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Factors that Determine the Cost of Outsourcing HR

Dustin McClone, President & CEO

Whether you're a small organization without a dedicated human resources (HR) professional or have an HR staff of one or more, outsourcing some or all of your HR functions can free you and your staff up to focus on business growth and other efforts to scale your company. But just how much will outsourced HR cost?

Of course, the answer depends on the scope of services you’ll want your HR provider to perform. Just need someone to handle payroll and compliance reporting? Or are you looking to overhaul your onboarding process, manage benefits, provide guidance on corporate restructuring and help transform your culture?

Before you can determine the costs — and potential savings — assess which services align with your needs, as well as which providers may be the best to help you with them. Here are some scenarios to consider.

HR Technology Implementation

Some organizations rely on a service provider to handle many of the administrative tasks associated with HR, including payroll processing, direct deposits, benefits administration, tracking of employee records, tax forms, reporting and more. However, not all service providers are created equal so it’s important to do your research when selecting a provider. A number of providers are tech companies offering a “DIY” software. Many find this is not always the best fit for them as it requires a significant amount of time for their team to build out and train employees on the software.

To efficiently manage all these areas and maintain accurate records for compliance, an HR services provider will provide you with Human Capital Management software (HCM). This system integrates payroll and tracks multiple other functions including tax forms, signed agreements, I9 forms, OSHA logs and more, meaning there aren’t multiple platforms to manage. This can help eliminate potential oversights and greatly improve efficiencies. It can also enhance security by only providing access to authorized users, which is an increasing concern in regards to data privacy laws.

Additional functionalities provided with the software usually include time-off management, incident tracking, certifications and performance as well as an employee portal for paperless onboarding and access to company policies.

Overwhelmed by Human Resource Duties?

General HR Services

Most companies need more than a technology solution to improve their HR functions and stay on top of the latest trends, regulations and recruiting initiatives. You’ll find that many service providers offer starting packages that will include a consultative approach.

The extent of consultative support can vary widely, but you should expect an HR partner to first establish a foundation by providing a thorough assessment of your current HR program and any potential risks. Then, they should develop a strategy for addressing them, followed by periodic meetings to review progress and address emerging needs.

Be sure the HR partner you choose conducts a thorough compliance audit of personnel files, employee handbooks, job descriptions and I-9 forms to determine any potential areas of concern. A major area of focus, however, is managing employee relations, so your HR provider should also assist with establishing protocols for employee discipline, help develop policies and procedures, do wage and salary benchmarking and help you stay on top of local, state and national employment insights.

Enhanced HR Services

In today’s competitive job market, many organizations see the need for going beyond simply handling administrative tasks and understand that engaging the human element of HR is where true transformation can occur. Some companies that struggle to retain good employees or attract candidates need to go deeper by implementing additional initiatives, some of which may include:

  • Development of an employee handbook
  • An overhaul of the recruiting and onboarding process
  • Implementing wellness programs, Lean initiatives and leadership development programs
  • Organizational structure review and recommendations
  • Reviews of union contracts, exemptions, harassment policies, etc.
  • Handling of complaints and grievances
  • Identifying potential Board of Directors candidates
  • And more

The Bottom Line

Determining the value of each of these functions needs to be weighed against the potential costs savings that can occur as a result. Consider the labor savings, reduced risks of compliance violations, fines and legal fees, as well as gains to be had from improved employee retention and recruitment efforts. All these factors can provide significant savings and free up your existing staff to focus on strategic growth initiatives.

To better help you understand what an outsourced HR solution might cost and the benefits it can bring to your organization, contact McClone for a no-obligation HR gap analysis. From there, we can give you a better idea of how much an effective HR service will cost based on your individualized needs.