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What is HR outsourcing?

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For many companies, labor is the largest cost of doing business, with hiring, wages, employee benefits, taxes and other HR functions accounting for up to half of operating expense for some employers. And labor costs are rising, emphasizing the role of human resources in resource planning and employee management for competitive advantage.

Most labor costs are directly managed by human resources, including recruiting, hiring, onboarding, training, compensation, benefits and performance management. As companies grow, they can either increase the size and cost of their in-house HR staff, or they can consider outsourcing HR.

What can HR outsourcing help with?

HR Consultants

Since most businesses would rather focus on growth – and may lack expertise in some human resource disciplines such as employee relations or labor law compliance – companies large and small are turning to HR outsourcing.

HR outsourcing is an agreement in which one company hires another to plan, manage or operate some or all of its HR tasks. By outsourcing HR services to an administrative services organization, the in-house HR staff can focus on managing human resources, while the service provider applies its broader experience in HR solutions.

In this article, we’ll take a look at how HR outsourcing helps both large and small companies develop their strategic human resource plans and enhance their HR services.

By upgrading HR functions in partnership with an HR outsourcing firm, companies can avoid missteps in hiring, manage employee engagement, reduce turnover and grow strong teams and leaders through sustained excellence in human resource functions.

Human Resource Planning

In order to execute a company’s strategic business plan, the human resource function must anticipate the plan objectives and develop workforce strategies, adding the necessary skill sets to achieve success in program initiatives, or hiring and training sufficient labor to meet production goals.

An experienced HR outsourcing firm will contribute highly valuable expertise to this process by helping HR specialists align recruiting, hiring, payroll administration, employee benefits and other HR tasks with the strategic objectives of the operating plan.

With their comprehensive knowledge of the latest tools and techniques, the HR consultant can guide the client company on software selection, team organization and goal setting, all of which can be turned to competitive advantage in the business strategy.

Job Evaluation

As a business grows and conditions change, strategic planning requires a continuous re-evaluation of roles needed within the organization, with timely adjustments to meet new market opportunities or to solve new problems.

The HR outsourcing company may be better equipped than the HR manager to view all roles and incumbents with complete objectivity, seeing clearly where titles, responsibilities and HR tasks should be added or re-positioned.

Job Descriptions

Working with company HR managers, the HR outsourcing partner can help match jobs and titles with the skills and relevant work experience needed for effective job descriptions.

An HR outsourcing partner has the expertise to post descriptions that will connect with the right experience level and will convey the job requirements, expectations and compensation with economy and precision.

Just as important, HR outsourcing services have the legal knowledge to prepare job descriptions that help the company steer clear of exclusionary language or terms that could be deemed discriminatory.

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Applicant Tracking

HR outsourcing can boost the recruiting efforts of an in-house HR department with the features available in the latest applicant tracking system (ATS) software.

Over 90 percent of Fortune 500 companies use applicant tracking to document all communications with their job-seekers, including resumes, letters, emails, screening checks, skills evaluation, substance tests and other HR tasks.

State-of-the-art ATS systems can also use artificial intelligence techniques to quickly sort through high volumes of applicant data to rank applications and schedule interviews, saving HR managers time and avoiding hiring mistakes.

Background Screening

A surprising number of HR departments neglect background screening.

With HR outsourcing, the employer can be confident that upgrading these HR functions through partnership with an HR outsourcing provider will enhance risk management, protecting the company and its customers and improving the quality of hires – while observing all state and Federal laws, and avoiding potential legal claims of negligent hiring, defamation or tortious interference with a candidate’s employment.


Many hires go bad during the onboarding process. Companies are impatient for their expensive new player to be productive, so they may overload a newcomer with insider details, jargon and technology. Companies also overlook the essential process of bringing the new hire into the company culture, creating a sense of belonging.

HR outsourcing services gather data on the effectiveness of engagement programs, feedback from new hires, retention rates and time required for new hires to hit performance goals.

These insights help client companies fine-tune HR services for best results. Keys to success include the close involvement of leadership, along with employee recognition when the process is complete, giving new hires the confidence that they are now a first team player.


When HR managers survey employees on the effectiveness of their training, the majority of workers give them a thumbs down. That’s risky when you consider that poorly trained employees are prone to making costly mistakes, or when they jump ship out of frustration, it can cost more than that employee’s salary to bring a replacement on board.

The HR outsourcing company can work with company managers to provide more effective training procedures based on aligning employee skills with responsibilities, providing opportunities for independent control, reaching mutual agreement on goals and metrics, involving senior staff, training on specialized company tools and data, and providing opportunities to share their best skills with other trainees.

HR outsourcing partners can show their clients how to use training to develop (and more importantly, retain) happy and productive employees.


Employees may choose a particular type of work for job satisfaction, but they choose a specific job or company based on compensation. HR outsourcing companies advise their clients to make sure that both candidates and employees know that joining their organization will connect them to both financial rewards and personal satisfaction.

HR consulting experts refer to the Five Fs: Fit, Family, Freedom, Fortune and Fun. Employees want to feel that they fit the company mission. Does the employer allow time for their family? Does the job include freedom to control aspects of the work? Will strong performance bring a raise, a bonus, a promotion or other good fortune? And does the company culture accommodate a sense of fun?

Payroll Processing

Payroll processing is one of the best reasons to consider HR outsourcing. Even small companies can benefit from turning over their processing to a payroll professional. Other business owners continue to process payroll internally, but look to business process outsourcing firms for help with tax laws and regulatory compliance.

HR outsourcing partners also provide Human Resource Information System (HRIS) solutions to track relevant dates, contact details, benefit selections, time-off balances and other details of HR administration. As companies add more locations, more state laws and more employees, they add payroll complexity. HR consultants are ready for this job at any scale.

Benefits Administration

The role of HR in benefits administration begins with planning and budgeting. Senior management will usually provide HR with objectives for offering benefits that reflect the needs of both the company and the workforce, especially with the costly and complex topic of health insurance.

An HR outsourcing partner can provide the business owner or senior management with valuable guidance in determining which employee benefits will be most effective, what the company can afford, how much employees should contribute and what cost savings programs can be established.

In addition to administering benefits, HR outsourcing can also help the company evaluate the long-term effectiveness of a benefits plan through needs assessment, employee surveys and alignment with industry data for companies of similar size or in the same industry.

Performance Management

Management author and instructor Peter Drucker is credited with the observation: “Only that which is measured is likely to improve.” Although performance metrics and annual reviews are not much loved by employees, they are essential to the development of a stronger workforce at all levels of an organization. Performance management is one of the most important HR responsibilities.

Best practices in performance management must include clear job requirements and realistic goals, as well as an open and sustained dialogue between leaders and their teams. An HR outsourcing firm can show clients how to evaluate the employees they have today and patiently build the team they envision for the future.

Career Path Planning

One of the surest ways a department of human resources can strengthen the bonds between employee and employer is with shared planning for a personal career path. This is an unmistakable message to the employee that the company cares, values their contribution and is looking for greater engagement in the future.

HR outsourcing of this process can connect the organization to a comprehensive employee management toolbox with solutions for employee disengagement, demands for flex time and remote work, concerns about diversity in the leadership suite, limited opportunities in a flat organization chart or a family-owned company, and succession planning for teams combining older and younger workers.

Leadership Assessment

Not every great employee has the traits and strengths required to become a team leader, a department manager, director or vice president. While some companies depend on their own methods for finding or growing leaders, HR outsourcing partners can bring specialized tools to help HR departments evaluate the leadership potential of their employees.

This can apply to both workers who want to seek promotion to management, as well as to current managers who need to understand their strengths and weaknesses.

From their external perspective, HR outsourcing service providers can coach human resource departments on one of the most difficult tasks in employee management – helping future leaders improve their self-awareness, to understand and address areas for improvement and grow the company bench of future leaders.

Employee Engagement

Some companies make little or no effort to rally their employees around the company mission. How are these employees supposed to know what traits or behaviors the company will value? Somehow, other companies communicate their mission and vision to every employee, making sure their people know what to do and how to improve.

Employee engagement is a modern buzz-word, but it has an old-fashioned meaning. Share your plans and goals with every employee. Invest in training. Listen to employee concerns. Think like a coach, not a quarterback. Bend the rules to fit the employee, not the other way around. Focus on improvement so that worker skills and company results will grow in tandem. And celebrate small victories, giving credit to every contributor.

An experienced HR consultant has the expertise to help the HR team establish proven employee engagement programs, and their guidance will help the client company manage their programs for optimum results.

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Company Culture

According to the Forbes Human Resource Council, HR departments should have the primary responsibility for fostering the desired behaviors within the company culture. HR is the two-way radio between the company and the workforce, with the most opportunities to interpret and affirm what the company wants from its employees, and vice versa.

A human resource outsourcing partner can help the company model desired behaviors through policies, gather feedback on workforce alignment with culture, find ways to turn company values into operating policies, and work with leadership to make sure that policies reflect an ethical approach to both the employer and employees getting the most out of their shared mission.

Labor Law Compliance

One critical responsibility of HR is the duty to make sure that the company meets its legal obligations when posting jobs, recruiting candidates, hiring and onboarding – as well as in all of the company’s relations with current employees.

When a company decides to outsource HR, the management team gains access to expert guidance on compliance issues arising from payroll, benefits, hiring, termination, workplace safety and more.

Depending on the employer’s industry, HR managers may need to observe special rules required by OSHA, HIPAA and various other Federal, state or local authorities. They are also responsible for general business compliance with insurance, tax, anti-discrimination and wage-hour laws.

Failure to comply with labor laws can mean that the company will risk heavy fines, costly lawsuits or lasting damage to the company’s reputation. Compared to these risks, the cost of HR outsourcing to ensure across-the-board compliance is a high-value investment.

Workplace Safety

Workplace injuries are always costly and disruptive, and government fines or legal action brought by injured parties can sometimes be catastrophic.

While operational managers are primarily responsible for OSHA compliance and other elements of workplace safety, the role of HR managers now encompasses responsibility for safety training and safety program development.

While these are not traditional elements of an HR manager’s education or typical work experience, HR departments can look to outsourcing partners to supplement expertise in establishing effective safety programs and safety training.

With the support of HR outsourcing, the in-house HR staff can assess the special needs of their company and industry, working with top management to establish safety program goals and metrics, to ensure compliance with Federal and state safety regulations, and to model industry best practices that have proven to be effective in the HR consultant’s base of direct clients and related industry data.

Wellness Programs

An effective wellness program can result in a healthier, more productive workplace, reducing health care costs while boosting productivity, job satisfaction and employee retention.

The role of human resources is to work with senior management to establish wellness goals and link them to business objectives, matching the needs of the company with the broad range of program options and implementing proven wellness programs within the matrix of employee policies and benefits.

Here is where the human resources team can look to their HR outsourcing service provider to evaluate the effectiveness of proposed programs: communicate program benefits to employees.

The service provider can also help the HR manager monitor changes in health laws and update insurance provisions. Outsourcing HR management of wellness programs may also include upgrading metrics for measuring program results and developing proposed program improvements.

The HR Data Manager

Along with developing policies, leading a team and managing critical processes, the company HR administrator has a heavy burden of data management. This is one of the best reasons to outsource HR tasks such as maintaining employee records, keeping data on sick leave and vacations, and managing employment contracts and non-compete agreements.

Outsourcing HR data can also include revising employee manuals, gathering and reporting data on absentees and turnover, investigating complaints, supporting payroll and managing everything from travel vouchers to expense accounts.

HR outsourcing alleviates this burden on HR professionals through process improvement, best practice modeling and transferring legacy processes to smart software tools. HR outsourcing arrangements can take over virtually any element of data management, freeing the HR administrator to focus on top-level workforce improvement.

HR Software

Software applications for human resources offer unprecedented simplicity and power to help HR professionals speed through HR processes such as scheduling, time tracking, payroll processing and benefits administration, plus HR information system (HRIS) tools for employee engagement, data analytics and data security.

Many systems allow HR managers to maintain an applicant tracking system (ATS) with onboarding tools to manage the recruiting process from start to finish.

Applications can be managed by the internal HR department, with access to external subject matter experts.

Most software as a service (SAAS) arrangements offer the flexibility to select the degree of help each company is seeking, while retaining the desired degree of internal control.

Who needs HR outsourcing?

While the cost and time efficiencies of transferring human resource functions to an HR outsourcing company are readily apparent, do the outsourcing costs for small businesses make sense within their business strategy?

Every business is different, but regardless of business size, a good decision on HR outsourcing means a basic analysis of the cost of an in-house HR team.

The small business owner can begin to outsource HR starting with payroll administration and a basic benefits package for a flat monthly fee, moving on to other human resources functions and administrative tasks as the growth of the business may allow.

Small business owners often find that selective outsourcing can be turned to competitive advantage, as time consuming administrative tasks such as health benefits are handled by an external company, while the in-house team applies its creative energies to the core mission.

The Bottom Line

HR outsourcing can be a one-stop solution to managing the top HR challenges of payroll, taxes, training, safety, recruiting, onboarding, compliance, risk management and benefits administration. For a growing company, it makes sense to access high-level expertise and technology – without having to add or develop these capabilities internally.

Working with outsourced software allows companies to integrate sophisticated functions to improve accuracy, global access and ease of data retrieval. Many risks can be reduced by working with a professional HR outsourcing company with a firm grasp of regulatory compliance, tax law, labor relations and safety issues.

And most importantly, HR outsourcing allows the in-house HR team to delegate repetitive administrative work, freeing them to focus on core business goals, as well as improving the quality, skills and engagement of the company team.

With our HR team in your corner, you can rest easy knowing you’re working with a team of seasoned subject matter specialists who will rest at nothing to exceed your expectations every step of the way. Talk with one of our HR specialists today.

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