There's a laundry list of things for you to do as a small business owner. In order to be successful, you need to make the absolute best use of your time. One way businesses can save time is by outsourcing some or even all of their human resources (HR) needs.

Outsourcing HR can be a cost-effective option for increasing your company's efficiency that allows your team to direct its focus toward business-critical items. In this article, we'll explain how the process of HR outsourcing works and go over some of the HR outsourcing options you can use in your business.

What Is HR Outsourcing?

Your human resources include all the people who do any sort of work for your company. All your employees and any freelancers or independent professionals you hire fall into the category of human capital. The HR department handles the needs of everyone involved in your business. It deals with things like hiring employees, training, benefits administration, and performance management.

HR outsourcing simply means contracting an outside company or professional to take care of some or all of your business's HR needs. HR contracts can differ in terms. Depending on your specific business needs, an HR professional might help your company remotely or come into the office. They may only work for your company for a short time or year-round.

When Is HR Outsourcing Necessary?

If you have a startup or a small business, you may not have the budget necessary to have your own HR team. You can try handling HR management yourself but doing so can be time-consuming (and time is money) and even risky. There are a variety of laws you must follow when dealing with workers, and an HR professional can help you stay in compliance.

Larger companies can hire outside HR companies, too. A larger business might contract an HR company to handle tasks like managing employee health care plans to free up their own internal HR staff for company-specific tasks, like succession planning.

Which Functions Can Be Outsourced?

Technically, every HR support function can be outsourced, but what tasks should be outsourced depends on your business. However, some functions are easier to outsource than others. An outside HR representative may not have the same understanding of your specific company as one who is employed by you.

Let's say you're staffing a warehouse facility, and you need a lot of general labor to do things like fill orders and clean up. You don't need workers with any particular skills, but you want them to be reliable. You could use an outside company to hire temporary workers for you. The staffing agency could also perform a basic screening of workers and administer drug tests.

On the other hand, let's say you're looking for a qualified project manager to head a multi-million-dollar software project. This would require a much more involved hiring process. You'd likely want an internal HR professional who has knowledge of your company and knows what type of person works best with your team to hire (or promote) the perfect project manager.

Here are a few HR tasks that can be outsourced fairly easily:

  • Hiring temporary workers
  • Onboarding lower-level new hires
  • Payroll processing
  • Employee benefits (like insurance enrollment and workers' compensation insurance)
  • Worker training (creating and maintaining an employee handbook or training materials)
  • Sensitive training (like sexual harassment)
  • Maintaining regulatory compliance with contracts for independent workers

How to Outsource HR

You have several options to choose from that offer a broad range of HR services. It's up to you to do your research to see which company is best for your business and fits into your price range. Before you decide, consider several HR companies and what they can do for you.

Outsourcing All Your HR Needs

If you decide it makes sense to outsource all your HR needs, you can use a professional employer organization (PEO). A PEO is a full-service HR outsourcing company that can streamline your company's hiring processes, employee management, payroll services, and track your employees' tax liabilities. They'll also offer and maintain a benefits package for your staff that includes things like insurance, a 401(k), and paid time off (PTO).

The relationship between a business and PEO company is called a co-employment agreement. You can visit the website for the National Association of Professional Employer Organizations (NAPEO) for resources for finding a PEO for your company. Here are a few popular PEOs that might work for you:

Outsourcing Specific HR Functions

If you choose to only outsource a few functions, you can keep your in-house HR team focused on company-specific jobs. You'll need to decide which specific HR outsourcing services you need before you decide on a company to help you. For example, you might use a temp agency in your area to hire extra help for a specific project.

Another option you have is to hire an outside consultant to come in and optimize some of your HR functions. This can be a good option if you need HR experts with knowledge in an area your team is unfamiliar with. For example, you might hire HR consultants to conduct a benefit analysis of your current employee benefits package to increase employee retention and help attract the top talent in your industry.

Using HR Software

If, after exploring your options, you decide it's too expensive to hire an HR firm or consultant, there's several self-service HR technology choices that you can use to fill your needs. Programs like Gusto and have HR solutions for managing many of your HR processes.

Create an Outsourcing Agreement

When you're starting a business relationship with an outside HR company, you'll need a contract that ensures your needs will be met. You can create a business process outsourcing (BPO) services agreement to outline your expectations for the HR company. Below are a few things you should include in a BPO:

  • The service provider's HR responsibilities
  • The price for the company's services (as well as how pricing will work for extra services if they're needed)
  • What your benchmarks are and what happens if the company cannot meet service benchmarks
  • What happens if your service needs change or you need to end your contract

These are just a few of the terms you should include in your agreement. It would be wise to consult a legal professional before drafting your agreement. If you have a large or international company, you might use a master service agreement (MSA) instead of a BPO. While similar to a BPO, an MSA is used for businesses that need to meet regulations in different countries.

Use Skynova to Make Accounting Easier

For the right company, outsourcing HR functions can be extremely beneficial. A quality outside HR firm can keep your company staffed, manage your workers' employment details, and keep you in compliance with employment laws with no effort on your part.

If you're starting a new business, you need the passion and drive to take your company to the next level. And nothing zaps your energy faster than a mountain of administrative paperwork. Skynova's software products can help make the accounting for your small business much faster and easier. Come see how our accounting software can make things like creating invoices and tracking expenses less of a hassle.

Notice to the Reader

The content within this article provides a general explanation of outsourcing HR functions. This information may not apply to your particular company. It's a good business practice to always seek the counsel of an expert before making any huge HR decisions (or any other business decisions) that can affect your company.