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​Why Consider Outsourcing Human Resources for Small Businesses?

hr specialists reviewing employee information

Small companies with limited personnel may find themselves overwhelmed by HR demands. If you feel stretched thin managing critical areas of the business, you might consider getting help. Many HR outsourcing services for small businesses are designed specifically to streamline business functions, reduce expenses, and help companies meet their goals.

What is HR outsourcing for small businesses?

When you choose HR outsourcing, a third-party provider manages certain HR functions on behalf of the business. These can include solutions to supporting your business with attracting and developing talent, benefits and payroll, and maintaining legislative and regulatory compliance. This relationship can also bring with it access to a scalable HR technology platform, guidance and support from a knowledgeable HR professional. By shifting your team's focus from administrative tasks to strategic efforts tied to the company's mission, your team could make broader, more lasting contributions.

Why do small businesses outsource HR?

In today's economy, small businesses need to consider all that they can gain if they choose outsourcing human resources. Benefits of choosing to outsource can include:

The ability to focus on business productivity: Instead of spending time handling routine administrative tasks, employers and their HR teams can focus on more strategic functions of the business with greater potential rates of return.

Access to an enterprise-class solution: Small businesses may be able to enjoy enterprise-class benefits from HR outsourcing, which can help them save costs and compete more effectively with other small businesses and their larger counterparts.

Help with compliance: Many small businesses struggle to keep up with changing laws and regulations pertaining to the COVID-19 pandemic, labor and employment laws, insurance claims management, and much more. Failure to comply with laws and regulations can lead to serious financial consequences. Outsourcing HR functions to a trusted provider can help business owners understand and comply with these laws and regulations.

More effective recruitment efforts: In conjunction with hiring managers and human resources, outsourcing aspects of recruitment can contribute to making HR professionals more efficient. HR leaders polled in the 2020 Paychex Pulse of HR Survey ranked recruiting and hiring among the top areas where third-party support is most needed. Seventy-three percent of HR leaders even noted finding success when leveraging recruiting technology to reach high-quality candidates.

How does small business HR outsourcing work?

An HR outsourcing provider can work with you and your team to provide support throughout the employment life cycle. The breadth of services and support may be increased when a provider offers the option of working with an expert HR professional. In compliance, for example, an HR professional can consult on applicable compliance requirements so you can make sure your employment and safety practices adhere to federal, state, and local laws, as well as the regulatory requirements of numerous agencies — including, but not limited to, the Equal Employment Opportunity Commission and the Department of Labor.

An HR professional can also assist in the critical areas of:

  • Problem resolution and employee relations management
  • Employee benefits administration
  • On-site HR training sessions for your managers and employees
  • Developing policies as part of your employee handbook
  • Workplace safety programs
  • Designing workflow and staffing analyses
  • Assistance with many facets of the employment life cycle, from interviewing and hiring to employee discipline and termination

How can outsourced HR solutions help small companies?

Human resources management continues to evolve and is becoming increasingly more complex. The growing list of responsibilities may be too much for HR teams already stretched thin and who are unable to re-prioritize their workloads. HR professionals surveyed in the Paychex Pulse of HR Survey echoed these sentiments, citing the toughest HR challenges for them were:

  • Keeping up with regulations (36%);
  • Training and development (34%);
  • Tracking employee time (31%);
  • Attracting talent (30%); and
  • Administering benefits (29%).

Add to this list challenges brought on due to the COVID-19 pandemic — identified by survey participants as keeping employees motivated and engaged, keeping employees informed, and managing staff stress, among others — and HR professionals have their hands full now more than ever.

An outsourced HR solution can be designed to address these exact challenges for small businesses. An outside HR service provider can assist with:

  • Background checks;
  • Employee assistance and counseling services;
  • Flexible spending account administration;
  • COBRA administration;
  • Workers' compensation;
  • Health care benefits administration;
  • Retirement benefits administration; and
  • Payroll processing.

When you have a third party take care of administrative tasks, your HR team can be better positioned to make broader, more lasting contributions moving forward.

When should you consider HR support for your small business?

While leveraging outsourced HR services at any point can be beneficial, how do you know when it's time to get HR support for your small business? These are some tell-tale signs:

  • Your HR team's entire focus is administrative: When HR staff spends most of their time on data input or forms processing, this may be a signal it's time to look at outsourcing or upgrading to more robust HR systems. Limiting your team to predominately administrative work takes members' focus off strategic contributions.
  • Employees lack access to self-service: HR managers no longer need to conduct every aspect of benefits enrollment, updating employee information, retirement plan information, or employee training. Leading HR technologies provide employees with self-service portals that help them complete many basic tasks themselves, such as updating their mailing address or adjusting retirement plan contribution amounts. A self-service portal can free up HR staff time, and many employees find the process more convenient, since they can often access the portal anytime and anywhere.
  • Your HR system doesn't support mobility: With many businesses now employing remote workforces, mobility for key HR services such as employee time and attendance reporting and reporting for new-hires is essential. Cloud-based solutions that support off-site access to the company are becoming the norm. If your employees can't complete essential functions from their smartphones or tablets, your HR technology may need an update.
  • HR is becoming a cost center: Ideally, your HR team should function as a key strategic asset, not a liability. It may be time to ask yourself how external expertise or better technology can help.
  • You struggle to keep up with statutory and regulatory requirements: Your HR team needs to understand any current federal, state, and local laws and regulations that may affect your business. Companies lacking in-house expertise in this area may want to outsource. Having HR consultants available can help you comply with applicable laws and regulations to help protect you from costly penalties and fees.

How much do outsourced HR and payroll services for small businesses cost?

Cost is usually a main factor for small businesses considering an outsourced HR solution. There's a common misconception that HR services are synonymous with unaffordability. First, consider what the costs may look like: depending on the service you're interested in, you can expect to pay either a percentage cost or fixed fee. You may also consider narrowing your choices to providers that can tailor its services and products to your organization's needs.

When considering cost, remember that HR matters are unavoidable parts of doing business: you must comply with applicable laws and regulations, you have to pay employees in accordance with applicable laws and regulations, time and attendance tracking must be accurate, and so on. Whether you take on the work yourself, hire an employee, or use a third party to help, costs are inevitable. A DIY approach can be time-consuming, quickly lead to your other work falling by the wayside and leave your business vulnerable to non-compliance. Bringing on someone in-house to handle administrative HR matters means absorbing the ongoing costs associated with additional headcount (salary, benefits, training and ramp-up time, etc). They may also become overwhelmed with the volume of responsibilities that often comes with the job. An investment in expert HR and payroll services and technology, on the other hand, can mean having dedicated resources that can streamline business functions for your staff, and may allow you and your team to focus on more impactful areas of the business.

Benefits of outsourcing HR services for small businesses

In addition to potential cost savings, outsourcing human resources can reap many potential benefits, depending on the extent of support you choose. They can include:

  • Direct link to a dedicated HR professional who knows you and your business and
  •  can help when HR issues or situations arise.
  • Ongoing updates of local, state, and federal laws and regulatory changes
  • Expertise in many key areas of HR and safety
  • Cost-saving programs that address high turnover and low employee morale (i.e., training, proper hiring techniques, employee assistance programs, etc.)
  • Expanded product knowledge of HR-related products and services (i.e., 401(k), health and benefits, FSA, and more)

More specifically, working with a dedicated HR professional — an expert who can educate and guide you through the turbulent waters of laws, regulations and employee relations — offers you the freedom to focus more on the business. With the experience and expertise that HR outsourcing offers, a business can:

  • Elevate customer service relationships both internally and externally;
  • Potentially minimize costs associated with turnover and poor employee morale; and
  • Pursue more active forward-thinking in their business.

All this can be accomplished without the expense of additional headcount while still providing the knowledge and partnership necessary to be successful.

Another benefit that small businesses may not realize about HR outsourcing is that it enables companies with minimal resources to use cutting-edge technology that could otherwise be costly to maintain on their own. With an outside expert running some of the functions, businesses can enjoy the rewards of newer and more innovative HR systems without having to purchase this technology on their own.

Find HR support that keeps pace with your business

Running a business today means managing mounting labor and employment laws and regulations, demands from staff, and team members who are stretched thin. That's why HR outsourcing may be a great investment for your business this year. Help your business meet larger and more pressing long-term goals with access to scalable and cost-effective HR services and support.


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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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