5 Reasons to Consider Outsourcing HR

Yes, it’s an added expense, but it could pay off in the long and short term.
Outsourcing your HR can help free up time and energy. (Photo: Constantin Stanciu/Shutterstock)

As a small business owner, you’re probably in charge of hiring and firing staff along with everything else. But it might pay to outsource these tasks, and other human resource management functions, to a professional.

If you think HR departments are only for big businesses, think again. In today’s environment, HR issues — from attracting top employees to ensuring compliance with federal, state and local employment regulations — have the power to raise your bottom line or weigh your business down with red tape, fees and legal challenges.

Today there are many ways to get help with your HR needs. One is to hire a professional employer organization (PEO). These firms provide HR management and benefits administration, typically to small and mid-size businesses.

In 2013, The National Association of Professional Employer Organizations (NAPEO) surveyed small business owners about outsourcing HR. The results: Small businesses that outsourced their HR grew 7 to 9 percent faster, had 10 to 14 percent lower employee turnover and were 50 percent less likely to go out of business than their same-size peers who did not outsource these tasks.

Two professionals in the field — John G. Allen, vice president of sales at G&A Partners, and Joey Price, adjunct professor of fundamentals of human resources management at Stony Brook University and CEO of Jumpstart:HR — shared their top five reasons small business owners should consider outsourcing HR.


According to Price, HR is crucial to a business because it helps with the hiring process as well as performance management. (Photo: Joey Price)

Increase your bottom line

Outsourcing HR can improve the bottom line for your business. “It is incredibly expensive for a small business owner to build the proper HR infrastructure internally,” Allen said.

According to the NAPEO, PEO clients spend less on HR administration than similar-size peers, freeing up money that can be reinvested in the business.

“Less money spent on HR means more value invested in growth and technology,” said Price. “Companies who reduce their spending through outsourcing can reallocate dollars back into efforts that generate revenue. Simply stated, it pays to outsource your HR.”

More time to focus on your business

Price encouraged small business owners to consider outsourcing HR tasks so they can spend time and energy on what they are really good at: running their business. “You started a business because you’re an expert in your craft. HR outsourcing companies start because they are experts — it’s a perfect match,” Price said.

According to the NAPEO, outsourcing HR makes sense for small business owners, especially as their businesses grow, because most owners do not have the necessary human resource training, payroll and accounting skills, knowledge of regulatory compliance or background in risk management, insurance and employee benefit programs to meet the HR demands of the business.

Access to high quality benefits


John G. Allen, vice president of sales at G&A Partners, says that HR can be incredibly expensive for small businesses so outsourcing can help save money. (Photo: John G. Allen)

“Outsourcing your HR needs can allow you to gain access to Fortune 500-level benefits at an affordable rate,” Allen said.

By pooling their clients, HR companies and PEOs create the power of group purchasing for benefits such as health insurance, dental and vision care, life insurance and retirement saving plans and allow small business owners to offer benefits they could never afford alone.

Expert help dealing with HR regulations and laws

According to Price, the world of HR is complex and the laws often require interpretation. “Working with a consultative HR outsourcing company means you have a strategic partner who can help you dodge common missteps that result in fines and fees,” he said.

Allen said the biggest mistake many small business owners make is ignoring the importance of new regulations until they are levied fines for noncompliance. He encouraged small business owners not to wait until something goes wrong to make an investment in their HR functions.

Recruiting high quality employees

Allowing an outside service to take over or help with hiring can save money, simplify recruitment of seasonal and temporary staff, bring a proven system to the hiring process and increase access to top candidates who can help move the business forward.

Price emphasized the importance of HR in creating a good business team. “Vision is only as tangible as the team in place to execute it. HR organizations that help with recruitment and performance management are the secret sauce for companies who experience exponential growth,” Price said.

“When considering HR outsourcing,” said Allen, “small business owners need to see the true value well-managed human resources functions deliver to their organizations, such as higher-quality talent and a more engaged and productive workforce.”

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