Small and mid-sized businesses are constantly weighing the value of outsourced HR against cost — a challenging exercise for several reasons. For starters, the answer to “how much does outsourced HR cost?” is unclear by its very nature. Except for fully outsourced HR firms, most providers do not handle all HR functions in their entirety, and options vary widely by specialty and offerings. The many choices available can be tough to grasp and organize, complicating price shopping and decision-making.
Then, there’s the perceived value of HR services versus their actual value. As McKinsey asserted in 2021, “A company’s future-readiness and its HR go hand-in-hand.” While, of course, businesses should still keep a close eye on their spending, this information frames HR outsourcing costs in a new light. In other words, if you’re truly invested in the future of your company, HR is not the place to nickel and dime.
So, what’s the best way to balance quality and value when you choose to outsource HR services? It’s a complicated question, but our HR experts have your back. Follow along as we break down HR price shopping into a few key steps that will help ensure right-fit decisions and optimal spending for your business.
Outsourced HR is a wildly modular space, and navigating its cost starts by understanding its parts. In general, core HR functions can be broken down into the following categories:
Compliance management ensures that your business is abiding by regulations governing hiring, pay, benefits, and more. Effective compliance management is a critical part of safeguarding your organization against liabilities and potential lawsuits.
Management counsel involves personalized leadership support for daily challenges and strategic decisions, helping ensure leaders and their teams thrive.
Employee relations is another one of the most essential HR services. Qualified human resources professionals can help employees navigate personal and interpersonal hurdles, resulting in a vibrant, cohesive team and an uplifted workplace.
This aspect of HR management supports employees and managers who oversee individual employees’ contributions, job performance, and related challenges.
Writing job descriptions and ads, screening resumes, conducting interviews, and executing background and reference checks are just a few aspects of hiring services.
The onboarding process manages all aspects of getting a new employee up and running. Offboarding separates an employee from your business when they leave or are terminated. These core operations must be handled with care, respect, and attention to detail.
The category of payroll administration consists of all things related to employee compensation, from calculating a worker's pre-tax monthly earnings to deductions and PTO oversight.
Employee benefits administration involves working with various brokers, including health insurance, retirement, disability, and other providers. It also involves working with employees directly to ensure they understand and can access their employee benefits.
Career pathing supports employee growth and satisfaction, with an eye on their career as a whole. Company events create bonding opportunities. Combined, these specific HR services advance employee morale. This is very important today as companies struggle to retain quality employees and hire new ones.
This HR function involves overseeing pay grades and determining a company’s marketplace positioning related to pay. Compensation management is also directly tied to pay equality — an increasingly relevant and regulated matter.
Once you understand the intricate details involved with the various HR functions, you can start considering which specialized services to outsource and which (if any) to leave up to your in-house Human Resources team. Below, you’ll find some information about the differences between HR outsourcing providers and how they affect HR outsourcing costs:
A human resources consultant is typically one person who handles your business's HR operations, acting as a single-person dedicated HR department. This type of HR outsourcing can cost anywhere from $100-$400 per hour (the amount individuals and companies charge varies widely). However, this person may not do some or all of the tasks necessary for your HR needs. Often we hear about companies that expected specific services to be handled when they outsourced to this type of external provider, only to discover that this wasn’t the case.
A professional employer organization (PEO) is a third-party provider that charges a percentage of payroll and, in a unique move, puts your people on their payroll and leases them back to you. PEOs handle some core operations related to HR, but still require an in-house representative at your business for many tasks. They act as your payroll processing company, supplying paychecks and serving as your benefits broker. However, PEOs are not a truly comprehensive solution when it comes to human resources outsourcing. A PEO will not handle compliance, performance management, or hiring, nor are they involved with benefits, career pathing, compensation management, or other services required to help your business run.
Staffing agencies and recruiting companies handle hiring only, with no other HR functions covered. For temp-to-perm employees, they typically charge a pay rate markup for four to six months, after which you can hire the talent outright. For direct hires, you pay a percentage of the position’s total annual compensation — generally 20% to 30% (higher for hard-to-fill positions).
Payroll and employee benefits providers sometimes offer access to human resources apps or HR hotlines, typically for a flat fee based on the number of employees at your business. While these so-called "online HR portals" can be exceptional tools for some companies that need a few specific services, they are not a true outsourced HR vendor. This is because they don't typically provide actual support — they merely offer software that can house your HR processes and documents. Before you choose this type of HR outsourcing provider, do your homework and know precisely what you’re buying.
Full-service HR outsourcing providers do it all, providing a truly comprehensive HR solution for businesses. However, some companies are concerned about meeting an annual minimum investment (which some HR outsourcing firms have) or decide that the cost of HR outsourcing isn’t worth it compared to hiring an in-house employee. This conclusion involves two assumptions:
1) The cost of outsourcing human resources can be taken at face value,
2) One in-house HR representative is superior to fully outsourced HR services.
Since HR is closely tied to businesses’ returns, HR outsourcing cost cannot be taken at face value — and truly experienced HR outsourcing providers like myHR Partner operate accordingly. All of our clients get their own full HR department made up of three professionals (an HR Director, an HR Manager, and an HR Assistant). This expertise and flexibility are far superior to what one in-house HR representative can provide. In addition, all employees at our HR services company are formally HR educated, and we structure our business for optimal client returns. Learn more about how we approach pricing here.
One last point: Businesses that see in-house HR as a savings opportunity often overlook its actual costs. When you hire a single-person HR department, you’re still on the hook for healthcare and insurance benefits, employee taxes, and other costs (tech equipment, for example) — expenses that quickly eat into initial perceived savings. Part of what makes outsourcing HR cost-effective is the absence of these expenses.
Whether you're deciding between two options or many HR outsourcing providers, now is the time to start asking them questions so you can make an informed decision. A few points to discuss with any prospective HR outsourcing provider include:
As you now know, outsourcing HR services isn't as simple as pushing a button or rolling the dice. Therefore, businesses of all types and sizes should approach decisions related to HR outsourcing diligently, with a close eye on actual value and quality — not just face-value costs. To learn more about outsourcing HR services, check out our Indispensable HR Outsourcing Buyer’s Guide.
Want to rest easy knowing your HR is in the hands of pros? myHR Partner has your back. Whether you need a complete HR outsourcing solution or only the services your in-house team can't manage, we are your go-to team for all things human resources outsourcing. Experience the professionalism, expertise, and cost savings that our HR outsourcing services can provide - reach out to us today to request a consultation!
