The Best HR Outsourcing Services of 2023

Over the years, the role of human resources professionals has evolved from simple recordkeeping to becoming an essential component of a business’s executive team. Besides coordinating employee activities, HR departments provide conflict resolution and training, help manage budgets, and ensure companies comply with employment laws and regulations. If you don’t have an internal team to handle these responsibilities, partner with an HR outsourcing company to meet your needs.

There are several benefits to partnering with an HRO company for both employers and employees, depending on the services your business needs.

1. It saves time and money.

Hiring an HRO service to take care of your HR processes can save your business time and money. Instead of wasting hours performing administrative tasks manually, you can streamline your efforts by outsourcing certain tasks. That means you can reclaim your valuable time to perform revenue-generating functions that will improve your business.

 2. It helps you maintain legal compliance.

Federal, state and local employment laws are constantly changing. As a result, legal compliance has become difficult for many organizations to manage on their own, especially with the recent trend of hiring remote employees located around the state or country. Hiring an HRO to keep you compliant is often easier than trying to stay up to date with a myriad of evolving laws.

Your HRO can help maintain the security and privacy of your employee data, including compensation and personal matters. It can also ensure your company’s compliance with federal, state and local regulations surrounding employee benefits (e.g., healthcare, 401(k) retirement plans and time off policies), harassment and discrimination, workplace safety measures, workers’ compensation, payroll processing and taxation, HR policies, employee discipline and termination, and the Consolidated Omnibus Budget Reconciliation Act (COBRA).

3. It streamlines hiring and onboarding employees.

Effectively recruitment and onboarding can make a big difference in your business’s success. An HRO can streamline your recruiting, hiring and onboarding processes to ensure you hire the best members for your team. HROs help you not only acquire the right employees, but also onboard them in a way that complies with labor and employment laws. For example, your HRO can help you distribute the necessary new-hire documents, obtain the required signatures, and file the documents securely.

If your company hires immigrants, you can benefit from an HR outsourcing service that is well-versed in international employment laws and has experience with the foreign worker hiring process. Immigration compliance at both the state and federal levels is a complicated process that your own HR staff may not have expertise in. HROs help protect your company and immigrant workers from unintended and potentially costly violations of immigration law.

4. It provides expert HR insight and support.

Managing every HR task for your team is a big feat, even in a small business. Without an entire department to manage and track your HR needs, there is a good chance you will need to hire a service like an HRO to help you. Even if you have an internal HR manager, they can benefit from the helping hand and additional expertise. An HRO can help you meet all your company’s human resources needs, even if you’re on a tight budget.

5. It is a scalable HR solution.

Although some HROs offer bundled plans, others allow you to create unique service plans with a la carte HR features. This flexibility is convenient for any business, but especially for growing organizations that need their HR support to expand as they scale up. Instead of being limited by your HR capabilities, you can add and remove HR services as soon as they apply (or don’t apply) to your organization.

Just about any HR function can be outsourced. You can outsource a couple of HR functions at a time, or all your HR needs together.

Here are some commonly outsourced HR functions:

• Applicant tracking
• Background check services
• COBRA insurance
• Compensation plan development
• Employee benefits administration
• Employee discipline
• Employee handbook creation
• Employee recruitment
• Employee termination assistance
• Employee training and development
• HR administrative tasks
• HR audits and consulting
• HR policy development and implementation
• New-hire reporting
• Payroll
• Retirement services
• Risk management and regulatory compliance
• Tax administration and compliance
• Time and attendance
• Unemployment insurance and claims administration
• Workers’ compensation
• Workplace safety training

Although these are the most commonly outsourced HR services, this is not a complete list of HR functions that can be outsourced. Speak with an HRO representative if you have questions about outsourcing additional HR functions.

When selecting an HR outsourcing provider, assess the HR services you need assistance with – maybe you need to outsource all of them, or just a few. Many HROs allow you to choose either a full-service package or the specific services your business needs.

Full-Service HR Outsourcing

A full-service HRO is a good option if you own a small company and cannot yet afford to hire HR personnel. It provides the resources that an in-house HR staff could without the expense of hiring your own team. A full-service HRO is also advantageous if you have workers in different parts of the U.S. or the world. HROs are knowledgeable about global, federal and state employment laws, so they will ensure your company complies with the local regulations anywhere you have employees.

When companies skimp on HR, they put the business and their employees at risk. A full-service HRO helps you appropriately manage day-to-day HR tasks like reporting misconduct and ensuring workplace safety compliance. These services also work closely with your payroll team to handle compensation. In addition to day-to-day tasks, you can enroll in services like recruiting and employee training.

Partial HR Outsourcing

Partial outsourcing is recommended for companies that have an in-house HR staff but need extra help. For example, perhaps you have an HR representative who handles your recruiting strategy and ensures the correct filing of your employment paperwork, but you need help with employee development. If you do not have the resources or desire to hire a full-time training specialist, you can outsource this service to an HR company, many of which offer employee training and development programs.

The most common skill development training that HROs provide is software and processes training, though other options are available. The best HR outsourcing services will work with you one on one to determine the best training programs for your employees.

Other common partial outsourcing services are payroll processing, employee screenings and background checks, employee recruitment, and immigration compliance.

During your research on HR outsourcing, you may also see references to professional employer organizations, or PEOs. While many of the companies we reviewed offer both HR outsourcing and PEO services, they are not the same thing.

The main difference between an HRO and a PEO service is the legal employment arrangement they operate under. When you outsource your HR functions, you are still the employer of record for your staff members, and you retain full control of your business operations and data. With a PEO, the company you hire acts as a co-employer and is responsible for all your business’s HR tasks, including hiring and firing, employee training, and tax and compliance obligations.

Which Option Is Best for My Business?

Whether you should use an HRO or a PEO depends on your business’s needs. If you need help with a few basic administrative tasks, like payroll and benefits management, an HRO might be your best option. If you’d rather have an expert company shoulder the full legal and financial responsibilities of employing your staff members, hire a PEO.

If you are interested in learning more about PEOs and the companies we recommend, check out our selection of the best PEO service providers.

Does HR outsourcing save money?

Yes, outsourcing your HR functions is one of the best ways to maintain legal compliance while saving money. Instead of paying salaries for an in-house HR department, you can limit your team to one HR manager and outsource any functions they need assistance with. Many HRO companies can bundle your HR functions to save you even more money. Additionally, outsourcing functions like risk and compliance management can help your company stay on top of current regulations, potentially saving you thousands in legal fees.

When should you outsource HR?

Unless you have an entire in-house HR department, you will likely need to outsource at least some of your HR responsibilities as soon as you start your business. A company’s HR needs are greater than one professional can manage alone, and having no HR at all puts you at risk of serious legal ramifications. The specific functions you outsource – and when you should do so – will completely depend on your needs. For example, if you are hiring your first employees, you may want to outsource your employee benefits administration. You should outsource HR functions as soon as you need them, especially if you don’t have an in-house person to do the job.

What are the disadvantages of HR outsourcing?

Although it has many advantages, HR outsourcing can have a few drawbacks as well. For example, an external company managing your human resources can cause a disconnect with your staff. An external organization will not be an expert on your company culture, and it likely won’t focus on team building and personal development as much as an in-house HR expert could.

Outsourced HR is also less flexible than in-house HR staff. An external HR company or software provider is less likely to make special arrangements when a loyal employee has a unique request, for instance. An HRO may also take longer than an in-house HR department would to settle employee disputes or hire new recruits.

Outsourcing any business process always comes with a security risk. Most HRO companies use web-based PEO software, leaving your business’s information – and that of your employees – potentially vulnerable to security threats. Always check an HRO’s security measures before hiring it, especially if your business is in a highly regulated industry.

What business needs are met by outsourcing HR services?

HR outsourcing services can meet all your human resources needs. Whether you want to recruit and train new employees, administer employee benefits, track time and attendance, process payroll and tax filings, or do all of the above with one platform, an HR outsourcing company can help. An HRO can ensure you meet legal requirements as well. As federal, state, local and industry regulations are constantly changing, it can be hard to stay up to date, so find an HRO company that is experienced in your region and industry to maintain legal compliance.

You could also outsource tedious administrative HR tasks, which gives your in-house representatives more time to focus on recruiting the right employees and fostering team growth and development.

What HR functions should not be outsourced?

Many HR outsourcing companies can handle nearly all human resources functions you need. However, there are a few HR functions that should be handled internally. For example, you will want HR functions relating to establishing and cultivating company culture and morale to be handled by an internal team member, since they will better understand your people and culture than an external organization would.

Supporting employees through personal and professional conflicts should also be handled internally. For example, if an employee needs to violate your time off policy because of a very specific family matter, an internal member may be able to help accommodate their needs. Additionally, while an HR outsourcing service might be able to help you with corrective actions for employee misconduct, a conflict between employees is often best resolved by an internal team member who knows the intricacies of your team members’ working relationships.