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How Much Does HR Outsourcing Cost?


The human resources (HR) department of a company handles procedures and tasks related to things such as attendance, benefits management, payroll, and recruitment. These are crucial and absolutely necessary aspects of any business, but they can be difficult to maintain, especially for a new or growing company. You may think that keeping your HR in-house is the best solution, but as a business grows it gets harder and harder to keep up with the standards required of an HR department. Outsourcing your human resources department, however, places your HR needs in the hands of experienced professionals and takes some of the weight off your shoulders.

What Do HR Outsourcing Services Offer?

Whether you want a human resource service to handle all of your needs or simply supplement your current setup, they offer a host of amenities, such as:
  • Benefits administration: Benefits packages can be tricky to navigate and supply. There are a lot of moving pieces and laws involved. A dedicated service can handle 401(k) plans, health and life insurance, disability, and unemployment insurance. It also ensures that all benefits are distributed and handled properly.
  • Management: An HR service handles a large portion of new-employee management requirements. They create employee handbooks and training manuals, internal compliance policies, and new hire kits. Human resources providers also ensure that all employee information and materials are accurate and compliant with the latest codes and laws.
  • Payroll: Including functions such as direct deposit, paycheck processing, and tax filings and forms, this is the HR function most commonly outsourced.
  • Recruiting: Outsourcing your HR department places the recruitment process, from posting openings, to interviews, to background checks in the hands of a professional human resources team. An HR provider ensures your company's hiring and firing processes are compliant with labor laws and non-discriminatory policies.

Pros and Cons of Outsourcing To An HR Service

Choosing to outsource your HR processes comes with advantages and disadvantages. On the one hand, outsourcing your human resources department provides the peace of mind that comes with knowing a dedicated, professional team is reducing your workload and maintaining compliance.

Outsourcing to an HR service allows your employees to focus on other priorities. It even reduces the costs that come from high employee turnover rates. But that doesn't mean that there are no downsides to the process.

It is important to note that, though outsourcing HR is great from a business standpoint, it can negatively impact your employees. The lack of an in-house human resources department means that employees aren't speaking to management or on-site representatives about issues; they have to go to a third party. This can definitely lead to a drop in employee morale and effect how employees view the company culture.

Outsourcing also means that a separate service has open access to sensitive information. If not handled properly, this information can be leaked or lost, which is not good for your business. In addition, once you outsource your HR department, you give up control over how these processes and tasks are handled.

How Much Does It Cost To Outsource HR?

The price of HR outsourcing depends on numerous factors, including the number of employees, size of your business, and the features you choose. Most providers charge either a fixed fee per employee or as a percentage of income.
  • The average cost for an HR service that charges a fixed fee is between $20 and $200 per employee, with the low end representing simple payroll administration and the high end full HR services
  • The average cost for an HR service that charges a percentage of total income is between 2 and 10 percent of each employee's annual salary
Other costs associated with outsourcing HR include:
  • Employee screenings, which cost between $25 and $50 per employee
  • Manual auditing, which costs between $250 and $400 per month

Additional Considerations

One aspect that makes business owners hesitant to outsource is the idea that they will lose a certain level of control over their company. As listed above, that is somewhat true when it comes to how the human resources department is run. However, this does not mean that you are losing control over your business. An HR provider may have input regarding employment decisions and related policies, but that mostly pertains to regulatory compliance. You maintain autonomy over your business.

When comparing HR services, ask what type of services they offer and their level of experience. Don't be afraid to ask questions about even the most basic of functions; a good provider will have clear, concise answers that leave you feeling confident in their abilities. If an HR service doesn't seem like it can perform to your level, it isn't the one for you.

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