What are the benefits of outsourcing HR functions?

The Milestone Team August 7, 2021
benefits of outsourcing HR functions

An important part of running a business, and one that is sadly often neglected, is having a capable human resources (HR) department. In fact, according to the book From Capability to Profitability: Realizing the Value of People Management, “…companies that are highly skilled in core HR practices experience up to 3.5 times the revenue growth and as much as 2.1 times the profit margins of less capable companies.” While some companies limp along with minimal HR coverage, more and more small- and medium-sized businesses are turning to outsourcing their human resource management (HRM) functions

Why do organizations outsource HRM functions?

Many small businesses outsource their human resource management functions due to the time-consuming, complex, and demanding nature of handling HR tasks. There are multiple components to running a competent and effective HR department and many businesses simply do not have the bandwidth to address them all. In fact, a survey conducted by HRDive found that 54% of businesses outsource their HR functions or utilize an HR consultant on a regular basis. With all the complexities, one of the main reasons for hr outsourcing is that it allows businesses to focus on their core competencies and primary mission.

What are the benefits of outsourcing HR functions?

Along with the major benefit of being able to free up time and effort that was previously spent on HR tasks, other benefits of outsourcing HR include:

Access to Expertise

Hiring a team of experts who are knowledgeable about HR, payroll, benefits, and other aspects of human resource management would cost a huge amount if you were trying to handle this internally. Your outsourced HR will give you top-tier expertise without the huge price tag.

Reduce Compliance Risks

You don’t know what you don’t know. There are many HR and employment compliance risks you take on as a small business when you don’t have professional and comprehensive HR support. Outsourcing your HR will help you stay compliant with laws and regulations and overall, reduce your risks.

Better Benefits and Perks

Small businesses may not be able to afford all the bells and whistles with an internal HR department, but because outsourced HR firms specialize in all things HR, you will be able to have access to benefits and perks for your employees that you otherwise may not be able to afford. 

More Productive and Engaged Employees

Having a comprehensive outsourced HR team can help keep your employees engaged. Studies have shown that highly-engaged employees are 87% less likely to leave their employers, and the average cost of turnover exceeds $15,000 per worker. Keeping your employees engaged is hugely beneficial to your business and your bottom line. 

Of course, these are just a few of the benefits, and your outsourcing contract terms and conditions will lay out all of the services that you will receive when you outsource your HR. 

What HR services can be outsourced?

When formulating your HR outsourcing strategies, it’s important to keep in mind what tasks are easy and most beneficial to outsource. Common HR functions that are outsourced include:

Compliance​ 

  • Maintaining detailed employee files
  • Accurately completing I9s
  • Staying on top of employment regulations
  • Maintaining up to date Labor law postings
  • Creating, updating, and distributing employee handbooks
  • Ensuring company policies are effective and inline with best practices 

Payroll

  • Accurately handling administrative functions of processing payroll
  • Managing wage garnishments
  • Pro-rating for on-boarding employees or terminations
  • Annual updates, like salary and benefit deduction changes

Employee administration 

  • Onboarding new hires and offboarding departing employees
  • Workers’ compensation and unemployment claim administration
  • Employee investigations​ and other employee relations issues

Compensation & benefits

  • Employee benefits administration
  • Pay analysis and benchmarking
  • Compensation Strategy
  • Total rewards strategy

Talent acquisition

  • Recruiting processes evaluation
  • Talent acquisition support services 
  • Employer branding assessment 
  • Educational sessions

​Performance management

  • Job analysis
  • Core competency development
  • Manager education sessions
  • Performance review coordination

What steps should an organization follow if it wants to outsource an HR function successfully?

The first step is to figure out what HR functions your business would benefit from outsourcing, and then turn your attention to finding a trusted, experienced HR outsourcing company to work with. At Milestone, we actually work with you to accomplish that first step—our process begins with an audit of your current HR set-up to determine what you’re handling well and where you could use a hand. Then we use that information to determine what service and packages fit your business best. Once you’ve partnered with us, you will be assigned a dedicated associate who is your point person and go-to expert throughout your relationship with Milestone. The only thing left is to focus on what you do best—growing your business—while Milestone handles all the HR details for you. Schedule a call today to discuss your HR needs with one of our experts.

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