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5 Consequences of Not Outsourcing HR

5 Consequences of Not Outsourcing HR

HR outsourcing grows more popular every day. Small and medium-sized companies are seeing the benefits of outsourcing their HR needs. Companies that outsource HR grow faster and are more profitable than similarly sized companies that manage their HR fully in-house. 

Without a trusted HR partner, businesses can fall behind the competition. There are five major consequences of not following the HR outsourcing trend. 

1. Compliance Failures

compliance failure can adversely affect your company. As a small business, you face compliance and regulatory hurdles daily. Even innocent mistakes can have costly consequences in the form of fines and penalties from government agencies.  

You could also face employee lawsuits. Frequently occurring from payroll mistakes, if an employee is paid an incorrect overtime rate or short-changed on their regular pay, employees could file a lawsuit against your company. Not only is this is a costly and time-consuming endeavor, it also hurts your company's reputation, making it harder for you to attract and retain top talent in your industry.

2. Loss of Competitiveness

Employees are the oil that makes your business engine run. Without them, you would not be able to operate your business and be successful.

With a trusted HR outsourcing company at your side, you can better engage with your existing team and work hard to attract higher-quality employees. Through cultural improvements and better benefits, you can gain a competitive advantage.

Aside from salary, most employees are looking for a best-in-class benefits package. This is often unattainable for small businesses simply because of the cost involved in providing benefits. For many small business owners, they want to provide their team with high-quality healthcare plans but they cannot afford to offer them. With an outsourcing company, you can achieve your goal by being able to offer your employees healthcare plans that you can afford. 

3. Drained Cash Flow

There are countless ways your company can see cost savings from HR outsourcing. Not the least of which is through workers' compensation insurance savings.

With few exceptions, every company must carry workers' compensation insurance. If your company has a claims history of workers being injured on the job, it can make it extremely challenging for you to get workers' comp coverage without breaking the bank. Your experience modifier, the rate insurance companies use to determine your premiums, could be high because of your claims history. 

However, when you partner with an HR outsourcing company, you gain access to their experience modifier rate. This can reduce your premiums for your workers' comp coverage. You can also avoid paying the upfront costs since your HR outsourcing provider has already done that, making your workers' compensation insurance pay-as-you-go. 

The impact of workers' compensation claims is bigger for your small business. You end up spending more money on less affordable benefits. However, with an HR outsourcing provider, when your employees get injured at work, it goes against their workers' compensation policy and their experience modifier, not yours. This further helps to keep your costs down so you can spend your money where it matters most.

4. Productivity Losses

You need your team to be efficient and productive. You work hard to train them on how to do the job you need them to do.

But many employees, especially those in HR, are stretched incredibly thin. They have to handle mundane tasks and HR administration burdens that take their time and energy away from creating a culture that can help you attract better workers.

When your HR team is stretched too thin, it's also more likely that they will make mistakes. These mistakes could cause payroll errors that not only take precious time to correct but could also lead to costly fines and employee lawsuits. By outsourcing these complex and mundane HR tasks, you can reduce the likelihood of mistakes being made and give your HR team the much-needed break from shouldering the mundane HR tasks so they can help you focus on your core business needs.

5. Multiple HR Software Vendors

When you try to piecemeal your software or you manage your entire HR needs in-house, you may end up with many different pieces of software. You may have one for payroll, another for time and attendance, and yet another for benefits administration and enrollment. 

This creates confusion for employees and can make it difficult to keep your business records and files straight. With an HR outsourcing company, you get access to an all-in-one HR software that they manage for you. This makes it simple for your employees to access all of their confidential information, including their benefits, where they can make updates and changes during open enrollment, keeping you and your internal HR team from getting distracted.

The costs for managing all these different pieces of software can become enormous. With an HR outsourcing provider, moving to a single piece of software to manage all of your HR needs will cost you less and reduce the time it takes to manage your HR.

How to Leapfrog the Competition 

The best way to get the most out of HR outsourcing for your organization is to partner with a Professional Employer Organization (PEO). A PEO is one type of HR outsourcing option that provides you with the most comprehensive support and services. Because a PEO becomes the employer of record for your team, they can offer you cost savings on health insurance and workers' compensation insurance. You cannot get these savings with another type of HR outsourcing solution.

Companies that partner with a PEO see an average ROI of 27.2% over similarly sized companies that do not partner with a PEO. When you need to outsource your company's HR needs, there's only one solution you should consider: a PEO. 

What is a PEO?


HR Software, HR Outsourcing