HR is one sector that has recently seen an explosion in outsourcing. Formerly its own department within companies of all sizes, HR outsourcing has become a much more common solution for smaller organizations. If you're a small-business owner, understanding the benefits HR outsourcing companies can provide, and when you may want to consider it as an option, can be critical to your success.
As The New York Times reported, HR outsourcing has surged in the past 10 years. What may not be immediately clear to entrepreneurs is why. One principal reason driving the push toward external HR services is the increasing demand of time and resources placed on effective HR solutions. As the source reminded, HR departments have always been saddled with the responsibility of finding, recruiting and training new hires, but as the workplace and the employees entering it adapt, that once-simple task is becoming increasingly more involved. As a result, HR is more of a full-time job than ever, and especially for smaller companies, it can be difficult to keep up. Legal considerations, changes to benefits laws and other compliance concerns have all put more pressure on HR than in the past.
When is the right time to outsource?
If you own or operate a small business, you may find yourself wrestling with the option of seeking external HR functions through a PEO company. Entrepreneur magazine outlined a few guidelines to help small and medium-sized organizations determine if the current state of their business is such that they could benefit from HR outsourcing services.
While there is some flexibility in this regard, as a general heuristic, size does matter. Particularly small companies, employing 10 or fewer people, may not derive much benefit from outsourcing HR operations. However, as soon as your business expands to numbers that make managing HR services its own time-consuming task, it's a good indication to make the switch. This will actually free up more time for you and your executives to focus on the product or service aspect of your business, rather than getting bogged down in administrative tasks.
Cost is also a consideration. While rates vary, the source noted that you can generally expect to pay between 2 and 11 percent of wages per year for PEO services. Such figures are far from concrete, but they can be useful when it comes time to do a cost-benefit analysis.