Managing all the aspects of human resources – payroll, employment regulations, benefits, etc. – can be challenging, especially for small and midsized businesses that lack dedicated personnel for this purpose. It comes as no surprise then that some employers today are turning to HR outsourcing companies so they can get back to focusing less on administration and more on activities that generate revenue and growth.

What are HR outsourcing companies?

HR outsourcing companies are third-party providers that assume partial or full control of an organization’s HR responsibilities. This arrangement works in any type of existing team structure. If an employer already has an HR department, the vendor will support the staff with technology and best practice guidance as needed. Or, if resources are entirely absent, the provider will serve as the primary go-to for payroll, talent, compliance expertise and much more.

Why use an outsourcing company for human resources?

HRO providers do more than just alleviate administrative burdens. In many ways, they’re trusted, strategic partners that can help businesses move forward. The benefits of such partnerships may include:

  • Cost control
    Outsourcing HR responsibilities is sometimes more cost-effective than hiring additional staff. Providers also typically have advanced technology and software that some businesses might be unable to afford independently.
  • Expanded knowledge
    Because HR outsourcing companies work with many clients across different industries, they have an unparalleled level of expertise compared to a single HR department. So, if a situation arises that an employer hasn’t encountered before, chances are good that their HRO provider has and can provide appropriate guidance.
  • Better benefits
    One area that HR outsourcing companies are particularly knowledgeable in is benefits. They can help employers put together benefits packages for their employees that they otherwise would have thought inaccessible or too expensive.
  • Reduced risk
    It’s the job of an HR outsourcing company to stay on top of ever-changing employment regulations. They’ll notify their clients when a new or revised law affects their business and advise them on how they can comply to avoid costly penalties and litigation.

What do HR outsourcing companies offer?

HR outsourcing services range from introductory help desks to comprehensive administrative support. Depending on where an employer’s needs lie within this spectrum, they may have a dedicated service team that helps with:

  • Payroll and taxes
    On behalf of their client, HR outsourcing companies may run payroll, deposit and file taxes, optimize existing payroll processing and manage employee inquiries.
  • Benefits administration
    HRO providers typically handle open enrollment, invoice reconciliation, reporting and COBRA administration, as well as field employee and manager questions.
  • Talent management
    From recruiting and strategic hiring to employee training and development, HR outsourcing companies can help employers attract, engage and retain talent.
  • HR administration
    With the aid of technology, HR outsourcing companies are able to integrate key HR functions, like payroll and timekeeping, thereby minimizing duplicate data entry and improving accuracy.
  • Regulatory compliance
    HRO providers protect their clients’ businesses by helping them develop proactive strategies to manage payroll tax laws, health care regulations, workplace safety, unemployment insurance, new hire reporting and more.

How do you choose the best HR outsourcing company for your business?

The right HR outsourcing company is one that connects clients with a dedicated team that knows their business personally and has proven processes and technology in place. To find such an HRO provider, employers generally follow steps like these:

  1. Conduct a needs assessment
    Evaluate current pain points to ascertain if outsourcing a few services piece meal will prove sufficient or if an all-in-one solution for HR, payroll and benefits is needed.
  2. Determine the preferred means of support
    Some providers offer strictly web-based interfaces, while others will customize their support measures or even come on site.
  3. Verify expertise and credentials
    Ask if the support team includes experts in payroll, benefits, HR, risk and safety, and whether they’re credentialed through industry-standard programs.
  4. Check reviews and references
    Look online for candid feedback from current and former clients. If the vendor provides references, contact those that are similar in size or in the same industry.
  5. Request a proposal
    How responsive an HRO provider is at this stage can serve as a good indicator of what can be expected as a client.

Frequently asked questions about HR outsourcing companies

What HR services can be outsourced?

HR services that can be outsourced include payroll, benefits administration and employee time tracking. HRO providers also provide consultative services in the areas of recruitment, employee engagement, workplace safety, compliance and data analytics.

What are HR outsourcing services?

Not to be confused with offshoring, HR outsourcing is a support service for organizations that lack HR resources or expertise. In this type of business arrangement, the HRO provider may manage some HR responsibilities on behalf of a client or all of them, depending on the employer’s needs.

Why do companies outsource HR functions?

Businesses generally outsource HR functions because it affords executives and HR managers more time to work on strategy and growth-related initiatives, rather than administration. Compared to the alternative options of hiring more staff or purchasing new technology, HR outsourcing can also be cost-effective and may help improve regulatory compliance.

This guide is intended to be used as a starting point in analyzing HR outsourcing. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.