Every small business starts with essential tasks like hiring, paying and managing employees. Initially, you might handle these HR responsibilities yourself—a common approach when resources are limited. However, as your business expands, the complexity of HR tasks grows, often overwhelming your capacity.
Many entrepreneurs initially delegate HR tasks to administrative, accounting or office management staff. While this may seem like a temporary solution, it can inadvertently compromise your business’s efficiency and compliance. Lacking the time and expertise, these well-intentioned staff members may struggle to manage HR demands effectively.
This is where HR outsourcing becomes a strategic choice, especially for small businesses looking to streamline operations and focus on growth. Outsourcing HR can provide professional expertise and reduce the burden on your internal team, allowing you to concentrate on what you do best—running your business.
As your small business expands, you'll reach a critical point—typically between your 10th and 15th hire—where HR demands become too complex to handle without specialized knowledge.
Here's why understanding this threshold is crucial:
As an entrepreneur, your efforts are best spent on strategies that increase revenue and business growth, not managing day-to-day HR tasks.
HR involves more than just hiring and paying employees. It encompasses the entire employee lifecycle, including recruitment, onboarding, training, compliance and much more. These tasks become increasingly intricate as your team grows.
Small and mid-sized businesses, especially those with 10 to 250 employees, often lack the dedicated HR staff necessary to manage these growing responsibilities effectively.
With limited budgets and staff resources, the burden of HR can feel overwhelming and divert attention from core business activities.
Once you recognize the triggers indicating that your small business needs more dedicated HR expertise, the next decision is whether to hire an in-house HR manager or to opt for small business HR outsourcing.
For many, outsourcing HR not only resolves these issues but also enhances operational efficiency, allowing you to focus on your business's growth and success.
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As small businesses grow, the complexity of HR tasks increases, prompting some to hire a dedicated HR manager. While this is a step in the right direction, solo HR managers often have expertise primarily in basic HR functions, not the more complex areas.
A solo HR manager in a small business setting may be adept at handling day-to-day administrative tasks but might lack the breadth of knowledge required for more strategic HR functions like compliance, advanced employee relations and strategic planning.
This limitation can lead to potential HR missteps, which are costly in terms of both time and money.
For many small businesses, the financial burden of hiring a full HR team with diverse expertise is prohibitive. In such cases, HR outsourcing emerges as a highly effective solution.
Outsourcing provides access to a team of HR professionals each skilled in different areas of human resources, offering a breadth of expertise that a solo in-house HR manager typically cannot match.
Outsourcing HR can also relieve small business owners from the overwhelming task of juggling multiple priorities. It allows businesses to access the right level of HR expertise suitable for their current stage, whether it's supplementing the skills of an existing HR manager or completely outsourcing HR tasks.
This approach not only ensures that your HR needs are met comprehensively but also integrates seamlessly, as these professionals effectively become an extension of your internal team.
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HR outsourcing offers a flexible, cost-effective way for small businesses to manage complex HR tasks without the overhead of a full in-house team.
By partnering with a specialized HR service provider, you can focus more on your core business activities while ensuring that your HR practices are effective and compliant.
According to the Society for Human Resource Management (SHRM), small to mid-sized businesses stand to gain significantly from partnering with human resources consulting firms.
Here’s why these businesses are well-suited for HR outsourcing:
Small to mid-sized businesses often don't have the sufficient scale or financial flexibility to manage a comprehensive in-house HR department. Outsourcing allows these companies to access a full suite of HR services—from payroll and benefits administration to compliance and employee relations—without the overhead associated with a larger HR staff.
Outsourcing HR functions enables small to mid-sized business owners to focus on their core operations without being bogged down by the complexities of HR management. This is particularly beneficial for businesses that need to stay agile and responsive to market changes.
In contrast, larger businesses such as hospitals or corporations with complex operational needs (like 24-hour staffing, shift differential pay and unionized workers) may find it more practical to keep all HR functions onsite.
These organizations typically have the infrastructure and resources to support a comprehensive in-house HR team capable of managing their specialized requirements.
Running your own company inevitably means juggling numerous roles. But as your business grows, so do the demands on your time, particularly in areas like human resources where specialized expertise is essential.
Here are six clear signs that it might be time to consider outsourcing HR functions:
As your business expands, the complexity of managing HR grows. This includes handling more complex payroll and benefits, enhancing people management skills among supervisors, and maintaining your company culture across a larger employee base.
Outsourcing HR can help you focus on growth while ensuring these critical functions are managed expertly.
Staying up-to-date with the myriad of local, state, and federal employment laws is overwhelming and can consume considerable time. An HR outsourcing partner specializes in compliance, ensuring that your business remains in line with current laws and regulations without burdening your schedule.
For growing businesses, establishing robust HR foundations—such as payroll processing, consistent onboarding procedures, and competitive benefits packages—is crucial. An outsourced HR team brings the expertise and resources to handle these essentials efficiently.
If expanding your HR capabilities internally is financially unfeasible, outsourcing offers a cost-effective alternative. You can access comprehensive HR services at a fraction of the cost of building an in-house team.
In today's competitive job market, offering attractive benefits is key to recruiting and retaining top talent. An outsourced HR partner can develop and manage such benefits packages, making your business a more appealing choice for prospective employees.
A lack of proactive culture management can lead to diminished employee engagement, affecting productivity and increasing turnover. Outsourced HR providers can assist with strategies like pay audits, training programs, and implementing HR technology to enhance engagement and cultivate a desirable workplace culture.
Recognizing these signs in your business is a strong indication that outsourcing could significantly improve your operational efficiency and allow you to devote more energy to strategic growth initiatives.
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When you decide to outsource HR services, you are engaging a specialized external firm to manage certain or all human resources functions on behalf of your company. This can include a wide range of tasks such as payroll administration, employee benefits, staffing, and risk management.
Outsourcing doesn't have to be an all-or-nothing approach. Many small businesses choose to customize the extent of services to their specific needs:
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Deciding on the right HR outsourcing provider can involve selecting a single provider that offers comprehensive services or engaging multiple specialists for different tasks.
While managing multiple providers can be complex, involving coordination and multiple payments, partnering with a single, versatile HR firm can simplify operations.
Top HR consulting firms provide the flexibility to choose which services to outsource, enabling small businesses to enhance efficiency and achieve cost savings by consolidating most HR functions under one provider.
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HR outsourcing offers flexibility to tailor solutions to your company's specific needs. This strategic approach allows you to offload non-core activities while focusing on essential business functions that drive your strategic mission.
Here are some common HR tasks that companies typically choose to outsource:
These services are often more effectively managed by external experts who can bring state-of-the-art practices and systems to small and mid-sized businesses.
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While many functions can be efficiently outsourced, there are areas that businesses often choose to manage internally to maintain control over strategic directions and personal relationships:
Deciding which services to outsource and which to retain in-house involves assessing your business's current capabilities, strategic needs and future growth objectives.
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Outsourcing HR functions can offer significant benefits, but it's important to understand the potential drawbacks as well. Here’s a detailed breakdown of the advantages and disadvantages to help you make an informed decision:
Outsourcing often proves more cost-effective than maintaining an in-house HR team, particularly for complex and time-consuming tasks such as payroll and benefits administration.
This cost-saving extends to avoiding expenses related to HR staff salaries, benefits and training.
Delegating HR responsibilities allows your internal team to concentrate on your core business areas, enhancing productivity and focusing on strategic growth initiatives.
External HR providers bring specialized knowledge and access to the latest HR technologies. This expertise helps navigate complicated compliance regulations and implement efficient systems for tasks like recruitment and employee management.
With outsourcing, you can scale HR services up or down based on business demands without the commitment to a full-time internal team.
This flexibility is particularly beneficial for seasonal businesses or those experiencing fluctuating growth.
Keeping up with ever-changing employment laws is a challenge. Outsourced HR firms specialize in legal compliance, significantly reducing the risk of non-compliance and associated penalties.
Outsourced HR firms often have dedicated resources for developing and conducting training programs on critical issues such as diversity, harassment and safety.
These programs are typically more comprehensive than what might be feasible in-house.
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Outsourcing can lead to fewer on-site HR professionals, which might impact the personal touch that face-to-face interactions foster. This is especially true when using a national provider, so a local PEO provider may be a better option for your business.
Including periodic on-site visits in the service contract can help bridge this gap.
It’s crucial that the outsourced HR provider aligns with your company’s culture. A mismatch can lead to policies and practices that do not resonate with existing company values, potentially disrupting the workplace environment.
Relying heavily on external HR services might impede the development of your own HR capabilities, which could be necessary as your company reaches a certain scale.
Outsourcing involves sharing sensitive information, such as employee data, with a third party. It's essential to ensure that the HR provider employs stringent security measures to protect data and maintain confidentiality. Learn more about how to ensure your outsourced HR provider treats your data like their own in this post.
Deciding to outsource HR can be pivotal for growth, especially if handling it internally is stretching your resources thin. To determine if outsourcing HR is the right move, consider the effectiveness of your current HR functions and the potential benefits of an external partner.
Assess your situation by asking these critical questions:
Are you facing high employee turnover, and do you lack the expertise to address it?
How effective are your recruiting and onboarding processes?
Could offering more competitive HR services and benefits help retain top talent?
Have you developed and formalized robust HR policies?
Are managers effectively handling performance and disciplinary actions?
Are there frequent errors in payroll or issues with timely payments?
Is your company culture aligned with your goals, and do you know how to improve it?
Are you facing persistent HR-related issues like low engagement or discrimination?
Could your HR functions benefit from newer, online technology platforms?
Are you struggling with maintaining compliance with HR regulations?
If you find yourself answering 'yes' to multiple questions, even only two, outsourcing HR could significantly benefit your business.
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Choosing the right HR outsourcing model is crucial once you decide to outsource. Depending on your business needs, you might consider:
Single-Function Outsourcing
Focus on outsourcing just one function like payroll. This is often suitable for businesses that are satisfied with most of their HR operations but want to streamline a specific area.
Multi-Function Outsourcing
Engage a third party to handle multiple HR responsibilities, covering areas where your current staff lacks capacity or expertise. This could include things like benefits administration or employee relations.
Full-Service Outsourcing (Professional Employer Organization - PEO)
Partner with a PEO that acts as a full-service HR department, managing all HR functions from payroll to compliance and employee training.
After you select a model, there are multiple options for structuring the outsourced relationship – software-as-a-service, business process outsourcing, single-source outsourcing, shared services and professional employer organizations (PEOs).
For many small to mid-sized businesses, managing payroll and ensuring compliance with evolving employment laws while also trying to attract and retain top talent can be overwhelming. Partnering with a Professional Employer Organization (PEO) presents a strategic solution that offers significant advantages:
PEOs specialize in managing all HR functions, acting as a co-employer to pool resources across multiple clients. This model allows businesses to offer competitive benefits and handle complex HR tasks more efficiently.
By consolidating HR services, PEOs help reduce administrative costs and enhance operational efficiencies, allowing businesses to focus more on their core activities.
Small to mid-sized employers can provide their employees with better healthcare and other benefits, making them competitive with larger companies in the talent marketplace.
Whether it’s handling sensitive issues like harassment or navigating tricky termination scenarios, PEOs bring expert advice and support, filling expertise gaps and offering guidance when needed.
As businesses grow, PEOs can scale their services accordingly, providing flexibility and supporting expansion without the overhead of an internal HR department.
With access to quality HR services, businesses can foster a better workplace culture, enhance employee engagement, and reduce turnover. Studies show that small businesses partnering with PEOs experience significantly lower turnover rates.
When choosing a PEO, consider the following criteria to ensure a good fit:
While PEOs offer extensive benefits, other HR outsourcing options like Administrative Services Organizations (ASO) and Human Resources Outsourcing (HRO) service providers might not offer the same level of benefit-cost reduction or employer guidance on employee benefits but can be suitable depending on your business needs.
By carefully evaluating these options, small to mid-sized businesses can find the right HR outsourcing solution to improve their operational efficiencies and better manage their workforce.
Partnering with a professional employer organization (PEO) can transform HR from a regulatory necessity into a strategic asset, driving significant business growth for small to mid-sized businesses.
Here’s how outsourcing HR to a PEO can propel your company forward:
Outsourcing HR functions to a PEO frees up valuable resources and time, enabling you to concentrate on expanding into new markets, developing innovative products, or increasing market share.
This reduces the need for additional office space and the overhead costs associated with maintaining an in-house HR team, directly cutting expenses and boosting operational efficiency.
Navigating the complexities of government regulations is challenging and fraught with risks of non-compliance. By outsourcing HR to a PEO, you ensure that your business stays updated with all relevant federal, state, and local laws, significantly reducing the risk of legal liabilities from government actions, customers or employees.
Research by the National Association of Professional Employer Organizations (NAPEO) shows that businesses utilizing outsourced HR services through PEOs experience significantly lower employee turnover rates.
This support helps small businesses enhance HR functions, leading to better employee benefits, higher satisfaction, and reduced turnover, crucial for maintaining a motivated workforce.
Read more about how PEOs elevate employee satisfaction in this post.
PEOs provide expert handling of complex and time-consuming workers' compensation and unemployment claims, including services such as fraud investigation and claims cost management.
This not only alleviates the burden from your team but also reduces unnecessary costs from fraudulent claims.
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The strategic benefits of outsourcing HR extend beyond immediate operational efficiencies to fostering long-term growth. Businesses partnering with PEOs report higher rates of revenue growth and workforce expansion compared to those managing HR in-house.
They also enjoy better employee relations and a stronger ability to attract and retain top talent thanks to enhanced HR support.
By integrating a PEO into your business operations, you not only streamline HR processes but also leverage their expertise to support your company’s growth and sustainability.
When considering outsourced HR options, look for partners like Axcet HR Solutions that offer comprehensive support and understand the unique challenges of your industry.
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A sound HR outsourcing agreement is pivotal for establishing a successful partnership between your company and a service provider.
Here are five critical elements that should be included in every HR outsourcing contract to align the provider's services with your business needs effectively:
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Once the HR outsourcing agreement is in place, the transition of services can begin. This phase is crucial for the successful integration of the outsourced HR functions into your business operations.
By carefully managing both the agreement and the transition process, your company can maximize the advantages of HR outsourcing, such as improved efficiency, access to specialized skills and better management of regulatory changes.
Establishing a robust foundation and maintaining a proactive approach throughout the relationship will set the stage for a successful long-term partnership.
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Perhaps we only have two hands because we’re only meant to do so much at once.
Companies are made up of a finite number of people, and people have limitations. That means you should carefully consider what your company can manage in its current form.
Many small and medium-sized businesses find their resources stretched thin, so they choose to double down on their strengths and outsource other tasks – notably, human resources – to outside firms.
Axcet HR Solutions is a Kansas City-based professional employer organization (PEO) that acts as a co-employer for small and mid-sized businesses. By outsourcing HR to Axcet, you as an owner of a small company will be freed up to focus on core business functions.
You’ll gain the expertise of seasoned and certified HR professionals without having to pay the salary and benefits the market demands of internal staff.
Looking for a reliable HR outsourcing partner? Axcet has served both the mundane and the complex HR needs of the small business community since 1988. Clients have peace of mind knowing that, as a certified PEO, Axcet has met the stringent requirements of the Internal Revenue Service to earn certification.
Axcet is among fewer than 10% of PEOs in the country the IRS recognizes that operate with integrity, have proven experience and consistently maintain a record of financial stability.
Axcet serves as an outsourced HR partner for small and mid-sized businesses that employ 250 or fewer people, with the company’s typical client having 10 to 99 employees.
To learn more about Axcet's services, please contact us to schedule a consultation.
* The IRS does not endorse any particular certified professional employer organization. For more information on CPEOs, go to www.irs.gov
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