Important Reasons Why Companies Outsource HR Services

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The cost of doing business can be quite high, especially when your business is just getting off the ground. While it’s natural to want to do everything in-house, great business owners understand the need to outsource certain functions to established professionals. One of the best cost-saving measures you can make is to outsource HR to a Professional Employee Organization. Doing so will not only give you an excellent chance to move your HR functions over to the care of professionals, but it will also allow you to better manage where your business is going in the future.

Why outsource HR?

There are several good reasons to outsource your HR department, some of which might be more obvious than others. While there’s certainly something to be said for the cost savings and efficiency that come with putting this kind of responsibility in the hands of another company, there are also some very real benefits for your employees when you choose to outsource HR. It’s important to take both types of benefits into account when choosing when and how to outsource HR.

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The main benefits of outsourcing HR services

There are multiple benefits to outsourcing your HR department. The most commonly cited ones include:

  • Cost. It takes a great deal of money to fully staff a human resources department, a cost that can’t easily be borne by the average small business. Even though the costs are high, though, it’s still necessary for even a growing business to have a good human resources department. By working together with another company to outsource HR, though, that money that would be spent staffing that department can suddenly be used for more productive growth.


  • Flexibility. Working to outsource your HR needs also frees up the human resources you need to make your business successful. While you might be able to afford to hire HR staff, that money might be better used to bring in more frontline employees or to invest in better technology. Outsourcing human resource needs allows a business to be more flexible with its spending.


  • Employee benefits. It’s also important to remember that the companies that provide HR help can help out your employees in other ways. By working together, you might be able to offer your employees better benefits packages or access to cheaper healthcare. It’s often your employees who benefit the most when you choose to work with an outsourced HR company.

Related: Outsourcing Payroll to Meet the Needs of Your Business

What types of HR functions are generally outsourced?

Generally speaking, the functions that your partner company can provide are the functions that can help streamline your business’ employment functionality. The other company will take over a great deal of the background HR work, ranging from onboarding processes to benefits managements. While these are certainly the less visible aspects of HR, they are nonetheless some of the most important and the most resource intensive.

Most companies that outsource HR need to do so to allow a company who has expertise in the field to manage certain aspects of the employment process that aren’t necessary to take care of in-house. This might include:

  • Applicant screening
  • Drug testing
  • Payroll and benefits services

Again, these are necessary services, but the company itself won’t suffer from deciding to move the management process out of its own direct management.

What about hiring/firing?

Professional Employment Organizations can absolutely be used for hiring and firing employees. In fact, doing so can be a primary reason why a business owner might wish to work with the outsourcing company, especially if the business owner isn’t used to the process of bringing on new workers or handling disciplinary matters on his or her own. Choosing to give this kind of power over to the PEO can make life a little harder for some business owners, but it’s ultimately useful for many.

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It’s important to remember that the nature of your contract determines what the other company will and will not be responsible for. If you are uncomfortable with the idea of having another company take care of the hiring process or the firing process, you don’t have to choose a contract that includes those options. It’s up to you to determine how much control you want to maintain.

Outsourcing mistakes and tips to avoid them

As you might imagine, there are plenty of mistakes that can be made when working with another company to outsource your human resource needs. Instead of wandering in blind, though, you can look at the mistakes that others have made in order to ensure that you’ll be able to avoid the catastrophes with which they have had to deal. Below are three of the most common mistakes made in the world of HR outsourcing, as well as a few methods you can use to avoid falling into the same traps as those who have come before you.

Culture clashes

Choosing to outsource HR is, ultimately, a choice to make a change in how your company works. No matter what else happens, you’re going to experience some changes in your company’s culture as you adapt to working with another business. Some of these changes will be positive, but others might have a lasting impact on how your business works.

Be proactive. The best way to deal with a culture clash is to understand what you are getting into before problems happen. Be open with your team about the changes that are going to occur and work with them to minimize any impact that they may have. Ultimately, you’re going to have to change – but that certainly does not have to be a bad thing.

Mismanaged expectations

Your business likely has an idea of what it’s going to get by outsourcing HR. In many cases, though, those assumptions are founded more on one’s expectations than reality. It’s very easy for a business to get burned when it goes into the process without all the facts.

Be prepared. As you might imagine, the solution here is easy. Before you start outsourcing, take the time to read the relevant paperwork and to talk to your potential partner. If you know exactly what you are getting, you shouldn’t have to worry about mismanaging your expectations.

Forgetting duties

On the other hand, it’s very possible for a company to run into trouble because it has forgotten to deal with its own obligations. While the HR company with which you choose to deal should be handling all of the various compliance issues that are relevant to your industry, the truth is that you’re still responsible for staying within the bounds of the law. Forgetting that can land you in a great deal of trouble.

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Communicate. The best way to deal with this is to check in with your outsourcing partner. Make sure they are aware of compliance issues and check to make sure that everything that is being done is by the books. Simply keeping the lines of communication open can work wonders.

Outsourcing your HR services

Choosing to work with another company to outsource HR might be just what your business needs to make the most of its resources and to stay competitive. Though there are certainly problems that can occur when outsourcing, the truth is that a business that is well-prepared will generally be able to avoid such issues and will benefit greatly from the process. When you’re ready to consider outsourcing, remember to visit PayTech to take a look at our packages and pricing.


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