By Derek Tracy, HR Services Manager
HR is critical yet complicated for both large and small businesses alike. Traditionally thought of as an administrative function focused on transactional issues like employee relations, pay raises, and health insurance, HR has not historically been seen as relevant to strategic planning. However, organizations have come to realize that the management of their largest and most expensive asset, their employees, needs to be prioritized to gain a competitive advantage. A recent Cornell study found that organizations focused on key HR management strategies saw a 22% growth in sales, a 23% increase in profits, and a nearly 67% drop in turnover. In short, businesses that take care of their people realize positive business results. However, managing that asset is highly complicated and requires diverse skills that can be challenging to accomplish internally. Many organizations are turning to outsource components of their HR program to cover gaps in internal expertise and ensure optimum compliance with employment laws. Small and large businesses each have unique challenges that typically require different outsourcing solutions for strengthening their HR program.
Small Business Outsourcing
Why is HR outsourcing a good choice for small businesses?
HR has become expensive, time-consuming, and full of risk. Employment laws have grown increasingly complex and fractured between the federal and state levels. It is challenging to stay on top of all the requirements related to critical areas like payroll, benefits, worker’s comp, workplace harassment prevention, leave administration, and general legal compliance. Most small businesses operate on budgets that make it prohibitive to employ enough HR professionals to provide adequate expertise to cover all the bases. They look to outsource HR responsibilities in the same manner they would outsource accounting or legal services, enabling them to offload as many functions as possible to HR experts for a fraction of the cost it takes to employ an internal HR team. Outsourcing the complexities of human resources makes sense as a strategy to simplify business operations, freeing employees to invest time into growing the business while decreasing overall business liability.
HR outsourcing options for small business
Small businesses vary considerably in their resources and needs; however, most operate on lean budgets that offer limited funding for HR staff. Many have a single HR professional responsible for the entire HR program or allocate HR responsibilities to non-HR professionals, such as administrative or accounting team members. They generally approach HR outsourcing in one of two ways: supplementing internal resources to cover gaps in expertise or outsourcing the entire HR program.
HR outsourcing to supplement internal resources
Organizations with a solid HR program in place find it advantageous to bring on an HR outsourcing firm to support their internal resources. In this case, the organization’s HR manager typically acts as the point of contact, collaborating with the HR outsourcing organization to establish and maintain the bulk of the HR program. The HR outsourcing company provides substantial expertise where needed, deploys HR programs, and takes on transactional tasks that free up internal HR to focus on higher-level strategic initiatives.
Outsourcing the entire HR program
Organizations that do not have a strong HR presence or whose HR responsibilities are handled by an employee with another role will benefit from outsourcing the entire HR function. The outsourcing firm collaborates with leadership to set priorities and establish a solid HR program tailored to the organization’s unique needs.
Large Business Outsourcing
Larger businesses enjoy the luxury of having an in-house HR team that manages HR tasks. Nevertheless, savvy enterprises realize that they get more efficiency and value from HR when engaging an HR outsourcing firm. Outsourcing HR makes sense for these larger businesses looking for additional expertise to integrate with their established programs. They gain value in two primary ways: offloading fundamental components to a team of specialists and enhanced expertise for implementing new HR projects or programs.
Outsourcing transactional HR responsibilities
Large businesses gain significant efficiency from offloading complex or time-consuming transactional HR responsibilities, such as ADA accommodations, workplace harassment prevention training, and the administration of leave, payroll, or benefits. As the trend toward pay equity laws continues to grow, even compensation is making more and more sense to outsource.
Outsourcing specialized HR project work
In addition to the efficiencies mentioned above, contracting with an HR outsourcing firm enables an organization to access experts when working on strategic projects like pay equity, workplace investigations, establishing a compliant employee handbook, or developing a comprehensive compensation strategy. HR services can quickly expand and contract based on business needs without disrupting the core HR program that is managed internally.
Regardless of your organization’s size, outsourcing is a valuable tool for leveling up your HR program, optimizing your team’s bandwidth, and reducing employer risk. It can provide as little or as much support as needed and, because of its scalability, can insulate against sudden changes in staff, the economy, or the business ecosystem, as we saw in 2020, providing a higher level of stability.