With the growing complexity of HR functions, many SMBs (Small and Midsize Businesses) find themselves wishing for larger HR teams. From payroll administration to compliance, the amount of resources HR requires can be overwhelming.
Understaffed HR departments coupled with growing industry demands result in errors, fines, and talent churn. Outsourcing HR can take the burden off your internal team, give you access to better benefits, streamline recruitment, improve compliance, and much more.
Take a look at the top reasons why companies choose to outsource HR.
Why Do Companies Outsource HR?
The race to attract top talent, reduce churn, and stay compliant with the ever-changing legislature forces HR teams to work overtime. That’s why many companies choose to outsource at least some functions.
Cost Savings
HR and payroll departments spend about 36 hours per week on compliance-related activities. That’s almost a week’s worth of work for a full-time employee.
When you consider the amount of time your HR team needs to excel at all HR-related tasks, you are likely to find that you need additional employees. Hiring new team members is time-consuming and expensive. Considering high churn rates across many industries, it’s also risky.
Outsourcing HR costs a fraction of the price of hiring a new employee while providing you access to a variety of reliable HR experts. Meanwhile, the ROI of working with a PEO (Professional Employer Organization) can be as high as 27.2%.
Time Savings
Working with an HR partner can help you save an impressive amount of time on:
- Payroll — Payroll is one of the most time-consuming administrative tasks a company faces. Calculating, filing, and paying taxes takes business owners almost five hours per pay period. By outsourcing it, you allow your team to focus on other important HR activities.
- Onboarding — Bringing in new hires can take a significant amount of time. From background checks to onboarding, each part of the hiring process can require hours that employers simply don’t have. An outsourcing partner can handle many of these administrative tasks.
- Benefits administration — Administering benefits can be time-consuming and overwhelming. Choosing benefits vendors, answering employee questions, and ensuring compliance can keep your entire team busy all day long. By outsourcing HR, you delegate benefits administration to the experts.
- Compliance – Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), Occupational Safety and Health Administration (OSHA), Employee Retirement Income Security Act, Affordable Care Act – the list of laws that regulate HR compliance goes on and on. Staying on top of them can be extremely taxing.
By outsourcing HR to an HR partner, you can save days of work every month and allow your internal HR department to handle other important functions without working overtime.
Risk Management
SMBs constantly face numerous compliance risks, including:
- Inaccurately paid wages
- Failing to comply with workplace safety laws
- Issues with benefits compliance
- Documentation errors
Each of the above problems can lead to sizable fines. For example, penalties for minimum wage violations start at $1,000 per incident.
You can minimize these risks by outsourcing to an HR service provider and maintain a stellar company reputation in the process.
If you choose to work with a PEO, you can also take advantage of the co-employment model to share liability.
Specialized HR Talent
The diversity of HR functions makes it hard for small HR teams to handle all of them without working overtime. By collaborating with a PEO, you gain access to experts in different HR fields, including:
- Payroll administration
- Payroll taxes
- Benefits package design
- Benefits administration
- Employee relations
- Employee handbook design and updates
- Job descriptions
- Employee training and onboarding
- Compliance
- HR consulting
If you choose a local PEO partner that assigns a personal manager to your account, all these experts will be just one direct phone call away.
Better Employee Benefits
One of the most important reasons why companies outsource HR to PEOs is access to Fortune 500 benefits. A PEO pools all of its clients’ employees together to gain access to lower health insurance premiums. Using economies of scale allows these HR partners to help SMBs offer competitive benefits.
Besides health insurance, a PEO can help with:
- Reducing workers’ comp costs by decreasing your experience modifier.
- Giving access to affordable 401(k) plans by providing an opportunity to use a Multiple Employer Plan (MEP).
- Handling Unemployment Insurance claims efficiently and effectively so you aren’t subject to rate hikes resulting from poorly managed claims
All the above benefits make your business highly appealing to top talent while saving you a significant amount of money.
Important: Your company only gains access to better benefits if you work with a PEO. Other types of HR outsourcing partners like payroll processors or ASOs (Administrative Service Organizations) don’t offer such an option.
Take Advantage of All HR Outsourcing Benefits with a Reliable PEO
Why do companies outsource HR? They want to save time and money, manage risks, and provide high-quality benefits to their employees.
It takes a significant amount of time and money to stay on top of HR-related activities. Small HR teams simply can’t handle them. Outsourcing these tasks to a PEO takes the burden off your internal team and provides access to top-notch experts and Fortune 500 benefits.
Would you like to learn more about working with a PEO? Visit our blog at any convenient time.
