Outsourcing Human Resource Functions: Pros & Cons

By: Patty Hilger

As a growing business, you will eventually get to a point when you must decide whether to hire an HR rep internally, or to outsource your HR functions. (No small task!) And, if you do decide to outsource, you’ll have to figure out who to trust with this very important part of your business— a partner who is an expert in both the strategic and tactical angles of HR. In other words, someone who has:

The know-how to execute the tactical side and will:

• Complete payroll
• Comply with best practices and regulations
• Implement benefits
• Pay benefits bills
• Respond to sensitive HR situations

And who also excels on the strategic side and can:

• Create positive company culture
• Foster employee engagement
• Grow your team’s skill sets through training and development
• Share strategies on building comprehensive and competitive benefit packages

The problem is, it’s incredibly difficult to find a single individual who is capable of doing both the strategic and tactical roles—and who comes without a senior-level pay requirement.

That’s where outsourcing HR administration to an alternative (for example, a professional employer organization (PEO) like GenesisHR) comes in. You’ll get a knowledgeable, experienced HR partner for less than the cost of an individual hire—but have a much more effective solution.

Learn everything you need to know about how a PEO works—and how your company will benefit by partnering with one—in this free guide.

Outsourcing Human Resources Functions: 5 Options

Instead of trying to DIY an HR function with the staff you already have (who are doing other tasks already), consider the following alternatives. For a more thorough look at each of the options listed below, please see our article, PEO Companies Vs. 4 Alternatives.

1. ASO

An administrative service offering (ASO) is a service businesses use to outsource administrative functions, including employee benefits, payroll, HR management, workers compensation, and safety programs. With an ASO, your small business gets one partner that manages the vendors your business selects to work with.

2. HRO

Human resources outsourcing (HRO) is the process of sub-contracting human resources functions to an external supplier. (Personnel Today) HRO may also be referred to as BPO, or Business Process Outsourcing. In this type of arrangement, HR outsourcing can be viewed as an entire function, and implies a speciality with years of experience.

3. Staffing Companies

Staffing companies, also called staffing firms or staffing agencies, help companies find and hire employees. In other words, they are recruiting firms, and help find job candidates for employers to interview. Staffing companies work with organizations up to the time a position is filled, and are not engaged on the benefits side of employment. They don’t touch payroll, and their sole purpose is to help staff organizations. Businesses that work with staffing companies can and do also work alongside PEOs; the two services benefit employers at different points in the employee lifecycle.

4. Independent Contractors

Hiring an independent contractor allows your business to have someone on hand to help build your HR function, make sure appropriate practices are in place, and more without hiring them as an employee or giving them full-time work. Having an independent contractor on retainer can be costly; you also don’t have any say in their availability. Companies have told us that it can be helpful to hire a contractor for one sole purpose, but that the limitations in their expertise or capacity are sometimes frustrating.

5. PEOs

A PEO is a business model that provides an outsourced solution for HR management that encompasses co-employment—where the PEO becomes your employer of record in order to provide the services your business needs. A PEO contracts with your business to perform these processes, assume associated responsibilities, and provide ready expertise in human resources management.

PEOs help your business manage complex employee-related matters and include administration of the following:

• Onboarding
• Health benefits
• Payroll
• Payroll tax compliance
• Leaves of absence
• Paid time off practices
• Workers’ compensation claims
• Unemployment insurance claims
• COBRA

At GenesisHR Solutions, we offer a suite of integrated services to effectively manage your critical human resource responsibilities and employer risks. We deliver these services by establishing and maintaining an employer relationship with the employees at your worksite, and by contractually assuming certain employer rights, responsibilities, and risks.

Outsourcing Human Resources Functions: Pros & Cons

Outsourcing HR Functions: The Pros

It’s a good investment (if done wisely).

When comparing outsourcing to hiring your own team member, it’s simply a better financial solution almost every time. You wouldn’t pay someone $100,000 to work on tactical responsibilities when you could hire someone at $50,000 to do the same role. By outsourcing, you gain access to an entire team of people who have both senior/strategic expertise as well as tactical knowledge—all for the same or less cost of hiring just a single person on your own staff.

You may get the functional capabilities of an entire team.

Choosing to outsource to an organization like GenesisHR means you will have access to experts in all realms of HR. This is difficult, if not impossible, to find in just one person. GenesisHR has a team of experts who excel in a variety of areas, including:

• Employer compliance
• Policy development and management
• Hiring and onboarding
• Employee relations
• Employee benefit administration, and more

You can offer comprehensive benefits with some partners.

Comprehensive means there are a variety of products being offered—health, vision, disability, dental, EAP, 401(k)—a holistic list of benefits your company can offer. It also means multiple health plan options, so your employees can find the best fit for themselves and their families.

It is very difficult to access a comprehensive benefits “menu” on your own, as many of these options are available only to larger groups. This is a key reason why so many of our clients choose to outsource their HR and benefits administration to GenesisHR—we leverage the numbers of all of our clients combined to bring each organization the types of comprehensive benefits their employees want and expect.

Keep in mind that not all outsourcing solutions can do this—ASOs can’t, but PEOs like GenesisHR do!

You have access to HR technology that makes your life easier (and more organized).

One of the pros of outsourcing your HR functions is no longer having to handle, file, and maintain mountains of HR paperwork and documentation on your own. You can take advantage of your partner’s HR technology to simplify employee data management, and allow employee access to information that your outsourcing partner handles.

We maintain personnel records and handle onboarding electronically, so required docs can be signed online vs. in person. And your employees will always have access to everything they need from an employee portal that you don’t have to worry about administering.

Risk management is approached proactively instead of reactively.

Risk management means maintaining a safe work environment as well as safety practices and procedures; it also means protecting the employer from any potential litigation against the employer. As your HR partner, we handle both.

We’ll help you train and onboard your team in ways that can help keep them safe and secure. We’ll also coach you through difficult HR discussions, so that if a termination of employment does occur, you will be better prepared to do the right thing and have the documentation necessary to protect your organization.

You get a breadth of experience and expertise.

The difference between one person’s skills and the capabilities of an entire HR team is vast. With GenesisHR, you get the vast knowledge and experience of a team who has worked in the HR world for a minimum of ten years—who have seen everything. (Nothing will surprise us!) We’ve successfully navigated challenging workplace issues with our clients before, and we will leverage that experience when we work with you.

But our experience isn’t limited to only difficult situations! Our team will help you implement best practices and keep an eye on trends that can help you improve onboarding and retain high-quality employees.

Outsourcing HR Functions: The Cons

As you read through these “cons” of outsourcing your human resources functions, keep in mind that we’re definitely biased in our answers, because at GenesisHR, we know that these “cons” are actually just misconceptions about what we do.

You’re “giving up control” of your company.

The biggest misconception we hear is from prospects who are worried about us “taking over” their company. The truth is, if you pick the right partner, you’re not giving up control at all! That means that you need to be selective about your choice, finding someone who won’t make you give up your employee handbook policies, for example.

Another common concern: Business owners are concerned about outsourcing their benefits to someone who may not know what their employees really need. In reality, your partner works closely with you to choose the right vendors for your business, and explain the reasons behind their choices—for example, why Blue Cross Blue Shield is the right carrier for your employees’ health insurance. They should teach you about cost control, networks, benefit plan options, overall cost, etc., which should make you feel empowered—and not at all like you are losing control.

An outsourced HR partner “won’t be available or accessible” when you need them.

Some business owners have the perception that if an HR representative isn’t “down the hall” then they’re not available. They worry about how quickly they can get in touch with an outside partner if the need arises.

At GenesisHR, we really are just a phone call away. Even though we aren’t down the hall, we are very close at hand, ready to provide you with help or answers anytime. In situations when having us onsite is critical, we will be there!

How To Transition From Doing HR On Your Own To Outsourcing Human Resource Functions

1. Identify what you’re outsourcing. Take time to look at your needs and growth goals, as well as the pain points of your current system. Identify what changes you need to make to transition them. For example, if you anticipate growth you want a solution that provides an easy and effective on-boarding experience. If you have inexperienced supervisors you’ll want to identify a partner that can help provide the necessary guidance and coaching to help grow your team. If you need to improve your workplace policies and related compliance make sure that you have a solution that includes updating the employee handbook and other policies.
2. Identify a plan to move each “need.” How this is done will vary depending on how you choose to outsource your HR. Some solutions, like PEOs, will partner with you to make sure the process is as seamless as it can be. Other solutions will require you to do it on your own.
3. Understand notice requirements for outsourcing HR functions. Most likely, you will need to provide notice requirements for some of the HR functions you’re outsourcing. For example, if your payroll function is transitioning to a PEO, you need to give 30-days notice to xx. This notice is in place to make sure nothing is interrupted or broken in the process of transitioning.
4. Pay attention to the timing. In addition to notice requirements, ensure that the timing of your transition is optimal. For example, specifically with payroll, pay periods and frequencies can be difficult to adjust. Time your transition to fit with your payroll schedule, so nothing gets dropped (and no one’s paycheck is affected!).

As I mentioned previously, the HR partner you choose may be able to help or even step in to take over the transition process. At GenesisHR, we navigate this for you! We map it out, provide assistance, and are present from start to finish to help your transition be as seamless as possible for you, your employees, and your clients.

HR outsourcing allows your business to stick to its core competency.

HR outsourcing can increase productivity for your entire team—but only if you choose the right partner. If you’re considering hiring or outsourcing, we’d love to learn more about your needs and provide some insight on how choosing a PEO can help. To get started, fill out this short form to schedule a discovery call.