A Complete Guide to Outsource Your HR

August 20, 20158:27 am1253 views

Is it time to outsource your Human Resources (HR) department? An HR department is a critical component of employee well-being in any business, no matter how small it is. Human Resources responsibilities include payroll, benefits, hiring, firing, and keeping up to date with state and federal tax laws.

Today, HR outsourcing goes beyond just handling payroll and benefits. Deciding which HR functions to offload and which firm to outsource to can be quite a challenge. HR outsourcing services generally fall into four categories: PEOs, BPOs, ASPs, or e-services. The terms are used loosely, so a big tip is to know exactly what the outsourcing firm you are investigating offers, especially when it comes to employee liability.


A Professional Employer Organisation (PEO) assumes full responsibility of your company’s human resources administration. It becomes a co-employer of your company’s workers by taking full legal responsibility of your employees, including having the final say in hiring, firing, and the amount of money employees make. The PEO and business owner become partners, essentially, with the PEO handling all the HR aspects and the business handling all other aspects of the company.

By proper definition, a service is only a PEO when it takes legal responsibility of employees. But take note–some HR outsourcing services like to use the recognised term “PEO” when they handle the primary aspects of HR like payroll and benefits, yet they do not take this legal partnership.


Business Process Outsourcing is a broad term referring to outsourcing in all fields, not just HR. A BPO differentiates itself by either putting in new technology or applying existing technology in a new way to improve a process.

Specifically in HR, a BPO would make sure a company’s HR system is supported by the latest technologies, such as self-access and HR data warehousing.


Application service providers host software on the Web and rent it to users-some ASPs host HR software. Some are well-known packaged applications (People Soft) while others are customised HR software developed by the vendor. These software programs can manage payroll, benefits, and more.


E-services are those HR services that are Web-based. Both BPOs and ASPs are often referred to as e-services.

Who is who?

These services listed are fairly straightforward in their own right. But the confusion comes as these services increasingly cross over into other types of services, or shed some of the services for which they are known.

For example, some BPOs will take over legal responsibility in much the same way as PEOs, while others do not. And many ASPs/e-services will also consider themselves to be BPOs because they are implementing new technology by hosting software and allowing self-service for employers and employees.

So know these service terms, but don’t get too sidetracked by the names when interviewing potential outsourcing firms. The key to hiring the right outsourcing firm is knowing what services your company needs and then find an outsourcing firm that can provide them.

See: Knowing when to outsource your HR

What can you get?

When you outsource HR functions, some services go with the “all-or-nothing” approach, requiring that they handle all your HR functions or none at all. Others offer their services “a la carte,” meaning you can pick and choose from the services they offer.

Typical services include:

  • Payroll administration: Produce checks, handle taxes, and deal with sick time and vacation time.
  • Employee benefits: Health, Medical, Life, 401(k) plans, cafeteria plans, etc.
  • HR management: Recruiting, hiring, and firing. Also background interviews, exit interviews, and wage reviews.
  • Risk management: Workers’ compensation, dispute resolution, safety inspection, office policies and handbooks.

Some services are full-service and will provide these as well as additional services like on-call consultants, who will come in to train or even settle a dispute.

Online services tend to be limited in their offerings, but you will get added options like Web access, which will allow you to view information (like benefits packages) and even make changes to such information online. Most will give you and your employees access to view their benefits plans, enroll in benefits, read policies, and make changes to current data.

Even PEOs that have survived off-line since the early 1980s are starting to offer online access for certain aspects of their service (like viewing benefits packages).


There are no clear-cut price ranges with HR outsourcing. The fees range greatly between services, as well as within the services. Aspects like number of employees, the options you choose to use, and even geography, will affect your overall cost.

If you think this sounds expensive, do a cost comparison of an outsourcing program you are investigating and the average salary and maintenance of an in-house HR director or staff. You might find significant savings either in money, hassle, or both.

Contracts with HR outsourcing firms will usually run a year. But you should work in a clause in which you can give 30 days’ notice to break the contract if you are dissatisfied with the services or don’t need the services anymore.

Should you consider outsourcing?

If you have fewer than 100 employees, the answer is yes. At this size, you often do not have the resources for an in-house HR staff, so outsourcing is just right for you. You don’t have to worry about managing all the details that are so critical to HR in your business, and most small-business owners just don’t have the skills and experience to do so. Remember, HR functions must be handled correctly as close to 100 percent of the time as possible; slip-ups can cause your business major problems.

If you have at least 12 employees, consider a PEO. Most PEOs only take on businesses with at least a dozen employees. If you are even smaller, online services are the way to go. These services are tailored to work with all sizes of businesses, even the smallest. You don’t have to give up legal responsibility just yet, and you’ll be able to easily access your information online. And since the charge is usually by user, you won’t be overpaying.

If you are uncertain about outsourcing everything but know you don’t have the staff or experience to keep it in-house, try outsourcing only certain parts, such as payroll and benefits. You can also purchase HR software right off the shelf to support any in-house efforts.

Whatever you decide, make sure to keep your employees in the loop. They will appreciate knowing that you are seeking the most affordable solution for the business while doing your best to meet their needs.

See also: Outsourcing: Pros and Cons

Source: Entrepreneur

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