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Buying Guide for HR Outsourcing
Over the last decade, outsourcing the human resources (HR) function has become a cost-saving measure for many companies both large and small. Outsourcing the HR function can happen piecemeal or en masse.
So if you are a very small company without the resources to take care of your HR needs in house, you may choose to outsource your entire HR department. If you are a larger firm, you may choose to handle some tasks yourself and outsource others.
In either case, if this is your first time exploring what it might look like to outsource your HR needs, this Buying Guide will give you the information you need to make the right purchasing choice.
There are a number of significant benefits you can reap by outsourcing some or all of your company's HR needs. Here are some of the most important benefits to consider:
Human resources are a very specialized field. There is much to learn and near-constant updates to keep track of. By outsourcing to a company that knows HR inside and out, you relieve your own staff of that continual burden of education and training even while knowing you are receiving the highest level of HR services.
While yes, you will be paying another company to handle your HR needs; overall many companies often find that their overhead costs decrease once the outsourcing process is complete. Just hiring an HR director could take a significant chunk out of your company's annual budget for payroll and benefits ($60,000 - $100,000). Compare that with an average of $20/employee per month for outsourcing your function, and you can do the math to see whether your post-outsourcing cost comparison favors this approach.
Here, your staff can get back to work doing what they do best while you outsource the HR function to a company that specializes in human resources. This equals lower stress and better service for all.
Makes change easier.
If your company is now going through a transition or plans to, having an outsourced HR function can really streamline that process. Not only can you maximize the value of having an HR specialist's perspective on needed changes, but you can minimize internal stress on employees if big changes need to be made.
Choosing an HR Outsourcing Company
Before starting your search, first list out the tasks you need outsourced. This can be revealing because you may discover you can handle certain tasks quite well from within, or perhaps you will realize you need to outsource the entire department. After doing this exercise you will be in a much better position to shop intelligently.
This will also help you negotiate more effectively, since most HR providers today offer both piecemeal (a la carte) and package services. So you can either buy an inclusive package service or bundle together a customized package, or buy just one single service if that is all you need.
Once you start your search, you will notice right away that there are different service levels you can choose from. Here are the three basic tiers:
When you hear the word "administrator," think "paperwork. If your HR function looks like an endless list of forms, this is the tier for you.
A generalist can manage organization change like nobody's business, including hiring/firing, salary and benefits changes and strategic oversight.
Bringing in an executive-level HR function is like bringing in a consultant to the CEO to discuss big picture changes for the future of your company.
Once you have a better idea of which tier your company could benefit from most, your next step will be interviewing providers. Here, you want to look closely at references, see what other customers say about the services provided, find out about their background and be sure to meet the specific person or team who will handle your account.
In general, you can expect to pay anywhere from $20 to $200 per employee per month for outsourcing your HR function. Obviously this rate will vary according to which tasks you choose to outsource and what tier of services you need.
In some cases, instead of a flat fee "per head," you may be charged a percentage of each employee's annual salary. This can range anywhere from two percent to 10 percent. Here, be sure the rate stays the same (i.e. that it is based on what salaries were when you hired the provider) so you don't pay more if you give your employees a range mid-contract.
You can expect to be asked to sign a contract before beginning services. Typical contracts begin at 12 months but include a 60 day trial period clause.
These five key tips will ensure you outsource your HR needs wisely.
Walk away from "big talk" HR providers.
Very, very few HR providers can do everything you need. If you suspect a provider is over-promising only to under-deliver later, walk away.
Stay in control.
You are hiring the HR provider - you are essentially their boss. Never put yourself in a position where you allow your provider to take on more responsibility than their position requires.
Always have backup.
Be sure you know how your provider handles it when members of your assigned HR team go away on vacation - who will back them up?
Always ask your questions. Never assume they are "too basic" - that is what you are paying the provider for.
Choose the right provider.
An Administrative Services Only (ASO) provider is a better fit if your only real need is to manage a self-funded healthcare plan for employees.