As small businesses grow, managing HR tasks becomes increasingly complex and time-consuming. HR outsourcing offers a strategic solution, allowing companies to delegate essential tasks like hiring, payroll and employee management to professionals. This not only enhances efficiency but also ensures compliance with regulations.
By outsourcing HR, small businesses can focus on their core operations and growth, benefiting from expert support without the overhead of an in-house team.
In this guide, we will cover:
As your business expands, typically around the 10th to 15th hire, HR demands become too complex to handle without specialized knowledge. Recognizing this threshold is essential for maintaining efficiency and compliance.
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.
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Deciding between hiring an in-house HR manager and outsourcing HR functions is a significant decision for small businesses. Here are some pros and cons of each approach:
Given these factors, many small businesses find that outsourcing HR can provide a balance of expertise and cost-efficiency. Outsourcing HR functions to specialized providers can help manage growth and compliance challenges more effectively.
Outsourcing HR functions can offer significant benefits, but it's important to understand the potential drawbacks as well.
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.
Small to mid-sized businesses benefit significantly from HR outsourcing, especially those with 10 to 250 employees. Outsourcing allows these businesses to access comprehensive HR services without the overhead costs of a full HR team.
Outsourcing HR also 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.
Here are six clear signs that it might be time to consider outsourcing HR functions:
As your business grows, the complexity of HR tasks increases exponentially. Hiring, onboarding and managing a larger team requires specialized knowledge and systems that can scale.
If you find that HR tasks are consuming more of your time and resources, it might be time to consider outsourcing. Outsourcing HR can help you manage this growth efficiently, allowing you to focus on strategic business activities.
Keeping up with ever-changing federal, state and local employment laws can be daunting. Non-compliance can lead to costly fines and legal issues.
Outsourcing HR ensures your business stays updated on the latest regulations and ensures your business remains compliant, mitigating risks associated with employment law violations.
A robust HR foundation is essential for managing employee relations, payroll, benefits and compliance.
If your business lacks the infrastructure to handle these tasks effectively, outsourcing can provide the necessary systems and expertise.
This ensures smooth HR operations and allows you to implement best practices without the need for significant upfront investment.
Hiring and maintaining an in-house HR team can be expensive, especially for small businesses with limited budgets. Outsourcing HR can be a cost-effective solution, providing access to experienced professionals and advanced HR technology at a fraction of the cost. This approach allows you to allocate resources more efficiently and invest in other areas of your business.
Offering competitive benefits and creating a positive work environment is crucial for attracting and retaining top talent.
Outsourcing HR can help you design attractive benefits packages, develop employee engagement programs and implement strategies to improve workplace culture.
This enhances your ability to attract skilled employees and reduces turnover rates.
Maintaining high employee engagement is vital for productivity and job satisfaction. If your business is struggling with low morale, high turnover or disengaged employees, outsourcing HR can help.
HR experts can implement engagement surveys, develop training and development programs, and provide support for employee relations issues, fostering a more motivated and committed workforce.
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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 HR 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 HR 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 HR 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).
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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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.
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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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