You may be a small business having in-house personnel that manage Human Resources (HR) at your office. Or you could be a growing business planning an HR services department to manage the increasing employee volume. HR is an indispensable part of every business and HR services ensure the development of a mutually satisfactory and productive employer-employee relationship.

HR personnel are responsible for forming employee policies, recruiting and shortlisting candidates, managing payroll and employee benefits, and ensuring compliance to state and federal labor laws. Outsourcing HR has its benefits but is often a difficult decision; in spite of the cost savings and other benefits. HRO services, by their very nature, are closely knit with the internals of an organization and corporate heads are wary of giving control to an external agency.

In this guide, we discuss HR outsourcing benefits, criteria for selecting HR outsourcing providers, pricing, and some tips that keep you in control all the time.

Why should you consider hiring Human Resource outsourcing company?

Outsourcing HR services to a third party provider is a weighty decision. You should be convinced of its merits to invest in it and support it adequately. Your commitment is critical to the success of your relationship with the HR provider. Evaluate your need for professional HR services by answering these questions:

Can the existing HR service handle serious employee problems?

Many small businesses appoint a staff member to manage HR related tasks. This falls cheaper and basic tasks get done. However, they are unequipped to handle serious problems that can turn ugly for organizations. Certain employee issues have to be handled with tact, on an immediate basis, and as per legal regulations. HR outsourcing services have the expertise to manage these tasks efficiently, protecting your business from possible litigations.

Do you want to optimize HR services?

HR outsourcing providers have trained personnel with the technical expertise to minimize wastage of time and resources. HR services optimize productivity by making employee forms and applications available online. Employees can fill and submit them online without the HR personnel's intervention. Large organizations also make use of the performance management systems offered by HR providers to evaluate performance of employees for salary hikes, promotions, etc.

Do you want your employees to feel valued?

In-house HR services are too burdened with administrative tasks and policy formulations to focus on employee benefit programs and trainings that motivate personnel. An HR outsourcing provider can take over the banal tasks and your in-house HR service can concentrate on improving the employer-employee relationship. Of course, you need to allocate budgetary funds to this effort and an individual to oversee the HR provider's work. Employees feel valued when employers spend on comprehensive benefits and career growth plans. It makes them more committed to your organization.

Do you want to save money on HR services?

If you employ an HR services director full time, it will cost you $60,000 to $100,000 annually. HRO providers charge a per employee rate that varies with the services you want. It can start from as low as $20 per employee.

Do you think outsourcing HR will upset employees?

HR providers have a wealth of experience in bringing about the major organizational change in businesses that outsource HR. Internal HR personnel interact with employees to analyze their needs and their reactions to a third party HR service. With minimum disruption to daily operations, the change should bring about resource optimization, cost minimization, and improved response times. When a company outsources HR services, employees can think the move is triggered by financial instability. HRO providers understand this perception and try to minimize the effect of this change on employees.

Do you need in-person HR services?

The downside of HR outsourcing is that the personnel are not available at your office all the time. They visit the office rarely and manage most of the work offsite. This is a disadvantage in situations such as recruiting, screening, sudden firing, and retention that requires in-person involvement of HR. This problem can be avoided by defining the partnership accurately at the very start.

What are the benefits of HR outsourcing?

HR outsourcing providers offer a number of services that benefit your organization irrespective of your having in-house HR or not. The services include:

Conformance to regulations

Human resource is subject to state and federal labor laws. HR outsourcing providers ensure your business complies with all regulations including audits, reports for tax filings, and reports for corporate regulations such as HIPAA, FMLA, and Sarbanes-Oxley. They also develop documents to publish state-mandated notices such as overtime policy, minimum wage requirement, etc.

Payroll management

HR outsourcing services manages paycheck processing, filing of tax, direct deposit into employee accounts, wage garnishments, and year-end tax forms.

Safety management

HR outsourcing providers ensure a business does not compromise on employee and workplace safety norms. They chalk out policies for workplace safety, arrange safety training programs and meetings, and ensure compliance to OSHA regulations.

Benefits management

HR outsourcing providers can get you discounted rates on many benefits such as health insurance, dental insurance, short-term and long-term disability, 401(k) plans, life insurance, unemployment insurance, and COBRA. The providers mix low-risk businesses with high risk-businesses and get a reasonable rate for both. If your business is high-risk, your HR provider helps you secure benefits that are otherwise costly for individual subscribers.

HR service optimization

HR outsourcing providers streamline HR services. They develop employee handbooks for new hires, kits and manuals, publish internal compliance policies, and training schedules. They help develop an employee database for smaller businesses and ensure data accuracy and compliance.

Leveraging HR technology 

Large HR outsourcing providers use a Human Resources Information Systems (HRIS) and implement it for their clients. The HRIS includes online applications for various HR functions, payroll and employee benefits integration.

How should you select an HR outsourcing provider?

The first step in selecting an HR outsourcing provider is assessing your business needs. Then, you start looking for an HR provider that offers the best combination of service and price.

Get started with these steps:

1.  Identify your business needs

HR outsourcing providers offer comprehensive packages or a set of services to choose from. You can make your selection based on what you need.

* Do you need payroll processing?
* Do you need in-person HR services?
* Do you need 401(k) plans and tax filing services?
* Do you need a comprehensive HR services?
* Do you need an HRIS?

2. Determine the best fit for your HR needs

HR outsourcing companies have three types of HR experts. It is not financially viable for very business to hire three HR employees and usually the HR provider sends one person who has the skills for all the job roles. If such a person is not available, select the expert who can meet most of your needs. The types of experts are:

* An HR administrator files paperwork, manages benefits, ensures compliance of internal policies with state and federal regulations.
* An HR generalist is the go-between who executes HR strategies. She handles hiring and firing of employees, compensation reviews, and benefits analysis.
* A senior HR executive works at a higher level with business managers. She discusses hiring strategies, growth plans, and works towards reaching business goals.

3. Interview multiple HR outsourcing providers

The purpose of an interview is to assess the HR provider's ability to meet your expectations. Ask about previous projects, time in business, experience in your industry, approach to work, and the plan for adding value to your business. Verify their claims with documentary proof. Many providers will claim they saved XYZ thousands of dollars. If it's true, they should be able to convince you on how they did it. Success stories should be collaborated with references.

4. Discuss policies and response times

If the HR outsourcing company will mostly be working offsite and visiting your office regularly to discuss policies and business issues, check their policy for managing emergency situations. Some employee issues such as a bad firing may need immediate HR intervention. What is the provider's guaranteed response time in such cases?

5. Screen the HR staff

Always invite quotes from multiple HR outsourcing providers. Make time to meet the staff who would be assigned your account if you sign the contract. This is a critical step as you must have clear communication with HR staff for a successful partnership. Ensure the HR provider has enough staff, resources, and expertise to deliver on her promises.

6. Check references

References are the best way to get a true picture of a service. Ask the HR service for references and call them to discuss various aspects of the HR outsourcing provider's services, such as:

* time it took to get started
* improvement seen in administrative tasks
* cost savings
* employees reaction to the change
* any disruptions in service during the change
* challenges and their resolution by the provider
* any incident where the HR provider's intervention prevented further problems
* clarity in communication
* responsibility in consulting the business before  making big decisions
* benefits realized from HR outsourcing

7. Check for the "out clause" in the contract

HR outsourcing contracts are usually made out for a year. This gives both sides enough time to integrate and maximize productivity. Contracts typically have a 60-days "out clause" that allows either party to cancel the contract without penalty. If you are not satisfied with an HR provider's performance, you can cancel the contract. HR outsourcing providers use this clause only in exceptional cases such as illegal business activities, etc.

What does HR outsourcing cost?

HR outsourcing rates are very varied. Some providers charge a fixed fee per employee per month. This charge can range from $25-$250 based on the services the HR provider is rendering. The rate may go down as the number of employees in your organization increase. Some providers charge a percentage of every employee's salary per month. This can range from 2% to 20%, again based on organization size and services rendered. Make sure the percentage is based on an employee's salary at the time the contract was signed or salary hikes will lose you money.

Some HR outsourcing providers charge for services such as $200-$500 for an audit review of manuals and policies, $1000 for developing ads for recruitment and placing them at strategic locations, $25-$50 per employee for psychological evaluations, background checks and drug screenings.

Tips on keeping control of your business

Business heads may worry that outsourcing HR services will weaken their control on business decisions and policy formulations. Not so. Follow these tips to stay in control all the time:

Know your authority

The HR outsourcing companies will play an important role in developing policies, managing benefits, and business decisions. They have responsibilities and liabilities, but they do not have the final say in how the business functions. You do.

Communicate openly

Clear and extensive communication between the HR provider and business heads is critical. Ask questions and discuss issues openly. The HR provider should align with your business goals and develop policies and plans to maximize productivity of employees.

Continued service

The HR outsourcing provider should provide replacement staff if s member of the HR team is unavailable. This ensures continuous services to employees and you.

Outsourcing HR saves dollars. At the same time, you get quality services. Analyze your business needs and select an HR outsourcing provider that fits your business perfectly.