Human Resources: In-House and When to Outsource HR

Running A Business

There are certain ways to improve a business’ overall efficiency, and outsourcing is one of them. You should consider outsourcing HR to industry experts, depending upon the nature of your business. Outsourcing HR comes with part or full options. It would be best to gauge the particular needs of your organization before outsourcing your HR.

Also, look for the company you intend to engage as your outsource for HR and ensure to ask about their credentials, experiences, etc.

Human Resources: When to Go In-House and When to Outsource HR

HR outsourcing is an agreement or a contract binding an employer and a third party (external) where the outsourced party will manage and be responsible for HR functions. There are several types of contracts covering HR sourcing for employers.

The outsourced party will not only manage payrolls, tax filing, and end of service benefits for employees but may also have a major role in other important aspects of the business.

HR outsourcing helps manage accurate, error-free payrolls, and tax filings, giving you more room to focus on your business to get the best out of your employees.

You can discuss certain issues with your outsourced HR, and they will help and offer professional suggestions or advice.

Why Consider Outsourcing Your HR?

You may wonder why you should consider outsourcing your HR. It depends on your company size and how rapidly you want to expand your business.

Outsourcing your HR can provide you with loads of benefits. Most HR service providers have the technology required to perform various HR tasks efficiently. It also improves management and administrative solutions in an effective manner. According to a study by The Society of Human Resource Management (SHRM), more than half of businesses are using outsourced HR.

In addition, outsourcing HR will take away a number of headaches when it comes to hiring new people and finding professionals for the job like managers, skilled labor and IT experts, and software. By outsourcing your HR, you don't have to worry about things like payroll and tax return filings. Why? Because an outsourced HR will perform these tasks with high-level accuracy.

The most significant feature of outsourced HR is its time and cost-effectiveness. The more time your managers, business developers, and staff members will spend on HR-related issues, the slower your business’ growth will be. An outsourced HR will give you and your employees more quality time to think and devise strategies for business growth.

Outsourcing HR: Costs and Benefits

Outsourcing an HR can refresh your business development strategies. What’s more, HR professionals can give you the best compliance in employment, immigration, the governing labor laws, and payrolls.

A well-functioning HR department will remain on top when it comes to taxation part and complying with the latest laws, whether enforced by the State or Federal Govt.

Which HR Tasks can be outsourced

If you are running a business with your in-house HR team, you may find them busy with a lot of paperwork and always complaining to meet the deadlines. Outsourcing your HR is an excellent way to complete various tasks in a relatively short period. An outsourced HR will give you the most value for building strong in-house working teams and hiring and developing company culture.

Here are commonly outsourced tasks, which can benefit you.

Payroll and Related Tax Services

Payroll management is one of the most common services provided by outsourcing companies. There will be professionals and dedicated people calculating the salaries, making taxation figures, completing tax obligations permissible within the state laws.

They will have their own compliance in place to make their reports trustworthy and reliable. Some HR companies even share online payroll reports, offering businesses a great deal of convenience.

Benefits Administration

HR companies can take care of health and other benefits in a seamless manner, like benefits of 401(K), commuter benefits, etc.

These companies also cover employee rewards and other recognition programs in your company structure. This can significantly improve sales, security, and other things, including in-office behavior, etc.

Furthermore, HR companies may provide your business access to other benefits, which only an enterprise-level company can afford.

Employment Law Compliance

Your company must comply with various state and federal laws besides updating its payroll. HR companies will ensure that your business is complying with these laws to steer clear of any trouble. This could include training, compliance, new hiring processes, and other working regulations.

Employee Assistance Program (EAP) and Counseling

EAP is another area where HR Companies can help you out. This program helps address several personal and or work-related problems like stress, financial strains, family problems, job-related issues, etc. By providing the HR Company with EAP access, you can provide your team excellent support, making sure they remain healthy and happy.

What HR Functions can be outsourced?

If a company opts for partial outsourcing HR service providers, then it shares the responsibilities with the vendors and service providers. On the other hand, if you are outsourcing HR services for full services, then the vendors will assume all HR responsibilities. New HR Company will join hands with vendors and suppliers focusing only on HR to streamline vendor-company relations.

In either case, outsourcing companies perform the following functions without exception.

  • Background Screening
  • Payroll Services
  • Risk Management
  • Temporary Staffing
  • Employee Assistance/Counseling
  • Health Care Benefits
  • Retirement Planning
  • Performance Management
  • Drug Screening

What Kinds of Businesses Should Outsource HR?

There are metrics and methods to assess what size of the business will be suitable for outsourcing an HR Company. Mentioned below are the types of businesses that should consider outsourcing their HR operations.

Small Businesses: 0-10 Employees

It may seem like small businesses are easy to manage, but it is far from the truth. Managing your sales, expanding your clientele base, keeping a tab on payrolls for accuracy, etc., can be very tough for your business. Getting an HR Company to take care of these things would be a wise choice. These companies can give you more leverage and spare time, which you can use for growing and taking care of your business without any hassles.

A professional employer organization (PEO) will help you automate your payrolls, compliance methods and keep these services at an affordable and economic level. These companies will also give you a variety of HR tools and services by certified HR consultants. Plus, the software for small-scale businesses contains numerous HR tools and services for managing the team efficiently.

Engaging an HR company for PEO services will also give your employees more time to work better, and they may bring better ideas to the table, leading to positive business growth.

Hence, your focus would be more on managing your business team, not worrying about whether they are getting timely paychecks.

PEOs will further go a step ahead and ensure compliance with the local, state, and Federals laws while doing the payrolls and filing tax returns.

Growing Businesses: 10-50 Employees

The increasing number of employees means more staff members may be required to do the payrolls, taxation, compliance, and other managerial tasks. Staying fully compliant with industry norms is mandatory, which is why getting a professional HR company to take care of these matters would be a wise decision.

If your HR manager is using PEO software that helps in managing payrolls, employee benefits, and taking care of compliance, then they can focus on the environment and recruiting without any hiccups. Nonetheless, you can still use HR members for other things that cannot be managed through software or cannot be automated at all.

Therefore, for this size of business, staying compliant becomes a major issue as more people on payroll need to be paid, and hiring goes on at the same time. So engaging a PEO or HRO company will offset your worries for compliance issues.

Mid-Sized and Large Businesses: 50-500 Employees

As you would expect, larger businesses have larger funding and are always set to scale up rapidly. You may be planning to upscale from a team of 50 members to 100 or 200 employees. In this case, company owners have to manage a large number of employees, their payrolls, and taxation.

Therefore, recruiting becomes a top priority leading you to further issues of concern regarding expansion and compliance. This may lead to the need to get an all in-house activity, as payroll experts may be costly and often unnecessary.

Furthermore, you may start looking for someone in the company to come forward to handle HR duties in an efficient and effective manner. This will include handling HR projects, such as conducting healthy training programs, writing a company manual for employees, etc., to make the company better.

Sure, having an in-house HR department allows you to perform company-specific tasks, which can be highly beneficial for companies that operate under one roof.

Despite all this, there remains an empty slot for an outsourced HR company to step in. Outsourcing the payroll or getting the best software will help you save a lot of money and time. This will save your HR department time, which they can use on other projects. A PEO will be a great addition.

Companies with 500+ Employees

It would be fair to say that companies with five hundred or more employees are quite similar to most medium-sized companies. The main thing that makes them different is that they often prefer to have an in-house HR department. However, no matter how big an organization is, having an HR department is always beneficial as it helps delegate important tasks, allowing employees to focus on more pertinent tasks.

Hence, keep your in-house HR people focused on finding the right talent, devising strategies, and creating a well-knitted environment for the rest of the team for seamless coordination. At the same time, let an outsourced HR look after other matters.

What are your HR outsourcing options?

There are three main types of HR outsourcing companies:

  • Human Resources Organizations
  • Professional Employer Organizations
  • Administrative Services Organizations

1. Human Resources Organizations (HROs)

HROs will primarily provide some or all of a business’s HR requirements. This may include providing a limited HR service as outlined by the employer or a full specter of HR services. In either case, the employer should make a thorough, detailed, and in-depth search prior to selecting an HR company.

Most HROs will come up with easy options for large businesses offering their services on a selective basis, where the employer can choose which functions the company may need to engage HRO for.

Once a company gives full-scale HR services to an HRO, then they will assume great responsibility in discharging their tasks. The jobs are carried out by industry professionals, using their know-how, experience, and best software to deliver timely projects.

HRO has tailor-made options for small to medium-size businesses. At the same time, large or big businesses will always discuss the situation prior to executing it..

2. Professional Employer Organization (PEO)

Professional employer organization (PEO) comes at the back of a joint employment relationship with an employer by leasing employees to the employer. This allows the PEO to partake and manage all employee-related functions, payrolls, recruitment, including previous working history, responsibilities, and their professional liabilities they are engaged to perform. The actual employer becomes an on-site employer, and PRO remains the employer for the record. The PEO remains responsible for workers' compensation and taxes, etc.

This option is often or mostly operated by small to medium-sized businesses with under 200 employees to minimize the risk for both the company and PEOs. PEOs can exercise their right to reduced or lower rates on retirement package and other health benefits by clubbing together employees from all their previous and current clients.

3. Administrative Services Organization (ASO)

ASOs provide administrative jobs, as the name implies. ASO outsourced HR focuses on the administrative side of HR, as there’s no employment-sharing relation between the engaging and engaged party.

An ASO is an organization that provides HR solutions, taking care of things like payrolls, deposits, and filing taxes, all under the hiring company's Federal Employer ID Number (FEIN). Furthermore, the ASOs also extend help when it comes to things like compliance, legal concerns, accessing insurance, workers compensation, and other medical benefits.

All these services and costing are weighed by your employee base and risks attached to their retention.

The hiring company will be responsible for all risks and liabilities with regard to employment. ASOs are ideal for businesses with 50 or more employees. PEOs serve businesses with less than 200 employees. On the other hand, ASOs are quite different as they cater to fewer employees, generally for smaller businesses.

ASOs provide:

  • Workers compensation
  • Compliance
  • Safety Management
  • Payroll Services
  • Pension Administration

An ASO is different from PEOs who use their own FEIN status. Additionally, with ASOs you may be seeing more and more people outsourcing their services to increase flexibility.

Furthermore, you will observe that PEOs provide good services for companies having 1-50 employees or companies having employees in other states. Nonetheless, there are companies with a larger employee base using PEO, whereas small businesses prefer seeking an ASO.

Choosing a Human Resources Outsourcing Company

You can outsource your HR to three types of organizations: PEO, HRO, and ASO, and all three possess different qualities.

Professional Employer Organizations (PEOs) are generally the best option covering small businesses. It’s also worth keeping in mind that PEOs share the burden of risk besides added bonuses for outright or fully outsourced HR tasks.

At the same time, some businesses will find it convenient to outsource the administrative part of ASO, which is quite catchy like PEO.
There are certain elements you must consider before selecting any company for outsourcing your HR department.

  • Previous records
  • Performance track records with metrics and their successful completion
  • The compliance certificates
  • Cost of services
  • Assurance or guarantee for the level of services
  • Flexible contracting options

All these points need to be taken care of before reaching a decision. In order to avoid any confusion, PEOs will assist you in all respect to have clarity about benefits for outsourcing HR, in part or full, depending upon your choice and requirements.


If you are trying to run or manage a business without sufficient manpower and you don't have enough staff members to complete the business cycle in an efficient manner, then you should consider outsourcing your HR department to a credible PEO. As mentioned abundantly, businesses of all sizes can benefit from outsourcing HR.

So, outsourcing HR has more benefits for giving timely solutions and addressing the issues through their industry experts and a team of professionals.

Moreover, outsourcing HR will give you time to re-focus on generating more revenues. Whereas it will help you control cost, save time and reduce paperwork. You will have professional advice for employee issues and better compliance methods in place.

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