10 benefits of outsourcing HR and how to choose the best service

Every job has its busy seasons, but for HR professionals, it may sometimes feel like every season is crunch time. Just when you finish the year-end performance review process, it’s time to kick off spring recruitment drives. Summer vacation means managing time and attendance or updating policies; then it’s time for open enrollment in the fall. And somewhere in there, your HR professionals need to find time to stay current on compliance, file payroll taxes, and develop a company handbook. 

If it sounds like a lot, that’s because it is a lot. And if your HR department spends as much time looking for labor posters as it does looking for the next great hire that you need to revamp your marketing team, it might be time to consider partnering with an HR outsourcing company.

Ready to explore HR outsourcing but not sure where to start? In this article, we unpack why outsourcing some or all of your business’s HR functions can be a catalyst for growth. We’ll also look at some of the surprising advantages of partnering with a trusted HR service provider.

What is HR outsourcing? 

Human resources outsourcing is when your business partners with a specialist service provider to help manage specific HR services. Typically, an HR outsourcing company will take over administrative tasks, freeing your HR department to focus on strategic work that drives growth. The outsourcing company may also provide access to specialized technology or expert advice. 

HR outsourcing companies themselves usually fall into one of two categories. Administrative services organizations (ASOs) handle day-to-day HR tasks like payroll, compliance, and benefits administration while allowing your business to maintain control over the team. 

Example: Acme Corp wants to streamline certain HR services to allow the HR department more time to focus on strategic hiring initiatives. The company partners with an ASO, which handles payroll and regulatory compliance. The ASO also offers assistance with benefits administration, though Acme Corp remains responsible for purchasing plans and enrolling its employees.

If you need more support, professional employer organizations (PEOs) act as co-employers, taking responsibility for some HR functions completely. 

Example: StartUp Co recently increased its headcount significantly, with new hires scattered across the US. Rather than hire another HR generalist, StartUp decides to partner with a PEO. The PEO acts as a co-employer, managing payroll and compliance from end to end. StartUp also takes advantage of the PEO’s access to benefits packages, which are significantly better than those it could have negotiated itself.

HR outsourcing can also look like partnering with a specialist advisory service for targeted help in a particular area. Rippling’s Global HR Advisors, for example, can guide your HR professionals through new and complex challenges that can arise when your business operates internationally, like administering locally compliant benefits packages everywhere you hire. 

10 advantages of outsourcing HR for small, mid, and large businesses 

Partnering with a PEO or an ASO to manage HR has advantages beyond cost savings and efficiency. By streamlining processes and improving the employee experience, your company can benefit from reduced turnover and increased engagement, among other positive knock-on effects. 

1. Maximize compliance

Both PEOs and ASOs can help your business stay up-to-date on changes to important employment regulations. While an ASO can alert you to these changes and suggest actions you should take to remain compliant, a PEO will proactively update policies, procedures, and documentation on your behalf.

2. Reduce costs and regular expenses

Partnering with an HR outsourcing company can be less expensive overall than maintaining an in-house team. PEOs, which benefit from increased bargaining power due to size, can also provide access to robust benefits packages that might otherwise be out of budget for small businesses.

3. Find top talent 

For small businesses and startups, offering the employee benefits and perks that appeal to top talent can get expensive. Working with an HR outsourcing company that offers premium benefits—and provides access to tools and technologies to streamline the onboarding process—can improve your company’s ability to attract and retain the best hires.

4. Gain access to experts’ advice

Many HR outsourcing companies provide dedicated support from a team of HR specialists with expertise on topics that may be too niche for an HR generalist. Wondering whether your remote employee based in Austin needs to pay state income taxes because your company is based in Boston? A PEO or an ASO will give you accurate guidance that saves hours of head-scratching.

5. Increase employee engagement 

An HR department that runs smoothly and addresses employees’ concerns promptly is an HR department that makes employees feel supported. And supported employees tend to be more productive and engaged. Handing over administrative tasks to a PEO or an ASO also gives your HR team the space and time needed to develop new programs and initiatives geared toward increasing employee satisfaction. 

6. Boost HR efficiency 

Unless your HR team has time to continuously develop and implement new policies and procedures, research new HR tools and solutions to streamline operations and, well, manage HR, a PEO or an ASO may be just the ticket to improve overall efficiency. Why? PEOs and ASOs are constantly on the lookout for ways to automate and streamline core functions like tax registrations, running payroll, and benefits administration.

7. Minimize risk

Working with a PEO or an ASO not only helps your business avoid compliance pitfalls, it can help you navigate murky waters in case of mistakes. Access to expert guidance and legal expertise can help you chart a way forward when coping with dismissals, grievances, or disciplinary measures.

8. Focus on core business 

Your HR department is meant to play a strategic role in your business, helping you identify the right hires, develop your workforce, and scale operations efficiently and cost-effectively. By handing off administration-intensive tasks like payroll or compliance to a PEO or an ASO, you empower your team to focus on the projects that help grow the company.

9. Enhance employee benefits management

HR outsourcing companies can help with benefits management in multiple ways. While an ASO can help with benefits administration, assisting employees with enrolment, and maintaining compliance, a PEO goes further. PEOs take advantage of their size and buying power to negotiate more favorable terms than those available to small or midsize businesses. This means your employees can access higher caliber benefits.

10. Get better analytics and reporting

Many ASOs and PEOs, including Rippling, provide access to a dedicated HR platform as part of their support offering. By centralizing your HR data into a single source of truth, Rippling gives your decision-makers advanced reporting capabilities to dig into what is and isn’t working for your organization.

When should you consider HR outsourcing services?

Businesses at any stage of development can benefit from working with an HR outsourcing company. It can be especially helpful in the following situations:

Rapid growth and expansion

If your headcount has exploded or you’ve recently set up shop in a new jurisdiction, your HR team may be struggling to meet the new demands on its time. More employees means more extensive support needs. And hiring in new states or countries comes with new and different compliance requirements. PEOs and ASOs can help by lightening your team’s administrative burden, freeing them up to focus on more immediate employee needs.

Limited in-house HR knowledge

Complex areas like benefits administration, employee relations, and global compliance can require specialist knowledge to avoid missteps. For smaller, leaner businesses without the budget to hire a dedicated HR professional, PEOs and ASOs can offer access to expert guidance and educational resources.

HR is becoming too expensive 

As your company grows, so do the expenses associated with maintaining an in-house HR department. Outsourcing to a provider that offers HR services on-demand or as-needed can save costs and help control spending without sacrificing support or compliance.

How to outsource HR? 3 tips to choose the best service

When choosing an HR outsourcing solution, start by drilling down to your core needs. Are you looking for someone to take over payroll and manage payroll taxes? Do you need help coordinating compliance across different states or countries? Does your business have challenges around benefits administration? Understanding your pain points helps you focus on tools and partnerships that align with what you need to grow. 

You can apply other criteria once you’ve clarified the services that would most help your HR team. We suggest:

• Checking the level of customer service. Are current users happy with response times? Do they report that concerns or questions receive comprehensive responses? What kind of technical help can you expect in case of problems with a tool, portal, or platform?
• Evaluating software integrations and capabilities. If your organization uses specialized tools for decision-making and strategy, you’ll want to be sure you can transfer your HR data directly. 
• Researching and comparing providers. Don’t be afraid to dive into the fine print of a potential partner’s offer to understand how it differs from the competition. And remember to ask around for recommendations and reviews within your network for unbiased opinions. 

Efficient and reliable HR outsourcing with Rippling 

For businesses interested in streamlining one or more HR functions, Rippling ASO provides access to expert assistance without sacrificing flexibility. Bring your own brokers, benefits, and workers’ compensation plans, and Rippling takes charge of administration and compliance work, such as state tax registrations and EPLI claims support. 

Need more comprehensive support? Rippling PEO offers a co-employment relationship that takes payroll, benefits, workers’ compensation insurance, EPL insurance, and claims administration off your plate. You’ll also benefit from access to a selection of quality employee benefit plans and support with enrolment through Rippling’s unified platform.

With Rippling, you get:

• HR, IT, and Finance in one platform
• Powerful and customizable reporting on any employee data
• Remote team management features, including state and local tax registration, digital onboarding, and app and device management
• Automatic flagging for potential federal, state, and local compliance infractions, along with recommended action plans 
• Automated processes, including ACA and COBRA administration, anti-harassment training, and distributing digital labor law posters to your employees
• Access to hundreds of comprehensive HR resources, guides, and templates

FAQs on outsourcing HR

What does HRO stand for?

HRO stands for Human Resources Outsourcing: the practice of partnering with a third-party organization, such as an ASO or a PEO, to handle some or all of your business’s HR tasks. 

How much does it cost to outsource human resources?

The cost of outsourcing some or all of your human resources functions depends primarily on the amount of support your business needs and the size of your workforce. 

Common pricing structures for outsourcing are either a flat fee per employee or a percentage of your payroll. Because of this, a small business looking for help with payroll and handbook development likely won’t pay as much as a multi-regional company that hopes to hand over all of its HR administration to a trusted partner. 

Why do small businesses outsource HR?

Small businesses outsource HR to save costs, access expertise, and streamline administrative tasks that can steal time from important strategic work needed to grow and scale. Small businesses without the need (or the budget) for a dedicated HR team may also decide to outsource tasks requiring specialist knowledge, such as compliance.

What HR functions should not be outsourced?

Core HR functions like employee relations, culture-building, and strategic decision-making are best handled by in-house employees familiar with the day-to-day workings of your organization and its long-term goals.

What are the disadvantages of outsourcing HR?

Disadvantages of outsourcing HR can include less control over company culture, slower response times to employee issues, and security concerns for sensitive data. Relying on a third-party provider can also create challenges if your business transitions back to in-house HR, and some solutions may have hidden costs. Avoiding these drawbacks requires careful provider selection and management.

This blog is based on information available to Rippling as of November 11, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.