Benefits of outsourcing HR for small businesses

HR administration is an essential component of running a small business, but it’s often one of the most challenging to manage in the early stages of small business or start-up operations. Most small businesses focus on their product/service team and sales staff in the early years, but someone still needs to run payroll and handle onboarding for new hires.

While most small businesses hope to grow to a size that will require and can support an in-house human resources department, HR outsourcing can offer a great interim solution for businesses that aren’t quite there yet. HR outsourcing takes complex or time-consuming tasks off of small business owners’ plates so that they can focus on leading and growing their companies.

Explore the benefits of HR outsourcing below to find out if outsourcing human resources is right for your small business.

How does HR Outsourcing work for small businesses?

With human resources outsourcing, small businesses can get help from an external party in managing their HR activities. This includes things like payroll administration, employee benefits, HR compliance, and talent acquisition. The process is designed to help take some HR functions off of the business’ plate and transfer them to knowledgeable and experienced HR professionals.

The exact way that the process works will vary based on business needs and the type of outsourcing service contracted. Small businesses can outsource all of their HR operations, or just specific HR tasks that they don’t have the bandwidth to manage internally. Some small businesses use HR outsourcing services in place of an HR department, while others have the outsourced HR experts work directly with the in-house HR team as a supplemental resource when the business is experiencing specialized or heightened HR needs.

BP Handbook D

What HR functions can you outsource?

Almost any human resources function can be outsourced. You can find HR experts in a wide range of HR areas or contract with a full-service provider that can handle them all. Some of the most common functions to outsource for small businesses include:

  • Payroll processing: Have an expert payroll service provider handle payroll processing, deduction and tax withholding calculations, and end-of-year payroll tax forms.

  • Benefits administration: HR outsourcing providers can handle day-to-day benefits administrative tasks or provide access to a software system for better employee self-service regarding benefits.

  • Creating company policies: Crafting policies from scratch can be difficult, especially in a small business. HR service providers will have well-crafted, legally tested policy recommendations that can be customized for your business.

  • Recruiting: Small businesses can get support with candidate sourcing and screening to more efficiently find the best talent for open roles.

  • Onboarding: HR service providers can streamline the onboarding process including collecting and processing onboarding paperwork and coordinating employee training.

  • Performance management: Help boost employee performance and retention by working with an HR outsourcing provider to improve performance tracking, communication around performance, and provide additional training and development opportunities.

  • Administrative tasks: Cut down on paperwork, data entry, and other time-consuming administrative tasks by outsourcing or automating them with an HR outsourcing provider.

Benefits of HR Outsourcing for small businesses

HR outsourcing can provide meaningful support to small businesses across a number of human resources areas and goals. Explore the top eight benefits of HR outsourcing for small businesses.

Saving time

One of the biggest reasons to outsource HR as a small business owner is to save time. Small business owners are constantly being pulled in a bunch of different directions and that can make it tricky to keep up with all of the finer details and administrative tasks. That’s why many businesses outsource HR to free up time to focus on other core business tasks.

HR outsourcing vendors can handle time-consuming HR services like payroll processing, implementing risk management practices, and handling the administrative side of HR management. This allows business owners to focus their time on the day-to-day employee relations and other operational needs like sales and finance.

Reducing HR costs

employee-pay-profile-450x350px-2While some of the more premium full-service HR outsourcing providers can get a bit pricey, outsourcing HR is typically cheaper than hiring an in-house team. With an in-house team. Businesses will be paying year-round salaries to maintain their HR staff. With small business HR outsourcing, they can have an HR expert on-call and available when needed without paying full-time wages.

When contracting with a human resources outsourcing (HRO) company or professional employer organization (PEO), HR technology is also bundled in with the standard service cost. Therefore even if the price quote seems a bit high, businesses do often save money going with an HRO rather than paying for an in-house HR team and licensing HR software separately. Plus, there are some fairly affordable small business HR outsourcing options that may only cost a few hundred dollars per month. HROs like Bambee and Zenefits offer budget-friendly packages with HR expert advisory services available.

Small businesses can also contract with an independent human resources management contractor for varying hourly rates and pay for only the time you need. This is helpful as HR needs can vary greatly for small businesses. They need more help when they are hiring new employees, navigating open enrollment, or preparing end of year tax forms, while other months there may not be a lot of HR work beyond standard payroll processing. The flexibility to pay for only what you need makes contracting out HR more cost-effective than hiring permanent in-house staff for many small businesses.

Ensuring accurate and timely payroll processing

Small businesses tend to run into more payroll mistakes and issues than larger businesses that have their own internal payroll department. Often a business owner, finance manager, or some other internal team member gets stuck with the task of running payroll each pay period because the business isn’t large enough to hire a dedicated HR or payroll manager. It’s easy for payroll to get overshadowed by other pressing business tasks when it’s a side activity that’s been tacked on to your long list of duties, but your employees need to get paid. That’s why many small businesses leave payroll to outsourced experts.

You never want any mistakes or delays in your employees’ pay, and when you outsource payroll you can feel confident knowing that it’s being done on time by an actual payroll expert. Working with a payroll service also streamlines payroll taxes and end-of-year tax forms for small businesses, as most payroll services are able to support and process payroll tax filings and paperwork for small businesses.

Creating up-to-date HR policies

Small and medium-sized businesses need detailed employee handbooks and HR policies just as much as large businesses, but they often don’t have the in-house resources or the time required to craft these policies. HR outsourcing is a great option, as it allows an outside HR expert who is already knowledgeable and up-to-date on relevant employment laws to take over the drafting of the company’s HR policies. Of course, the small business leaders will provide input to ensure that the policies match the business’ company culture and way of doing things.

Having clear, written HR policies ensures that everyone is on the same page about expectations, provides documentation in the event that a policy is violated and disciplinary action is needed, and helps the company operate compliantly. Employee handbooks and policies are also much easier to maintain after the initial writing phase, so once the handbook writing is outsourced, many businesses can update it annually on their own (or continue to outsource that task).

Improving legal compliance and risk management

Small business owners have a lot of things to worry about, and staying on top of changing employment laws may not always make it to the top of the list. Outsourcing HR functions removes the burden. HR outsourcing companies and HR consultants typically stay up to date on all of the employment and labor laws and alert employers when there’s a legal change that they need to be aware of.

The outsourced HR staff can also support businesses by auditing existing policies and practices to ensure that the company is operating in a legally compliant manner. Many of the larger HR outsourcing companies also have workplace safety experts, offering another level of risk management support. They can help improve safety standards for onsite staff or coordinate and provide safety training. Workplace accidents are a huge liability, so having an outside consultant provide guidance can be incredibly helpful for businesses with in-person staff who may be lifting and carrying items, operating machinery, or otherwise subject to workplace safety standards.

Streamlining HR processes

Many small businesses, especially those without an established internal HR team, are too busy trying to get things done that they don’t have a lot of time to really look at how they are getting things done. This often leads to disorganized or inefficient HR processes. HR outsourcing is a great way to get fresh eyes on your business’ current HR processes and procedures. HR outsourcing companies and consultants can recommend and implement process changes to help streamline your business’ HR processes.

Many HR outsourcing companies also provide HR software. This software can be used to automate common HR workflows to create more efficient processes. These digital tools combined with expert HR consulting can help businesses get better HR processes in place and save time in the long run.

Accessing better employee benefits offerings

Offering employee benefits as a very small business often just isn’t cost-effective independently, but it is still important for your employee’s health and well-being. Plus, it may be legally required depending on how many employees you currently have.

That’s where outsourcing with a professional employee organization (PEO) can help. PEOs act as co-employers to your business and can enroll your employees in its benefits offerings. Since the PEO has a large employee population with team members from several companies combined into one employee pool, it can access benefits offerings and health insurance rates typically reserved for large businesses. As a result, your employees get a better benefits package.

For those who don’t want to work with a PEO, HR outsourcing can still help your business better find and evaluate benefits offerings. Benefits consultants can advise on what benefits to offer, how to comply with the ACA, and source insurance vendors to work with.


Prioritizing employee training and development

Most small business leaders don’t have a ton of time to focus on employee training and development. Many struggle to even keep up with basic performance management functions like annual performance reviews, much less build more extensive employee development processes.

HR outsourcing can be used to manage employee training and development. Businesses may outsource the actual training by bringing in outside trainers or utilizing online courses and a learning management system. Many HRO companies have their own skills training courses that cover required trainings like sexual harassment prevention as well as development courses on leadership, ethics and key business skills.