OneSource Business Solutions Blog

The Promise of HR Outsourcing


HR outsourcing is a growing trend, especially amongst smaller businesses. The fact is that for smaller businesses, HR outsourcing only makes sense. Outsourcing some or all routine HR functions saves time, increases morale and productivity, lowers costs, and ensures that best practices are implemented by bringing in the expertise you could not otherwise afford.

Time Saved

Payroll processing takes several hours per pay period and has to be done correctly. Onboarding each new employee takes even more hours just in paperwork. W-2s, immigration forms, benefits enrollment, etc, all take time.

In a small company with only one HR person, they may be spending most of their time on paperwork. Alternatively, that paperwork might end up being done by other employees or the owner. The result is a lot of time being spent on tedious administrative matters that do nothing for the company's growth or revenue. 

Morale Raised

Employee morale is affected by a variety of factors. While some things are beyond your control (such as what might be going on in an employee's home life), employee morale can be increased by avoiding favoritism, treating employees with respect, empowering employees, including them in your company's goals, etc.

HR pays a key role in increasing employee morale, and when routine matters are taken off of their plate they can focus on building a company culture that increases morale and engagement, dealing with issues such as conflicts between employees that tend to lower morale, and ensuring that employees get the training they need. Furthermore, when they are not having to spend hours checking regulations and entering payroll, their morale also increases, which makes them better able to support others.

Another way HR outsourcing can improve morale is by providing you with access to better benefits than you can afford on your own. This attracts better talent and reduces stress on existing employees. Employee morale is improved by access to premium benefits such as a good retirement plan, or dental and vision insurance, and by better coverage for their family.

Finally, payroll errors are the fastest way to reduce employee morale, lose the trust of employees, and see key people looking for opportunities elsewhere.

Productivity Raised

The truth is that a payroll expert can process payroll, often using enterprise-grade software, far faster than an HR generalist or, worse, your office manager. This means that everything is done more efficiently and at a lower cost. It also means that your HR people are not working extra hours to get everything done, which generally results in getting less done in the same amount of time, as well as reducing their morale, which then spreads through the office.

And, of course, if you have employees doing HR tasks instead of their actual job, that definitely lowers their productivity. They are interrupted, taken off track, and may end up overworked. When people fall behind, they tend to stay behind or fall further behind because they feel as if they can't catch up.

Best Practices Implemented

An outsourcing partner such as a professional employer organization has years of experience developing best practices that are better and more efficient. Their experts know exactly how to ensure total compliance with local, state, and federal laws and regulations, thus avoiding costly mistakes that can lead to fines and lawsuits.

For a less experienced person, just keeping up with those regulations can be close to a full time job, but these experts know exactly how to keep up with everything. They can also leverage the experiences of other clients to develop better ways to do things.

Working out all of these best practices and compliance issues on your own takes a lot of time and, thus, a lot of money. A PEO can even help you with best practices in training (especially safety training) and employee development, based off of their experience and that of their other clients.

Costs Lowered

The ROI of using a PEO is about 27.2% based on cost savings alone. This doesn't include intangible benefits that are harder to track, such as employee morale and engagement, lowered turnover, etc.

By partnering with a PEO you get the strongest positive ROI of any outsourcing solution (payroll services often end up with a negative ROI).

Also, you can avoid having to add another full-time employee to your HR team until you legitimately have enough work for one, and often for a considerable amount of time. This allows you to grow without either overworking HR or paying for time you are not using.

Finally, with a PEO, you get to put your employees on their benefits master plan, which offers far better rates for better coverage than you can get on your own. Economies of scale make a huge difference in benefits and workers' comp costs, and providing better benefits makes it easier to attract and retain workers.

The promise of HR outsourcing is to achieve all of these things. Done right, it gives you a competitive advantage, especially in terms of attracting the dedicated talent you need to help your company grow.

Which HR Functions Should Your Business Outsource?