Why Do Small Businesses Outsource HR?

The Milestone Team August 27, 2021
small business outsource hr

Small businesses are unique and have a distinct set of advantages and disadvantages. Whether the business is in the start-up phase and has plans to grow, or is fully operational at 10-15 employees, the challenges small businesses face are unique and require smart staffing choices to maximize efficiency. Many small businesses utilize freelancing, consulting, and outsourcing services to tackle certain business functions. Is HR one of those functions? 

Human resources is a core business function, but small businesses don’t always have the resources to fulfill this need with full-time staff. Instead, some of your employees probably assume some of these HR responsibilities. You might even ask, “Does a small business need human resources?” And if you’re asking that question, it’s likely you and your employees have already adopted some of those tasks. That strategy can only work for so long. It might be time to consider outsourcing HR services for your small business.  

What are the advantages and disadvantages of outsourcing HR functions?

For small businesses, some of the most nuanced decisions can have lasting effects on your team and your business model. And a business considering outsourced HR functions should weigh the pros and cons carefully. 

What are the advantages of outsourcing HR functions?

  • You get quick, developed HR solutions when you need them when you outsource. If you try to fulfill the different HR roles for your business by hiring, it takes months, if not longer, to onboard the right people, train them, and integrate them into the business. 
  • You save on hiring costs when you outsource HR. As your HR needs grow beyond administrative needs, the HR talent you require will have a much higher price tag. That’s just in terms of salary. That doesn’t include the everyday costs associated with onboarding. For small businesses, that can be unrealistic. 
  • Other reasons for investing in outsourcing HR functions include: specialized HR skills, no gaps in service, peace of mind, strategic advice, and payroll quality assurance. At the end of the day, it’s less on your to do list when you employ HR consulting services for small businesses

What are the disadvantages of outsourcing HR functions?

  • You relinquish some control when you outsource HR functions. Any time you invite an outside consulting or outsourcing group into your business, you turn over some responsibility. That can feel like a loss, even if it’s for a greater good. 
  • You can become dependent on outsourcing certain business functions like HR. If you do outsource your HR needs, it’s wise to schedule annual or quarterly reviews to decide if this is still the right model for your company as it grows and changes. 
  • You run the risk of reduced or poor performance when you outsource with the wrong service provider. Outsourcing can make it tougher to micromanage a performance issue; evaluate your outsourcing provider to ensure you aren’t just filling a job description. 

Should a small business outsource HR?

Every business makes staffing choices specific to their unique needs—and you do that by asking honest questions about your HR needs. In this situation, consider: 

  • Are some or all HR roles currently being assumed by non-HR employees?
  • Could one person successfully handle the unique HR needs the business has now and in the foreseeable future? 
  • What current HR functions, if any, are not being met due to lack of specialization, training, or proficiency?
  • Is my business put at any risk due to a lack of investment in HR? 

Develop similar questions that require you, your partners, employees, and investors answer thoughtfully and honestly to decide if outsourcing HR functions is worth it. 

What HR services can be outsourced?

One benefit of outsourcing is that you choose what you want to outsource. This isn’t a binary option, but instead you can be strategic in what you choose to outsource and what you maintain in house. Evaluate the job functions: 

Payroll

Small businesses really benefit when they outsource administrative tasks like payroll. Your small team should be focused on growing the businesses sales and reputation instead of the back office functions like payroll. 

Coaching

We discussed the disadvantage of losing some control and face-to-face interaction when you outsource HR, but you can empower your employees, too. Coaching is one of the types of HR consulting services where you benefit from being distanced. Employees can feel empowered when there’s an outside team helping them navigate career choices. 

Hiring Process Management

The toughest part about hiring isn’t interviewing and choosing from a set of qualified applicants—it’s the exhaustive process of creating job postings, recruiting, organizing applications, scheduling interviews, completing background checks and drug screenings. The list continues. Much of this work can be outsourced. 

Outsourced HR consultants can help in the areas of total rewards, compensation, benefit administration, employee engagement, performance management, and employee relations.  If you aren’t sure where to begin or what you need, they can even provide an assessment of your current HR department and capabilities. 

Milestone knows how to navigate HR needs for small businesses by providing specialized, business-specific outsourcing. They work hard to ensure the HR functions you need to outsource are met with the right partner on the Milestone team. Highly trained, specialized, and well equipped with the resources to help your business. If you want to learn more, contact Milestone to learn how they work with clients to achieve successful outsourcing results

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