Whether it’s outsourcing IT, accounting, or human resources (HR), the trend of companies outsourcing certain business activities has been increasing over time. Businesses understand that by outsourcing these activities, they can focus more of their time on winning new customers, courting investors, and motivating their employees.
In this post, we will be diving into HR outsourcing. What does it mean for your business to outsource its HR function? For an owner, outsourcing HR functions generally means that her business will pay for a combination of a technology solution and access to certified HR professionals. From onboarding new employees to administering employee benefits, outsourced HR providers help companies stay in compliance with labor laws and regulations as well as ensure a seamless employee experience.
There are four main advantages to outsourcing HR functions: 1) Ensure That Your Business Is in Compliance, 2) Improve Your Employee Experience, 3) Offer Better Benefits, and 4) Reduce Costs.
Advantage #1: Ensure That Your Business Is in Compliance
There are federal, state, and local labor regulations with which businesses of all sizes must comply. For instance, the Fair Labor Standards Act (FLSA) governs topics such as employee classification and overtime rules, while the Employee Retirement Income Security Act (ERISA) sets minimum standards for group health and 401k plans. There is an alphabet soup of employment regulations that constantly changes depending on certain court rulings or new legislation passed by Congress.
This is why so many businesses turn to outsourcing the administrative and legal complexity of these regulations to third parties, including outsourced HR providers and sometimes even law firms with a specialty in employment law.
Advantage #2: Improve Your Employee Experience
Employees expect their work experience to be a seamless and technology friendly as their personal consumer experience. Apple, Amazon, and Google have raised the bar on consumer expectations. Those same consumers are of course employees. So, employers have been forced to ensure that their HR technology stack provides an integrated and seamless employee experience. Luckily, there are many different HR software solutions that have kept pace with technological innovation and provide such an experience.
When choosing a technology provider, ensure that all of your HR modules are truly integrated with payroll, from online benefits enrollment to applicant tracking. Many small and medium sized businesses turn to outsourced providers who can provide not only the full HR tech stack but also access to HR and employee benefits professionals.
Advantage #3: Offer Better Benefits
In order to compete with large corporations, small and medium sized businesses have to offer competitive benefits. Attracting and retaining talent is critical to the success of any business, regardless of its size. Having HR and employee benefits professionals who can guide your business through various insurance options, current market trends and creative benefits strategies is a huge advantage.
If you are a startup, it’s important to strategize about how and when you want to improve your employee benefits over time and to communicate that to your employees. Recognize that while you may not be able to offer group health insurance from the very first day, you can offer an array of other benefits, including equity, flexible work schedules, and growth opportunities that larger companies cannot match.
Advantage #4: Reduce Costs
One of the biggest advantages to HR outsourcing for small business is the ability to save money. Outsourcing is growing for a reason! By outsourcing human resources, the technology and support you can gain as a small business are massive. The technology and expertise may otherwise be unaffordable to a small business. Hiring an HR Manager can cost a business close to $90,000 per year when factoring in the cost of benefits and taxes. By outsourcing the HR function, businesses can save anywhere from $30,000 to $70,000 annually largely depending on company size.
Do You Already Have an HR Professional on Staff?
If you have a certified HR professional on staff, it’s important for the CEO to understand that HR covers many different areas, from compliance to employee relations to compensation and benefits. In other words, HR is a big job.
Many businesses that do have HR professionals on staff often hand off other non-HR responsibilities to those employees. Often, these businesses will choose to outsource the administrative and compliance related HR functions, while keeping certain HR functions, such as compensation and employee relations in-house.
Most businesses do not have the time to become HR experts. Keeping up with existing and new regulations that come out every year is a full-time job. As a CEO, there are only so many hours in the day. Instead of trying to master HR in-house, many executives turn to outsourced HR providers who have the internal expertise, technology, and resources that would be expensive for a single business to replicate.
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