Outsourced HR options abound. Businesses can hire one or more independent provider (PEOs, payroll firms, consultants, etc.) to handle some or most HR functions – or can put everything in the hands of one fully outsourced HR firm. The key to success? Understanding the specifics of each outsourced option before you make a move. This can be a Herculean task given the nuance at play.
Read on for pros and cons of the most common outsourced HR vendors, and our take on which businesses and scenarios they serve best. Armed with this knowledge, you can begin to make an informed plan for whether and how to outsource some or all of your human resources.
Fully Outsourced HR
Fully outsourced HR firms can handle HR in its entirety – from administrative and day-to-day tasks to critical larger strategy.
- Pros: These one-stop shops leverage HR as a key pillar of business planning and growth. Beyond compliance and other necessities, fully outsourced HR firms strategically work to strengthen your business through your people. Most let you scale up or down services if/as needed. Even more, fully outsourced HR handles all work, eliminating the need for an internal HR representative under your business’s roof. Some – like myHR Partner – also carefully match HR professionals of various skill levels to each component of your HR, so you only ever pay for the caliber of expertise you’re utilizing.
- Cons: Fully outsourced HR firms need consistent, high-level collaboration with your business leadership to ensure that HR aligns with your direction, culture, and objectives. Is your team ready for that?
- Best for: Growing and established businesses, private foundations, and non-profits.
HR Management Software
A growing number of HR software platforms exist to help businesses streamline HR and document management.
- Pros: By offering one place to house your HR, these platforms ease the management of HR processes. Features vary from platform to platform, but most automate administrative, manual, and daily HR tasks. Some also include access to an HR support hotline that your employees can call if/when issues arise. A smaller number of these platforms offer non-AI/chatbot user support for you, their client, in the event you encounter issues with the software.
- Cons: While these software options help efficiency and organization, they’re not human, and don’t do the actual work of HR. Employee hotlines are manned by humans, but are impersonal. They operate by the letter of the law, but without knowledge specific to your business – a concern for some business owners who don’t like the idea of employees calling a third-party hotline about internal company matters.
- Best for: Companies that handle the bulk of human resources internally and can benefit from the software’s organizational and automation tools.
Payroll Firm
Beyond getting your people paid, full-service payroll providers also file related taxes on behalf of your business and keep you compliant with wage and tax laws. Most payroll firms also go beyond payroll, offering a wide range of HR functions.
- Pros: They’re generally top-notch in their specialty: Payroll.
- Cons: The HR portion of payroll firms’ offerings will not perform the work of HR; rather, it will only advise on and/or handle some minor HR functions. This means you still need internal HR staff. Even more, payroll firms don’t handle HR strategy, which is essential if you are growing and/or want to harness HR’s ability to move your business forward. Finally, large payroll firms average hundreds of clients to each HR rep, so service might be less personal than you want it to be.
- Best for: Companies with HR on staff that need payroll support and support with a limited number of defined HR tasks.
PEO
PEOs (short for professional employer organizations) offer a wide range of HR functions – almost as many as a fully outsourced HR firm.
- Pros: Thanks to economy of scale, PEOs can save you money on workers compensation and give your company access to broader health insurance options.
- Cons: PEOs achieve economy of scale by putting your employees on their payroll and leasing them back to you. This can impact your culture and your employees’ interactions with HR, which you no longer control or oversee. If you hire a PEO, you will still need at least one internal HR representative, as PEOs won’t assume responsibility for all daily and administrative tasks. PEOs are also known for hidden fees.
- Best for: Companies with high turnover, external investors, and/or less emphasis overall on workplace culture. Businesses with high workers compensation fees can benefit greatly from PEOs’ buying power.
Staffing Service/Recruiter
These are independent HR providers whose role is straightforward: To match job candidates to your job vacancies.
- Pros: Staffing services and recruiters have frameworks and systems in place for recruiting and hiring talent that matches your needs.
- Cons: Whereas a fully outsourced HR firm knows your business inside and out, staffing services and recruiters lack such familiarity and integration. This increases the chances of a hire who’s not truly a fit. Even more, staffing services and recruiters are financially incentivized to fill roles fast. This can impede the effectiveness and integrity of their work.
HR Consultant
An HR consultant is generally one expert who gets to know your business and your team, and who can bring a wealth of HR information, execution, and best practices.
- Pros: Beyond their inherent value, many HR consultants are willing to work onsite at your business some or all of the time.
- Cons: HR consultants are one person and one body of knowledge. When they’re out, there typically is no one to fill in. You’re at the mercy of their availability as well as their knowledge and skills, which can have a limiting or even misguiding effect on your HR. Also, consultants’ hourly rates are the same whether they’re handling simpler administration or vital policies, but usually reflect the top end of their work – so you’re often paying for a level of expertise higher than what you’re utilizing.
- Best for: Small startups and smaller organizations looking for outsourced expertise willing to work onsite and truly get to know them.