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When Should You Outsource HR?

When Should You Outsource HR?

Outsourcing specific business processes has become a growing trend, especially for small businesses. HR outsourcing is one of the best ways to save time and money while also seeing positive results from the partnership.

But just because many companies are doing it, doesn’t mean that it’s right for every company. Your business should only outsource HR when it makes sense to do so. This largely depends on what HR functions you plan to outsource. 

What HR functions can be outsourced? 

HR outsourcing comes in many forms and can provide your business with many types of services. One of the biggest reasons companies choose to outsource HR tasks is that it frees up your internal HR team to focus on your core business needs and helps you build an attractive culture where people want to work. By shifting your in-house HR department’s focus, you give your company the chance to grow faster. Here are some of the most common functions that companies outsource to an HR provider: 

Payroll Administration 

Payroll is one of the most mundane HR tasks. It’s repetitive, which can make it mind-numbing, but it also requires absolute accuracy each time. When mistakes happen, even innocent mistakes, they can be costly to your company. 

Through HR outsourcing, your provider can take on your payroll duties. Working with payroll experts will ensure absolute accuracy with your payroll to avoid costly fines and unhappy employees. 

Employee Benefits 

Some employee benefits are required by law. Others are optional. Your first battle is to ensure that your company is compliant and provides at least those required benefits. 

However, offering more than just the required benefits will give your company a leg up on the competition. Employees frequently look for a stellar benefits package when deciding whether to take a job with a company. With the right HR outsourcing partner, your benefits package could be your company’s competitive advantage. Even better, your HR outsourcing provider will administer your benefits, taking that headache off your shoulders. 

Workers’ Compensation Insurance

For many small businesses, workers’ compensation insurance can be a significant drain on finances. Workers’  compensation insurance provides specific benefits to employees who get injured at work. 

To find affordable workers’ compensation insurance, an HR outsourcing provider will give your company access to its existing workers’ compensation plan. This can reduce your premiums in many cases.  

HR Compliance 

As a small business, you face regulations from the federal, state, and local levels. Keeping up with ever-changing employment laws can seem like an overwhelming and full-time task. 

Outsourcing your compliance needs to an HR provider could be just the solution you need to help keep your business compliant. It also takes that stress away from your in-house HR team and gives the duty to an HR expert. 

Employee Training 

Training your employees is crucial to getting the most productivity out of each role. But training is not just something that happens at the onboarding stage—it should happen routinely throughout the employee life cycle. 

Creating and maintaining a training program can be a daunting task. With the right HR outsourcing solution, your company can get a training program designed to help you keep your employees safe, happy, and productive. 

Unemployment Management 

Unemployment claims management presents unique challenges for small businesses. Often, a person handling unemployment claims doesn’t realize the implications of whether or how they respond. 

With an outsourcing partner, they will handle your unemployment claims management for you. They will also help ensure that only legitimate claims are paid. 


Hiring employees is a central component of your business but also one that is never easy. It takes a great deal of time and effort to post job openings, review resumes, and interview candidates. 

With an HR outsourcing company at your side, they will help you create engaging job descriptions and build a smooth onboarding process. This allows your new hires get off on the right foot and understand what’s expected of them. 

When should a company choose to outsource HR? 

Whether to outsource HR is a big decision. The potential cost savings of HR outsourcing can be thrilling, as can the time savings your internal HR team may see. But don’t be blinded by these alone. 

Make sure that your HR outsourcing provider’s services complement your existing capabilities. Asking the right questions will help you determine whether HR outsourcing is right for your business right now. 

7 Questions to Ask Before Outsourcing HR 

  1. Are you spending too much time managing HR problems?
  2. Are you considering expanding your in-house HR team?
  3. Do you want to reduce your tax liability?
  4. Are you dissatisfied with your risk exposure?
  5. Is your current benefits package not attracting and retaining top talent?
  6. Are your workers’ comp costs hurting your cash flow?
  7. Are you finding payroll mistakes?

How to Determine if it’s Time to Outsource

The more times you answered “yes” to the questions above, the more you will benefit from HR outsourcing. If you answered “yes” to all or nearly all of the questions, it might be past time for you to review your HR outsourcing options.

The most comprehensive HR outsourcing solution comes from a Professional Employer Organization (PEO). Businesses that partner with a PEO see an average ROI of 27.2%. Learn more about PEOs by downloading our free eBook “What is a PEO?” 

What is a PEO?


Small Business, HR Outsourcing