You may be exploring whether it makes sense to outsource your administrative HR function to a third-party provider. The decision to outsource HR (HRO) should be treated as any other business investment decision, weighing the costs against the promise of expected returns. While this is no small decision, here are several key benefit areas to consider as you analyze the potential impact HRO can have upon your business:
The most tangible benefit of HRO is the cost savings it delivers. According to The National Association for Professional Employer Organizations (NAPEO), businesses that implemented HRO saw an ROI of 27.3%.
Let’s break down some of the specific expense areas that HRO can directly impact in reducing overhead costs for your small business:
- Labor: By outsourcing HR, small businesses negate the need to employ full or part-time HR staff. They can also strip administrative HR duties from current staff (such as a bookkeeper or accountant), allowing them to more fully focus on their area of expertise. Such actions not only saves direct labor costs and employee benefit costs, but delivers overall greater value to the company. This can be particularly beneficial for smaller companies with less than 150 employees that do not require an on-site HR presence.
- Office Space and Equipment: Avoiding the need to staff HR internally also means saving money on office space, computer and other related equipment, software licenses, and other miscellaneous office expenses.
- Technology: HRO providers include HR technology platforms and payroll modules as part of their solution set, eliminating the need for businesses to manage or pay for technology on their own.
- HR/Payroll Vendors: HRO eliminates the need for separate vendors providing administrative HR services such as benefits administration, workers’ compensation, and COBRA administration.
- Administration Fees: Employers may be paying fees to vendors for managing policies, administering 401(k) plans, and handling compliance audits, which can be mitigated through HRO.
- HR Consulting or Employment Attorney Fees: An effective HRO solution typically eliminates additional costs for HR consulting or employment attorney fees.
Additionally, a significant indirect cost saver is time. We all know time is money. Wasting time on low-value administrative HR tasks, inefficient processes, and dealing with unresponsive solution providers directly affects a company’s bottom line. Additionally, when employees spend time on non-revenue generating activities, it limits their ability to focus on more important tasks that contribute to the business’s success. HRO solutions helps employees prioritize their time and focus on high-value tasks.
Greater Employee Satisfaction
Many small to midsize businesses rely on a single internal employee to handle HR activities. To save money, that employee might double as a bookkeeper or accounting professional, which only adds to their day-to-day workload.
As a result, other employees may grow frustrated at having to get help with their pay stubs, W-2s, benefits or 401(k) information from a single staff member. The HR employee may also feel frustrated by the demand to multi-task.
An HRO provider includes a team of external experts with the bandwidth to address your employees’ questions and needs quickly. Many of these questions can even be answered directly through the platforms provided by today’s HROs, which can help your staff feel even more comfortable and empowered.
Improved Employee Retention
Company culture matters to employees. By offering a robust HR solution, your team members can enjoy less friction in their workplace experience.
HRO can help your workers feel valued, especially now that you can address their problems quickly and easily. This translates to greater employee engagement, a boost in your productivity, and minimal attrition rates.
According to the Society for Human Resources Management (SHRM), it costs roughly the equivalent of six to nine months of an employee’s salary to find a replacement. That’s yet another way that HRO benefits your bottom line.
Streamlining Your Talent Acquisition Pipeline
Small companies struggle to attract and retain the best talent, mainly because they lack the resources to offer competitive compensation packages.
An HRO solution can make things easier. By improving the employee experience with HR benefits, you’ll be able to attract better talent. Furthermore, by leveraging HRO, your talent acquisition process will run smoother and faster than ever before, all the while keeping costs to a minimum.
Modern companies face a set of ever-evolving employment laws, which can create risks of fines and penalties for businesses that fail to stay up-to-date. For example, failure to uphold the Fair Labor Standards Act (FLSA) can result in fines of up to $10,000, with subsequent violations punishable by prison.
HRO providers can protect you from these risks. With a team of specialists at your disposal, you no longer need worry about changes to employment laws or other regulatory measures, and your business can stay compliant and avoid costly legal fees.
Access to Industry-Leading Expertise
HRO providers can pair you with an experienced HR manager or an entire team of HR experts, allowing your company to tap into industry-leading expertise from professionals who understand historic and modern HR trends.
The best providers offer ongoing training to their team members, so you always know that your HRO personnel are offering the best support possible. You’re unlikely to see these benefits when hiring an internal employee unless you’re willing to pay top dollar.
In short, HRO furnishes qualified, skilled assistance at a fraction of the usual cost.
HRO solutions offer a number of unexpected benefits to your employees as well as your customers.
For instance, when employees have access to HR support to answer their questions and provide information about things like benefits and retirement plans, they’ll be happier and more engaged in their duties, including their commitment to customer service.
Additionally, outsourcing your business activities will save you time and make your administrative processes more efficient. HRO can ensure that your employees are more productive with their daily tasks and also have the bandwidth to pursue new opportunities, helping you scale your business.
Increasing Business Valuation
If you’re contemplating a future retirement or exit from your business, investing in HRO can be a great strategy to improve the overall valuation of your company. As HR tasks are no longer dependent upon certain internal staff, but rather provided by a outside (professional) HR partner, the solution is easily transferable to a new buyer/owner. Potential buyers of companies are looking for streamlined, well-run companies that have good systems in place. Future owners will appreciate the fact that your company is well-organized, compliant and has a solid HR infrastructure in place. This will positively affect the valuation of your business.
Request a Consultation Today
Need advice for your small business? Focus HR can help. Our friendly professionals will work with you to devise a solution that fits your business and makes the most of your budget.
Contact Focus HR today to request a consultation.