Human resources is a tricky function for businesses today. HR has become more complicated and regulated over the last few decades, causing companies to reassess how they approach this critical business area. One of the biggest outcomes has been companies moving to an HR outsourcing strategy.
What is human resource outsourcing? According to HR Zone:
“Human resource outsourcing (HRO) occurs when a business instructs an external supplier to take responsibility (and risk) for HR functions and perform these tasks for the business.”
HR outsourcing can be an effective strategy for organizations that may lack the necessary resources to properly administer HR.
Not only does outsourcing allow businesses to effectively manage their HR needs, but it also provides leaders the opportunity to focus all their effort and attention on growing the business. This is why HR outsourcing is particularly popular amongst small businesses.
But, as you’ll see shortly, small businesses aren’t the only ones who outsource parts of their human resources services. Let’s look at four things you may not have known about HR outsourcing and how they can benefit a business.
1. Outsourcing Can Save Money on HR Costs
Running an HR department is an expensive undertaking, especially for small and mid-sized companies. This is why outsourcing is a common strategy for SMBs and their leaders. And believe it or not, outsourcing can actually save you money on HR costs.
This is one of the main reasons why many companies choose to outsource their HR services as opposed to keeping them in-house. In addition, smaller companies who intend on growing their business can save more money as they become larger. This is one of the main reasons why HR outsourcing is growing in popularity.
2. Small Businesses Aren’t the Only Ones Who Outsource HR
A common misconception is that only small and medium-sized businesses outsource their HR. While this may have been true years ago, today companies of all sizes choose outsourcing as a business strategy. According to research from Gartner Inc., 80% of companies now outsource at least one HR activity.
When looking specifically at larger organizations, it is reported that an estimated 50% outsource all or part of their HR needs. And these numbers are only growing as the landscape of the HR industry grows more regulated and uncertain.
3. Organizations Can Provide Their Employees with More Competitive Benefits
Many smaller employers struggle to offer their current and prospective employees with competitive benefits. This is especially true with rising healthcare costs in the United States. One of the biggest and perhaps most important benefits of HR outsourcing is that it gives SMBs access to Large Group benefits.
The benefits this provides to smaller businesses cannot be understated. Recruiting is routinely cited as a major concern for SMBs, but the ability to offer the same quality benefits as large companies will greatly aid talent acquisition. In addition, giving current employees better benefits helps to build happiness and engagement, which can greatly reduce turnover.
4. Expertise in HR Compliance and Regulations
We mentioned earlier how HR regulations have dramatically changed, especially over the last few decades. As HR laws have grown more and more complex, organizations have been put under greater pressure to stay compliant. However, this is another area where HR outsourcing can be of assistance.
Most HR outsourcing companies offer their clients access to risk management and compliance experts. These individuals help their clients meet all their HR compliance requirements, and plan for future changes that might have to be made as laws and regulations change. Being compliant is a must for companies of all sizes, and is crucial to business growth.
How Well Do You Know HR Outsourcing?
Companies today, especially SMBs, face many human resources challenges. HR outsourcing might not be able to address every issue and isn’t the right choice for all organizations. However, organizations who make for a good fit can achieve growth and success with the right partnership.
Having a better understanding of HR outsourcing and the companies who offer these services – such as professional employer organizations (PEO) – will help business leaders determine whether it is a viable option for their business. You never know when outsourcing HR could be the missing piece of the puzzle!
Michael Altiero is the Digital Marketing Manager at Extensis Group, a regional Professional Employer Organization headquartered in New Jersey. You can follow Mike on Twitter and connect with him on LinkedIn.