What is Human Resources Outsourcing?

Human Resources outsourcing identifies the practice of contracting a third-party organization to deal with all or some of a business’s HR activities and functions. When small business owners or HR professionals consider outsourcing HR, they would like to think about who else is outsourcing, what functions could be outsourced, and to whom they should outsource.

Why Outsource HR?

The top two reasons for outsourcing would be the benefits of time and cost efficiencies. These efficiencies are the opportunity costs of company owners and managers, who lose money and time focusing on HR tasks whenever these resources can be spent what must be done in order to grow their business. That is, the money and time devoted to employee direction is better spent by outsourcing HR so that companies can be devoted to core business functions. Other reasons cited by SHRM include enhanced compliance, a broader selection of provided services, and more experience in the HR area.

What HR Functions may be Outsourced?

If a business chooses to partly HR services, the organization shares responsibilities with the vendor, sharing information and control over the functions. If the business decides to fully outsource, the vendor takes on all HR responsibilities. The proprietor or HR manager from the original company takes on a new job, liaison with the seller, focusing solely on HR in order to deal with the vendor-company relationship. Whether partly or fully outsourcing, companies frequently outsource the next HR functions:

1. Background Screening

2. Payroll Services

3. Risk Control

4. Temporary Staffing

5. Employee Assistance/Counseling

6. Health Care Benefits

7. Retirement Planning

8. Performance Management

9. Drug Screening

To Whom Can You Outsource HR?

The three types of HR outsourcing companies are Human Resources Organizations, Professional Employer Organizations, and Administrative Services Organizations.

1. Human Resources Organization (HRO)

The vast majority of Human Resources Organizations (HROs) allow big businesses (1000+ employees) to choose which HR services they’d like outsourced. When some functions are dealt with from the HRO, a Hr Shared services is created between the HRO and the company (that is generally the conservative approach to people very first outsourcing HR). When all acts of HR are outsourced, the HRO takes complete responsibility. In large organizations, the strategic HR function remains an internal place; but most administrative and tactical roles are outsourced. This can also be done in smaller organizations (typically under 200 employees) with a Professional Employer Organization.

2. Professional Employer Organization (PEO)

A Professional Employer Organization, or PEO, manages all HR jobs and is generally more valuable for small and mid-sized businesses (under 200 employees). When a company hr outsourcing companies to a Professional Employer Organization they enter a co-employment relationship in which the PEO becomes the employer of the company is the on-site employer. As the employer-of-record, the PEO will be responsible for taxes and workers’ compensation. Financial liability for the little company decreases due to the shared burden. Moreover, the PEO can obtain reduced rates on retirement packages and health advantages by combining employees from all of their customers. They often provide outsourced payroll, performance management, recruitment, history screening along with other different employment administrative tasks that depend on the needs of the company that hires them.

3. Administrative Services Organization (ASO)

The third HR outsourcing situation is hiring an ASO, or Administrative Services Organization. As the title aptly implies, an ASO provides administrative solutions for your business. These include processing payroll, performing direct deposits, and filing payroll taxes. Like outsourced payroll, the submitting is below your federal employer ID number (FEIN). But unlike outsourced payroll, the ASO will offer assistance with questions concerning legal and compliance concerns, access to insurance, worker’s comp, and medical/dental advantages. These offerings and costs are determined by your employee base and employment risks associated with retaining them. The ASO provides the small business employer “employment-related” aid for companies with 50 or more employees.

Deciding on a Human Resources Outsourcing Company

As mentioned previously, there are three chief types of associations to which HR can be outsourced. The most prevalent option for smaller companies is your Professional Employer Organization, mostly due to the added bonuses of outsourcing HR and discussing the burden of risk. Even though this is important for some companies, others might find it more valuable (simply because of the number of employees) to outsource only certain HR functions (ASO or HRO), and some may find it wiser to outsource only the administrative side of HR (ASO).