuable HR expertise. An HRO is dedicated to knowing and understanding the proper administration of HR functions. Even if you have one or more HR professionals on staff, an HRO service is a valuable resource that can provide additional HR expertise, oversight and knowledge.
- An HRO service scales with your business. Companies that scale quickly often face issues with consistent HR management. A manual process that worked for five employees may become unmanageable when you suddenly have a staff of 100. However, upscaling or downscaling is effortless with an experienced HR outsourcing provider. As your HR needs change, you can easily add or remove services from your HRO plan to accommodate your organization.
What are the key features to look for in an HRO?
HROs can provide numerous human resources functions, including the following key services.
Administrative HR tasks
An HR outsourcing provider can handle many administrative HR tasks, relieving your internal staff of tedious and repetitive functions. For example, an HRO can help you do the following:
- Onboard new hires.
- Create an employee handbook.
- Develop and enforce compliant HR policies.
- Administer employee discipline and termination.
- Collect and store HR documents.
- Perform necessary HR reporting.
Since HRO services often include access to a digital platform, they typically offer employee self-service features, allowing workers to manage some of their own HR functions.
Benefits administration
Employee benefits administration is a popular outsourced HR function. HR outsourcing providers typically partner with many carriers, allowing businesses to offer their employees highly competitive benefits. Through seamless integrations, you can set up benefit plan options and administer benefits to your staff. The best HROs offer intuitive platforms that walk employees through the benefits enrollment process and educate them about their options. (Note that employee benefits themselves incur additional charges.)
Payroll processing and tax administration
Another commonly outsourced HR function is single- and multi-state payroll. A third-party HR company can track employee hours — including time off and overtime — and appropriately calculate employee wages and payroll deductions to administer accurate payments. This process, along with federal and state tax filing, is often automated, reducing the potential for human error. When evaluating an HRO for payroll, be sure to consider which states or jurisdictions they operate in.
Employee training and development
HR outsourcing providers offer employee training and development opportunities to help educate staff members and stay compliant. For example, employees can take training lessons on essential topics such as sexual harassment, discrimination, and diversity, equity and inclusion. Many HROs also offer virtual and onsite courses geared toward employee professional development, allowing your employees to upskill in key areas.
HR compliance support
Perhaps one of the most valuable features an HRO company can offer is assistance with HR compliance and risk mitigation. Staying current with evolving labor laws can be challenging, especially if workers span multiple states. HROs can guide businesses on complicated matters like the following:
- HR requirements
- Worker classifications
- Regulation changes
- Corrective action and termination guidelines
- HR policy development
- Workers’ compensation
- HR reporting
What factors should you consider when choosing an HRO?
Although many HROs offer similar services, every outsourcing partner will have unique features and pros and cons. When considering an HRO, evaluate the following factors to ensure your HRO service suits your business’s needs.
HR services offered
HRO providers offer a wide array of services and features. Some vendors bundle features, while others let you create custom plans with a la carte options. Because of this aspect, you must first identify the services you need.
After that, evaluate potential HR outsourcing partners based on their services and how they’re offered. For example, if you only need assistance with recruitment, it wouldn’t make sense to partner with an HRO that only offers bundled, full-service HR plans with recruitment, payroll, benefits, etc.
Pricing and contracts
Cost is an obvious and significant factor to consider. Your needed services and employee count will affect your HRO budget. Additionally, an HRO’s service tiers and pricing structure are crucial considerations. Evaluate the following:
- Does the HRO charge a standard per-employee fee or is it based on payroll?
- Does it have any minimum requirements?
- How long is the contract?
- Are there implementation or onboarding fees?
- What is its pricing for add-on features?
When comparing vendors’ costs, don’t focus on the lowest or highest plan rates. Instead, evaluate the pricing based on the specific plan and features you’ll need now and in the future. This will help you determine which vendor offers your business the most desirable plan agreement.
Platform usability
HR outsourcing services typically include access to an online HR platform. You and your staff will use this software to manage specific functions, such as timekeeping, benefits enrollment, payroll approvals, employee training and more.
Consider how user-friendly or advanced an HRO’s platform is, and look for one that matches your staff’s tech capabilities and needs. Many HROs have mobile apps for employee and administrator functions, so mobile app usability should also be evaluated.
Service implementation and ongoing assistance
Depending on the services you outsource, HRO implementation can take weeks or months. Some vendors handle onboarding and implementation for you, while others let you manage much of the process. Neither way is right or wrong; it depends on how much initial implementation help you want.
Similarly, HR outsourcing vendors provide various levels of customer support that can differ based on vendor or even plan type. During demos and talks with vendor reps, ask about support options and communication channels (e.g., phone, email, web chat, tutorials, and online resources).
Service scalability
While looking for an outsourcing company to satisfy your current HR needs, it can be easy to overlook the future. However, you don’t want to invest in an HRO partnership only to switch vendors as your company grows. HR outsourcing is often customizable, and adjusting your outsourced functions as your company evolves is not uncommon. Look for a company that can scale with your business and accommodate your current and future HR needs.
What are the top HRO services?
Many great HR outsourcing services are available. However, after extensive research and testing, the following companies have emerged as particularly excellent HRO options:
- TriNet: TriNet is an excellent HR outsourcing solution for companies that want industry-specific support. It can provide HR assistance to a wide range of industries and offers valuable online resources.
- Bambee: Bambee is a great HR outsourcing service for companies that are looking to mitigate potential HR risks. A dedicated HR manager can conduct an HR audit on your organization and offer customized HR guidance and support. Bambee also offers essential functions like payroll processing.
- Paychex: Paychex is a popular outsourcing solution for various industries and business types. Its digital platform and employee self-service features make it an especially valuable tool for employers with dispersed teams.
- Insperity: Insperity offers essential HR services, including extensive training resources and hands-on customer support. It’s especially valuable for small- and mid-size businesses that are seeking specialized HR assistance.
- ADP: As one of the largest HROs on the market, ADP is a powerhouse HR outsourcing solution that brings years of HR knowledge and extensive employee benefits to the table. Its many plan options and services make it a flexible solution.