Outsourcing Human Resource Services: Key Considerations for Businesses

In today's fast-paced business world, companies are constantly looking for ways to streamline their operations and cut costs. One area that has gained significant attention in recent years is outsourcing human resource services. This involves hiring an external company to handle various HR functions, such as payroll, benefits administration, and employee relations. On the other hand, there is also the option of using a Professional Employer Organization (PEO). This is a co-employment arrangement where a business partners with a PEO to handle all HR-related tasks.

The PEO becomes the employer of record for the employees, while the business retains control over day-to-day operations.

The Growing Trend of Outsourcing HR Services

According to a survey by Deloitte, 84% of businesses outsource at least one HR function. This trend is expected to continue as more companies realize the benefits of outsourcing. So, what are the key considerations that businesses should keep in mind when deciding between outsourcing HR services and using a PEO?

Cost Savings

One of the main reasons why businesses choose to outsource HR services is cost savings. By outsourcing, companies can avoid the expenses associated with hiring and training in-house HR staff.

They also save on overhead costs such as office space and equipment. However, it's important to note that while outsourcing may initially seem like a more cost-effective option, it may not always be the case in the long run. PEOs typically charge a percentage of the total payroll as their fee, which can add up over time. On the other hand, outsourcing specific HR functions can be more cost-effective for businesses with a smaller workforce.

Expertise and Compliance

HR is a complex and ever-changing field, with numerous laws and regulations that businesses must comply with. By outsourcing HR services, companies can tap into the expertise of professionals who are well-versed in these laws and regulations.

This can help businesses avoid costly mistakes and penalties. PEOs also offer expertise in HR matters, but they may not have the same level of specialization as an outsourced HR service provider. Additionally, PEOs may not be able to provide the same level of customization and flexibility as an outsourced HR service provider.

Control and Flexibility

One of the main differences between outsourcing HR services and using a PEO is the level of control and flexibility that businesses have. With outsourcing, companies have more control over which specific HR functions they want to outsource. This allows them to tailor their HR services to their specific needs. On the other hand, with a PEO, businesses have less control over HR functions as the PEO becomes the employer of record for their employees.

This means that businesses may have less flexibility in terms of making changes to their HR policies and procedures.

Employee Experience

Another important consideration when choosing between outsourcing HR services and using a PEO is the impact on employee experience. With outsourcing, employees may feel disconnected from their employer as they are dealing with a third-party for their HR needs. On the other hand, with a PEO, employees may feel more connected to their employer as they are still technically employed by the business. This can lead to better employee engagement and satisfaction.

The Bottom Line

Ultimately, the decision between outsourcing HR services and using a PEO will depend on the specific needs and goals of each business. Both options have their own advantages and disadvantages, and it's important for businesses to carefully consider these factors before making a decision. It's also worth noting that businesses can also opt for a hybrid approach, where they outsource certain HR functions while using a PEO for others.

This allows for a more customized and flexible solution that meets the unique needs of each business.

In Conclusion

Outsourcing HR services and using a PEO are both viable options for businesses looking to streamline their HR operations. By considering factors such as cost savings, expertise, control, and employee experience, businesses can make an informed decision that best suits their needs and goals.