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The ROI of HR Outsourcing

the-roi-of-hr-outsourcing

Every year, tens of thousands of business owners outsource one or more HR responsibilities.

But what is the return on investment (ROI) of HR outsourcing? How do you pick the right outsourced HR solution?

In the world of human resources, trying to determine ROI is tricky. How do you put a price tag on improved employee happiness, reduced time burdens, and rock-solid compliance? 

Between payroll services, Administrative Services Organizations (ASOs), and Professional Employer Organizations (PEOs), you're certainly not short of choices. What kind of ROI can you expect from each type of outsourced HR solution?

What Is A Payroll Service/Payroll Processor?

Payroll services are outsourced HR services that exist solely to handle payroll needs. Traditionally, payroll has been the thorn in the side of small and mid-market businesses. The majority of SMBs attempt to handle payroll in-house, often shifting responsibilities off to untrained employees on an ad-hoc basis. 

When 49% of employees admit they start looking for another job after only two payroll errors, preventing payroll errors can help keep your business competitive in the global talent marketplace. Payroll processors help you keep payroll consistent and free up HR time to focus on more critical HR administration tasks. 

However, it's important to remember that payroll processors will only free up a small percentage of HR time, and your HR team will still have to focus on a swarm of other mundane HR tasks.

The ROI of Payroll Services

The majority of payroll services have a negative ROI. They're only handling payroll. Technically, payroll isn't a profit-center, and handling payroll isn't the most costly component of HR. However, it is notoriously time-consuming. The average small business owner spends 5 hours per pay period on payroll taxes alone, so freeing up HR time while reducing payroll errors provides a wealth of intangible value.

That being said, the other HR partners on this list also handle payroll. So, despite saving HR teams some amount of time, payroll processors only cut time off of a single HR bucket (i.e., payroll), and they generally cost your business in the long run — even after you include the benefits of streamlined payroll.

What is an Administrative Only Organization (ASO)?

Administrative Services Organizations (ASOs) are outsourced HR companies that help you tackle a variety of HR tasks. Unlike payroll processors, ASOs provide value across multiple buckets of HR. These include things like:

  • Benefits administration
  • Payroll
  • Compliance
  • HR administration
  • and more.

However, it's important to note that ASOs do not share liability with your business. If they make a payroll mistake, you will be the one paying for it. So, they're not HR partners; they're HR companies.

The ROI of ASOs

Like payroll processors, working with an ASO may result in a negative ROI. That being said, ASOs provide plenty of intangible value. By taking over payroll, they immediately provide all of the same benefits as payroll processors. At the same time, they handle workers’ comp claims, compliance, and HR administration — all of which business owners spend up to 18 hours per week dealing with themselves.

Really, ASOs save time across your business. Did you know that the average HR team spends 36 hours per week just on compliance-related activities? To keep things simple, ASOs free up HR, improve compliance, and take over some of the peskiest HR responsibilities, freeing up your HR team to tackle what really matters — growth, relationships, and, of course, your employees.

However, it is possible to receive all the services of an ASO with a positive ROI. That is where Professional Employer Organizations come into play.

What is a Professional Employer Organization?

Professional Employer Organizations (PEOs) are outsourced HR partners that team up with your business to tackle your most challenging HR hurdles. Like ASOs, PEOs can handle payroll, compliance, and HR administration. 

However, PEOs are the only outsourced HR solution that can save you money on benefits and reduce your workers' compensation payments. Small businesses usually pay more for benefits than large companies. PEOs use a unique model of partnership that allows them to leverage your employees (along with the employees from all the other businesses they partner with) under one umbrella to secure benefits. By taking advantage of economies of scale, PEOs can offer Fortune 500 benefits to small businesses at Fortune 500 prices.

PEOs are also the only outsourced HR solution that's a partner. They’re not just a "company" or a "solution." PEOs share liability with your business, and they have one goal in mind — helping you grow your business through world-class HR.

If you have no on-site HR team, your PEO can handle virtually all of your HR needs. 

If you have a great team of pros on-site, your PEO can handle the tasks that plague their day while providing expert advice regarding compliance and other nuanced HR topics.

The ROI of PEOs

Both ASOs and payroll processors provide vague ROIs. Payroll processors are generally negative, and ASOs may be positive or negative depending on the circumstances. But there's solid data to back up the ROI of PEOs. 

The average small business will see an ROI of over 27% when they partner with a PEO. This is accomplished through low-cost benefits, best-of-breed workers' compensation, and all of the same services as ASOs.

PEOs are the only outsourced HR solution that has research-backed data to show tremendous cost savings in the immediate and over time.

PEOs Provide The Best ROI

When it comes to outsourced HR services, PEOs provide the most tangible and intangible value to SMBs and enterprises. Payroll providers are only capable of handling payroll, ASOs can handle payroll in addition to other HR administrative tasks, and PEOs can handle all of the same responsibilities as ASOs with the added benefits of shared payroll liability, reduced benefits costs, and best-in-class workers' compensation packages.

In other words, PEOs aren't a cost; they're an investment. PEOs aren't just HR outsourcing; they're partners. 

And that makes all the difference.

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