How Much Does It Cost to Outsource HR?

As a business owner, your focus is on growing your company. As a result, you may be thinking about outsourcing HR to save yourself the time and effort of managing the responsibility yourself. The next thing you’re probably thinking is: just how much does it cost to hire an HR consultant?

Generally speaking, you’ll likely pay between $500 and $2,500 a month based on the hr outsourcing services required. This is a very large range, so let’s review some common functions that companies outsource to help you understand where you may fall within it based on the services you need including:

• Employee handbooks
• Recruiting
• Compensation strategies
• Compliance assessments

This list is by no means complete, but will give you an idea of how some of the HR services you could use are priced. After reading this, you should walk away with a better idea of what you could expect to pay for outsourced HR and be able to decide whether outsourcing is an approach you can afford.

Is It Cheaper to Outsource HR?

On average, outsourcing HR costs about half of what it would cost to keep a full time HR employee in-house. This means that companies can save 50% by outsourcing HR vs hiring an in-house staff member.

How Does HR Outsourcing Reduce Costs?

One of the first questions asked when it comes to HR outsourcing is, “Is outsourcing HR cost effective?” The simple answer is: Yes! But knowing exactly how much it will cost really depends on what kind of help your company needs. The good news is that there’s a lot of flexibility when it comes to outsourcing so you can control your costs. Here are a few ways that HR outsourcing can reduce costs:

• Typically, there’s no long-term contract required. You can add or remove services as your needs and budget allow.
• It may be helpful to start with a larger one-time project like an overall compliance assessment then add a retainer when you understand the ongoing level of support you need. That way, you won’t be paying for services you don’t need.
• If you have some staff in-house handling HR activities, you can bring in outsourcing temporarily for some senior-level guidance to help strengthen your team’s capabilities.

How Much Does Outsourcing HR Cost?

The way companies charge varies widely when it comes to HR outsourcing. Some different ways that companies will charge you include a flat fee by service, hourly, by pay period, monthly, annually, per employee per month, or a percentage of each employee’s income.

No matter how companies bill, your cost will vary based on several factors, such as:

• Services needed and whether they’re purchased individually or bundled
• The complexity of your HR needs
• Number of employees

Since there’s so much variation, let’s look at an HR services price list to see estimated costs for the most commonly-used HR outsourcing functions. 

Employee Handbook

An employee handbook contains crucial information about workplace policies and procedures and can be an important document in limiting your potential legal liability and costs. In fact, the average employment lawsuit award is about $200,000. 

With all the legal and regulatory changes impacting the workplace, it can be challenging to stay on top of regular—and necessary—updates to your guide. Instead, you may want to outsource the development of a handbook that fits your business. 

The general range for an HR consultant to create an employee handbook is $500 to $2,000. Some outsourced HR companies will include the handbook as a part of other general services.

Recruiting

Hiring takes a lot of time. If you’re a small, growing business without dedicated HR staff, recruiting can detract from activities that generate income.

Recruiting can include everything from job descriptions and postings to sourcing and screening candidates. For these services, HR consultants may charge a flat fee based on the salary of the position you’re trying to fill, set up a monthly retainer, or bill hourly for the consultant’s time to manage the back-end posting and logistics. Each HR provider sets its own fees so these can vary widely, making it difficult to provide a range you could expect to pay. 

Oftentimes a recruiting or executive search company will charge a percentage of a new hire’s first year’s salary. With this approach, it can cost you between 20-40% of a worker’s salary.

Compensation Strategies

Making sure your compensation strategy is structured to properly incentivize employees and enhance retention is essential to achieving your organizational goals. 

There are really two approaches you can take to compensation. Your first option is to benchmark one position. That way, you’ll learn the value of the job in the geographical location and understand the salary for the 25th, 50th and 75th percentile.

Alternatively, you may want more in-depth support like a complete compensation plan that assesses all positions, their compensation ranges, whether they’re aligned with market rates, and if you should include incentive pay or offer base salaries only.  For that approach, you’ll likely pay a consultant an hourly fee, which generally ranges from $100 to $250 per hour. Some companies can also charge a flat fee based on the number of roles they are analyzing. Working with an outsourced HR consultant on compensation can also help you assess your benefits program and whether you are offering benefits that you employees value the most. 

Compliance Assessment

Because of the potential for steep fines and penalties, compliance is one of the biggest reasons companies outsource HR. When you bring in an outsourced HR vendor, they’ll review your policies and practices to see if you’re compliant with employment laws and regulations like those governing wages and hours, leave, and discrimination, among others.

The cost of a compliance assessment depends on the scope of the review but you can expect to pay between $1,000 and $5,000 for a one-time project plus potential additional fees  if there are follow up services required. 

Recurring HR Support 

HR Services firms can be contracted to fill in gaps in expertise and execution for HR services for small businesses that lack a defined hr structure. This type of recurring support can be a great fit for companies that want to give resources to their teams and employees but can’t yet hire full time HR in house. 

In this case, you will pay a fixed monthly fee or per employee per month cost for access to HR expertise that can run the gamut of all the services listed above including HR strategy and execution. 

What Is the average cost of HR per employee?

According to Gartner, the average cost of HR per employee is between USD 1,350 and USD 3,800 for each employee. Many small business owners don’t factor in the cost of HR when hiring employees, but it is important to factor in these costs from day one. Having a dedicated outsourced team can help business owners save money while providing the best services for their employees.

Lower HR Outsourcing Costs With Milestone 

Your back office can be a powerful (and affordable) thing, if you do it right. Milestone Business Solutions is an outsourced HR firm that is Indianapolis-based with an international footprint. Our HR support is designed to help companies at different scales with customized services, like our Growth Package for comprehensive coverage or specific strategic HR initiative support.

Ready to transform your company’s HR function into a true differentiator? Learn more about Milestone today and find out how easy HR outsourcing can be.