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Is it Time to Outsource HR? Here's How to Tell, and What You Can Gain

If you have limited personnel, you may find yourself overwhelmed by HR demands. This article is for those who feel stretched thin managing this critical area of the business.
when it's time to outsource HR functions

The area of human resources continually evolves and is becoming increasingly more complex. Just a few of the challenges that employers face today include:

  • Ever-changing health care legislation; 
  • New paid leave laws; 
  • State-sponsored retirement plan requirements;
  • Hiring shortages; and
  • A recent spotlight on workplace harassment.

Small companies with limited personnel may find themselves overwhelmed by HR demands. If you feel stretched thin managing employee hiring, administering a benefits package, ensuring compliance with federal, state, and local laws and regulations, in addition to handling payroll, you might be considering help.

What are some indicators that it's time to outsource HR?

Some companies struggle to find the right balance between efficiency and cost. How do you know when outsourcing can help your business save money and time through better processes? A firm may be ready to seek HR help when:

  • Your HR team's entire focus is administrative — When HR staff spends most of the week on tasks such as data input or forms processing, this may be a signal that 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 can 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 access the portal anytime and anywhere.
  • Your HR system doesn't support mobility — With many firms allowing staff to work remotely or telecommute, mobility for key HR services such as time and attendance reporting is essential. Cloud-based solutions that support off-site access to the company database 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 — Inefficient processes and excess administrative work can require additional resources to support HR without generating the appropriate results. Ideally, your HR team should function as a key strategic asset, not a liability. It may be time to ask yourself whether external expertise or better technology can help.
  • You're struggling to keep up with regulatory and statutory requirements — Businesses of any size may struggle with compliance. Your HR team needs to understand the current federal, state, and local laws and regulations that may affect your business. Your infrastructure must support data collection and reporting. Companies lacking in-house expertise may want to outsource their HR technology and operations. Having HR Consultants available can help you comply with applicable laws and regulations to help protect you from costly penalties and fees.

Awareness of your business's current situation can help you recognize the right time to support growth and operations by partnering with a third party. Companies seeking to improve their performance may reap rewards when they let experts manage compliance, employee benefits, and payroll processing.

Benefits of outsourcing HR

It's worth noting that the 2018 Paychex Pulse of HR Survey found that the five most-cited HR challenges were:

  • Keeping up with laws and regulations (38 percent);
  • Tracking employees' time (38 percent);
  • Complying with laws and regulations (35 percent);
  • Offering competitive benefits (33 percent); and
  • Retaining talent (31 percent).

Dedicated Human Capital Management firms can help your company with each of these areas. They may also be able to assist with retirement planning, executive development and coaching, compensation plan administration, risk management, and training programs. By shifting the focus from administrative tasks to strategic efforts for the company's mission, your HR team could make broader, more lasting contributions.

Key reasons for a company to outsource human resource functions include:

  • Saving money by reducing operating expenses;
  • Controlling risk and improving compliance;
  • Gaining greater HR expertise;
  • Streamlining HR functions;
  • Obtaining services the organization couldn’t provide otherwise;
  • Allowing the company to focus on its core business;
  • Reducing HR administrative expenses;
  • Improving service delivery;
  • Allowing HR staff to focus more on strategy; and
  • Making up for the lack of in-house expertise.

Among the human resource functions an outside HR administrator can handle in full or in part are:

  • 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.

Choose carefully when choosing an HR expert

If you decide that outsourcing some or all HR functions is right for your company, it's vital that you choose the right partner. After all, you're trusting a key function of your business to a third party. Look for a firm with a solid track record, a positive reputation in the marketplace, and superior customer service. Preferably, you also want a vendor that understands your industry.

The right Human Capital Management firm can tailor its services and products to your organization's needs. Expect a prospective vendor to offer online tools and other technological support. Perform your due diligence to find an HR administrator that can help meet your needs and budget.

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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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