Outsourcing HR Functions

Outsourcing HR functions in your business can improve your overall business performance and create an impact on your employees for the better. Let’s review the benefits of outsourcing your HR functions. Read more below.

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Outsourcing HR Functions

If you’re a business owner, manager, or executive for an organization, you’ve dealt with Human Resources (HR) functions in some fashion. But for those entrepreneurs who are still building their first venture and are wondering, “What is HR and what does it consist of?”, here is a simple definition: HR managers plan, direct, and coordinate the administrative functions of an organization. HR specialists handle operations like payroll, employee relations, training, and benefits. They are also responsible for recruiting, screening, interviewing, and placing a company’s workers. That seems like a lot of responsibility, especially for small business owners or start-ups who are just hitting the ground running.

Perhaps it makes sense, then, that the next question many business owners have is, “Can a company outsource HR?” The answer is yes, any company can outsource its HR functions. In fact, many small- to mid-sized companies should outsource their HR functions. Outsourcing HR allows your company to be in compliance with laws and regulations, keep your employees happy, and save time so you can focus more on growing your business.

In a study by Accenture, 76% of respondents surveyed said their organizations currently outsource one or more major HR functions, and 80% of those said they would do so again.

Outsourcing HR functions in your business can improve your overall business performance and create an impact on your employees for the better. Let’s review the benefits of outsourcing your HR functions, what the core HR functions are, and a few steps you can take to get started in outsourcing your HR.

Why you should outsource your HR

Outsourcing your HR comes with several benefits like staying in compliance, improving your employees’ experience, offering a comprehensive benefits strategy, and reducing costs. For those who ask, “What role can outsourcing part of your HR department play in achieving your organizational goals?”, HR specialists can be more than just a payroll processor. A professional outsourced HR service can handle everything from hiring and onboarding employees to managing benefits, developing training programs, and overseeing compliance with employment rules and regulations. Although outsourcing HR might not be right for all businesses, there are some significant advantages to doing so, especially when it comes to saving time and money. As we dive deeper into these advantages, keep in mind that choosing a high-quality provider is also imperative to give you the best chance of a successful relationship.

Reason for investing in outsourcing hr functions include:


There are federal, state, and local labor regulations with which businesses of all sizes must comply. For instance, the Fair Labor Standards Act (FLSA) governs topics such as employee classification and overtime rules, while the Employee Retirement Income Security Act (ERISA) sets minimum standards for group health and 401k plans. There is an alphabet soup of employment regulations that constantly changes depending on certain court rulings or new legislation passed by Congress.

This is why so many businesses turn to outsourcing the administrative and legal complexity of these regulations to outsourced HR providers and sometimes even law firms with a specialty in employment law

Improved Employee Experience

Employees expect their work experience to be as seamless and technology-friendly as their personal consumer experience. Apple, Amazon, and Google have raised the bar on consumer expectations. Those same consumers are also employees. So, employers have been forced to ensure that their HR technology stack provides an integrated and seamless employee experience. Good outsourced HR services keep pace with technological innovation and provide such an experience—and they make it customized to suit your business’s unique size, industry, needs, and growth goals.

Better Benefits

In order to compete with large corporations, small- and medium-sized businesses have to offer competitive benefits. Attracting and retaining talent is critical to the success of any business, regardless of its size. Having professional HR and employee benefits professionals who can guide your business through various insurance options, current market trends and creative benefits strategies is a huge advantage.

If your business is a startup, it’s important to strategize about how and when you want to improve your employee benefits over time and to communicate that to your employees. Recognize that while you may not be able to offer group health insurance from the very first day, you can offer an array of other benefits, including equity, flexible work schedules, and growth opportunities that larger companies cannot match.

Cost Reduction

One of the biggest advantages of HR outsourcing for small businesses is the ability to save money. Outsourcing is growing for a reason! By outsourcing human resources, the support you can gain as a small- to medium-sized business is massive. The expertise may otherwise be unaffordable to a small business. Hiring an internal HR Manager can cost a business more than $90,000 per year when factoring in the cost of benefits and taxes. By outsourcing the HR function, businesses can save anywhere from $30,000 to $70,000 annually largely depending on company size.

So you know outsourcing your HR has a lot of great benefits, but what are the actual functions an outsourced HR service can perform? Let’s take a look at that next.

What are the main functions of HR?

The five core HR functions include staffing, development, compensation, safety and health, and employee and labor relations. Within each of these core functions, HR conducts a wide variety of activities.

Staffing and Recruiting

This includes the activities of hiring new full-time or part-time employees, hiring contractors, and terminating employee contracts. Staffing activities include:

  • Identifying and fulfilling talent needs—primarily through recruitment
  • Utilizing recruitment technology to acquire a high volume of qualified applicants
  • Terminating contracts when necessary
  • Maintaining ethical hiring practices and aligning with the regulatory environment
  • Writing employee contracts and negotiating salary and benefits


On-boarding new employees and providing resources for continued development and engagement is a key investment for organizations. HR specialists are charged with maintaining these developmental approaches to engagement. These activities include:

  • Training and preparing new employees for their role
  • Providing training opportunities—internal training, educational programs, conferences, etc.—to keep employees up to date in their respective fields
  • Preparing management prospects and providing feedback to employees and managers

Compensation and Payroll

Salary and benefits are also within the scope of human resource management. This includes identifying appropriate compensation based on role, performance, and legal requirements. Compensation activities include:

  • Setting compensation levels to match the market, using benchmarks such as industry standards for a given job function
  • Processing payroll
  • Negotiating group health insurance rates, retirement plans, and other benefits with third-party providers
  • Discussing raises and other compensation increases and/or decreases with employees in the organization
  • Ensuring compliance with legal and cultural expectations when it comes to employee compensation

Safety and Health

Achieving best practices in various industries includes careful consideration of safety and health concerns for employees. Safety and health activities include:

  • Ensuring compliance with legal requirements based on job function for safety measures (i.e. hard hats in construction, available counseling for law enforcement, appropriate safety equipment for chemists, etc.)
  • Implementing new safety measures when laws change in a given industry
  • Discussing safety and compliance with relevant government departments

Employee and Labor Relations

Defending employee rights and mediating disagreements between the organization and its human resources is also a core HR function. Employee and labor relations activities include:

  • Performance review management
  • Investigating claims of harassment and other workplace abuses
  • Discussing employee rights and concerns with management and stakeholders
  • Acting as the voice of the organization and/or the voice of the employees during any broader organizational issues pertaining to employee welfare

Employee Engagement

A strategic HR department can also do more than administer benefits and coordinate hiring. They can actually improve organizational performance by integrating and aligning with business strategy and linking a company’s direction with its people. Employee engagement has a significant impact on the success and productivity of your organization. Engagement activities include:

  • Providing development and growth opportunities
  • Organizing social functions
  • Participating in philanthropy efforts
  • Implementing employee recognition

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

Are you wondering how to even start outsourcing your HR functions? These three tips will help guide you in your search for the right partner as you begin your outsourcing journey.

Pick a quality service provider

Not all outsourcing HR services are equal. Do your research and pick a service that aligns with your company’s values and needs. Many HR services offshore their services to other countries as well, which may lead to problems with communication and consistencies. Aim for outsourced service providers that are based in the U.S. and are familiar with your region.

Choose your outsourced HR service carefully, and consider other back-office needs

HR outsourcing companies can offer a wide variety of services and specialize in certain areas. For example, here at Milestone, we specialize in B2B companies, tech startups, and non-profit organizations. Also, consider the other back-office needs you may need for your business. You may need help in HR now, but what about accounting or bookkeeping? Finding a service where you can bundle your back office needs is a win-win for everyone.

Make outsourcing HR an ongoing effort

Outsourcing your HR services doesn’t have to be a short-term solution. In fact, it shouldn’t! Once you have a quality outsourced consultant, your company can grow with that provider and the shared history can simplify transitions and allow easier expansion, because they already have a solid understanding of your company’s history, mission, and goals.

Engage your employees, outsource your HR with Milestone

If you aren’t actively working to engage your team, you risk losing them to an organization that will.
Studies show that highly engaged employees are 87% less likely to leave their employers. With the average cost of turnover exceeding $15,000 per worker, you can’t afford to ignore employee engagement.

Milestone Business Solutions is a professional services firm dedicated to bringing you excellent outsourced HR and outsourced accounting solutions. If you searched “hr outsourcing companies near me” look no further, because Milestone has a national footprint and is based in Indianapolis, IN. At Milestone, we offer strategic services to help you understand what motivates, inspires, and engages your employees. Our HR consulting services for small businesses include monthly HR support, strategic initiatives, and payroll services.

We believe in true business partnerships and approach every client interaction with this goal in mind: to make your life easier, provide you access to information to make smarter decisions, and help you build a more successful company.

Our team is your team, and our model is simple: You get experienced C-Level leadership at a fraction of the cost of a full-time resource. We promise no long-term contracts, no hassles, and the flexibility to scale up or down as your business needs change. Because every business deserves access to strategy and expertise, no matter their size. Schedule a call to discuss your HR service needs today.

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