Outsourcing HR: Considerations for Your Business

Human resources is a vital department for any business. HR representatives manage a variety of diverse tasks from payroll to mediating employee disputes. Some companies choose to outsource some or all of their HR responsibilities to outside firms. Consider if this option is right for your company by learning about HR outsourcing, the types of HR outsourcing and what specific HR responsibilities are best for outsourcing. 


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What is HR outsourcing?

HR outsourcing is the practice of an outside company handling a business or organization’s internal HR responsibilities. Some HR outsourcing companies handle specific HR duties like payroll processing or benefits management, while others manage several duties at once. Companies who choose to outsource their HR department may enjoy these benefits:

  • Improved executive focus. Company leaders can spend their time working on high-level company development rather than managing changes to healthcare coverage, payroll issues or other HR challenges. 
  • Saved money. With fewer HR staffers, companies save money on salaries, which it can use to hire more employees directly related to the business’s mission or to invest in growing the organization. 
  • Better benefits. HR outsourcing companies can often get superior, lower rates for healthcare and other benefits because of the large number of people the company covers. Businesses can then offer their employees improved benefits. 
  • Lower hiring costs. Hiring a new employee can cost a significant amount of money, especially for a company with limited staff. The HR outsourcing company handling the onboarding procedure can do it at a lower cost and with no time cost for the hiring company. 
  • Legal compliance. HR outsourcing companies manage legal compliance matters like workplace safety and information management better than most companies who don’t specialize in HR. Using an HR outsourcing company ensures legal compliance. 

Related: New Hire Onboarding Checklist


Types of HR outsourcing

Companies can outsource HR responsibilities to several different types of companies depending on the business’s size and needs:


Human Resources Organization (HRO)

Most HROs work with large companies employing thousands of people. The HRO model allows companies to choose which HR responsibilities they would like to outsource and which they would like to keep in-house. Often, even if the company outsources all responsibilities, it will retain at least one internal HR representative to communicate with the HR outsourcing company.


Professional Employer Organization (PEO)

PEOs tend to be most useful for small to mid-size companies with 200 or fewer employees. The relationship between the PEO and the hiring company goes beyond just HR responsibilities. The PEO becomes the employer of record, while the hiring company is the on-site employer. The companies work together in a co-employment relationship. Besides payroll, recruiting, performance reviews and other HR responsibilities, the PEO handles the company’s taxes and any workers’ compensation claims. Small companies benefit from reduced risk and low-cost benefits with the oversight of a large PEO. 


Administrative Services Organization (ASO)

ASOs often serve mid-sized businesses, with between 50 and 1,000 employees. ASOs primarily provide administrative HR services to businesses. Unlike PEOs, they do not offer co-employment. ASOs will assist companies with employee questions, workers’ compensation and legal compliance in addition to other administrative HR duties like payroll processing, insurance access and safety management. 


HR responsibilities to consider outsourcing

HR departments often handle a broad range of responsibilities. HR outsourcing companies can assist with some or all of HR’s duties, including:

  • Background screening
  • Payroll processing and other services
  • Risk assessment and management
  • Temporary employee staffing
  • Employee assistance and counseling
  • Health and life insurance benefits
  • Retirement planning and services
  • Employee performance management
  • Drug testing
  • High volume recruitment
  • Employee relocation
  • Employee coaching
  • Maintaining and updating onboarding materials
  • Affirmative action planning and implementation
  • Sexual harassment training
  • Freelance compliance


HR outsourcing FAQs

Company leaders considering outsourcing some or all of their HR responsibilities often have questions about the process, benefits and consequences. Here are some of the most frequently asked questions about outsourcing HR:


What size business can benefit most from outsourcing HR?

Small businesses, mid-size companies and large corporations can all benefit from outsourcing their HR responsibilities. With a variety of HR outsourcing companies like HROs, PEOs and ASOs, businesses can find the HR outsourcing company that meets their needs. 


How do you outsource HR?

First, decide which responsibilities your company can outsource and which should remain in-house. Next, research HROs, PEOs and ASOs to see which type of HR outsourcing company meets your business’s needs. After determining the best type of HR outsourcing for your business, research individual HR outsourcing companies to compare costs and select a provider. 


What are the costs of outsourcing HR? 

HR outsourcing costs vary dramatically depending on the size of your company and the number and type of responsibilities outsourced. Some HR outsourcing companies charge as little as $50 a month while others cost upwards of $1,500 a month. 


When should a company outsource HR?

Choosing the time to outsource HR is an individual choice for every company’s leadership. Often, executives decide it’s time to outsource when the costs of maintaining an internal HR department are too high, when healthcare benefits packages are too costly with too little coverage or when the company is going through a period of high-volume recruiting and onboarding. 


How long does it take to transition from in-house HR to outsourced HR?

The length of the transition will depend on a few individual company factors, like the company’s size and which responsibilities are moving from internal to outsourced. The transition process can take anywhere from a couple of months to a year. 


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