How Much Does it Cost to Outsource Human Resources?

If you are having trouble meeting your HR needs, outsourcing can help if you know your budget. Here is how much it costs to outsource human resources.

There are currently more than 5.6 million businesses across the United States that have regular employees. These businesses offer people the opportunity to work in a huge range of industries. From retail to hospitality to engineering — there's something for everyone.

HR Outsourcing

If you run a business, you know that your employees are your lifeblood. At the moment, small businesses across America employ more than 68 million people. They contribute to the success of your business every single day so looking after your employees is essential.

This is why you need to have a great human resources team. If you don't have the budget to hire your own team, it might be time to outsource human resources instead.

In the same way that doctors need to clearly communicate with patients, your HR company needs to accurately communicate with your employees.

So how does HR outsourcing work and (most importantly) how much does it cost? If you're thinking about outsourcing HR for your business, you need to know this.

In that case, you're in the right place. Read on to find out everything you need to know about HR outsourcing and how much it costs.

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The Importance of Human Resources

If you are an employer, even of a small team, then your business needs a human resources department.

HR is responsible for looking after your employees and ensuring that you provide a safe working environment. They also handle any sort of disciplinary issues within the workplace.

Essentially, they act as a middle-man for your employee relations, and this benefits everyone working in a business. In order to do this, people working in HR need specialized knowledge of employment law.

They can use this to resolve workplace disputes, assess working conditions, and negotiate working contracts. Now that many employees are working on a more flexible basis, this is more important than ever before.

They also take care of the daily administration that comes with employ management, such as recording sick days, processing holiday requests, and organizing payroll.

So what are your options for putting together an HR department? You could create an HR department yourself by hiring a team. However, if your budget is tight, you might also want to think about outsourcing your company's HR needs.

Benefits of Outsourcing Your Company's HR

To understand whether or not HR outsourcing would suit your business, let's take a look at some of the benefits compared to hiring your own HR team.

First and foremost, outsourcing your HR needs can save you a lot of money, especially if you are a smaller business. This means that you aren't paying an extra yearly salary to one or more members of your HR team. On top of this, you don't have to spend time searching for and hiring the right team for your business.

HR consultants can also save you a lot of time when it comes to running your business. This is because they offer access to a lot of business automation software, such as payroll and tax management.

Your HR department plays a vital role in protecting you as an employer from legal issues. However, if the team that you hire messed up for some reason, you can still find yourself in hot water. An HR consultant will ensure that this isn't the case.

A lot of HR outsourcing companies also offer specialized services that benefit both you and your staff. For example, they might offer employee wellness plans. Often, this means that they can offer a lot more than a single HR employee could for a fraction of the price.

Finally, if you do experience any HR-related issues, outsourcing companies will be on hand to deal with these quickly. In fact, most companies offer 24-hour support so that you can deal with any issues as soon as possible.

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What Does an Outsourcing HR Company Do?

An HR outsourcing company will take care of all your human resources needs, just like an in-house department would. This includes:

  • Recruiting and hiring new staff members
  • Processing your company's payroll
  • Managing complaints
  • Conducting disciplinary actions
  • Updating your companies employment policies to ensure they are in line with employment law
  • Maintaining employee records for your company
  • Conducting benefit analysis of similar companies

This means that your company will provide support for its employees as well as clear guidelines for their working behavior. This can also help you improve the ways that you:

  • Provide career growth opportunities
  • Offer training and further education
  • Support your staff's health and wellness

Having happy employees massively benefits your business. In fact, employees that feel satisfied with their employment are 12% more productive, so everyone's a winner!

While HR outsourcing companies cover these main areas, not all companies do this in the same way. In fact, there are several types of human resources companies that manage your company's HR in quite different ways. Let's take a closer look at these.

Different Types of HR Outsourcing Companies

There are three main types of human resource outsourcing companies that you can use. To understand these better you need to know how each of them works.

Professional Employer Organizations (PEOs)

Professional employer organizations offer comprehensive HR coverage for businesses. They will take over all of your business's HR processes. They will also assume complete legal responsibility for anyone working for you.

Essentially, this means that they become business partners with you and are co-employers of anyone who works for you.

General HR Outsourcing Firms

These companies are much more removed than PEOs. Instead, they handle all of the basic HR needs of your company. This includes things like payroll, administration, and risk management.

However, this also means that they do not assume the same type of legal responsibility that PEOs. This is the most basic type of HR outsourcing.

Specialist HR Outsourcing Firms

Specialist HR outsourcing firms are a nice middle-ground for any business looking to outsource their HR needs. These companies focus on specific areas of human resources, such as dispute management or recruitment.

This can help if you have a specific issue that you need help with and many of these companies are available for pay-as-you-go hire. Some specialist firms also work in specific industries where specialized knowledge of employment laws is vital.

PEOs and specialist firms will generally be more expensive to hire than general outsourcing firms. However, the type of firm you use isn't the only thing that will affect your HR costs. Let's take a closer look at different HR service costs.

How Much Does It Cost to Outsource Human Resources?

Okay, so we've taken a look at what outsourcing can do and why it might benefit you but how much does outsourcing HR cost?

This depends a little on how your HR consultant charges. There are a few ways that they can do this.

Some companies charge a fixed monthly fee per employee that you have. This can range from $20 to $200 per month for each employee in your company.

Other companies calculate their fee based on your employees' annual salaries. Usually, they will charge between 2% and 10% of each employee's salary for the year.

So if you have ten employees who each make $20,000 a year, you might pay $3,000- $4,000 overall. That works out as just over $300 a month.

Some HR outsourcing companies will also let you pick and choose which services you want and you can pay as you go. They might charge between $250 and $500 for services like auditing or $50 per person for employee screening.

On top of this, most HR consultants will offer you the option of having an HR audit done for your company. You don't tend to have these too often so they come at a one-off price of around $1,000. This can help you identify any issues and streamline your management to save time and money.

A number of things can affect how much you pay each month when outsourcing your HR needs. Understanding these will help you get a clearer idea of how much HR outsourcing might cost for your business.

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The Size of Your Company

The bigger your company is, the more expensive it will be to outsource your HR needs. This is because most companies charge per employee, so if you have a big staff your HR bill will be bigger each month.

This is why a lot of bigger companies have their own in-house HR departments. After a certain point, it is cheaper for them to hire a team of their own.

However, the base salary of one HR manager is more than $68,000 a year and most HR departments need more than one employee. So if a company is charging less than this every year, you will still save money by outsourcing.

HR outsourcing companies will also charge small businesses less than bigger businesses. This is partly because smaller businesses have less complex HR needs than large businesses. It also means that everyone can pay a price that they can afford.

The Services You Need

Most HR consultancy firms offer a range of different services. Some of these will be part of a basic service package. If you want more complex support you might end up paying more each month. For example, audits come at an additional cost.

A lot of HR consultants will also offer employee wellness initiatives. These are a great way to improve employee satisfaction at your business although more complex plans may come at an additional cost.

Where You Choose to Outsource

Different companies will also charge more than others. When hiring an HR consultant, it is important to go for quality over a cheap price. After all, the last thing you want is to end up spending money on services that don't deliver.

Do a little research before hiring a company to manage your HR needs. In particular, you should look out for reviews from other companies that have hired them in the past. This can tell you a lot about how they treat their clients and the kind of service they deliver.

What You Save Money On With Outsourcing

We've already mentioned that you can save money by outsourcing to an HR consultant so let's take a closer look at exactly where you save this money.

The cost of outsourcing is a lot cheaper than hiring a team of employees, especially for small businesses. This also saves you time having to deal with employee recruitment, hiring, and turnover if one of your staff wants to leave.

Outsourcing also saves you money on resources that an HR department would need. This includes:

While this might not seem like a lot, over a year the cost of these supplies can really add up. A consultant will already have their own office and supplies, which you won't be charged extra for. So you may as well make the saving where you can!

Finally, when working with an HR consultancy company, you don't have to worry about them calling in sick. If one member of your consultancy team is unavailable, there will always be someone ready to step into their role. This means that you won't lose any money to absenteeism.

Find the Best Ways to Outsource Human Resources Today

As you can see, if you want to save your business some money then you might want to outsource human resources.

This is a great way to get specialist support for you and your employees, without having to hire more staff. So what are you waiting for?

If you want to save your business some money, it is also worth comparing the cost of different services and products. Head over to our B2B comparison site to check out the latest business deals today.

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