The Best HR Outsourcing Services of 2020

Over the years, the role of human resource professionals has evolved from recordkeepers to an essential component of a business's executive team. Besides coordinating employee activities, HR departments provide conflict resolution and training, help with budget management, and ensure companies comply with employment laws and regulations. If you don't have an internal team to take care of these responsibilities, you can partner with an HRO company to meet your HR needs.

There are several benefits to partnering with an HRO company for both employers and employees. For example, HROs can help you maintain legal compliance. An HR department is responsible for maintaining the security and privacy of employee data, including compensation and personal matters. It must also ensure your company's compliance with federal regulations surrounding healthcare, 401(k) plans, workers' compensation, payroll processing and taxation, and the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). HROs can take care of these compliance measures for you.

Another critical HR function is to ensure your company complies with legal hiring practices, especially when hiring noncitizens. Immigration compliance at both the state and federal level is a complicated process that your HR staff may not have expertise in. If your company hires immigrants, you can benefit from an HR outsourcing service that is well versed in the law and has experience with the process. This helps protect your company and immigrant workers from unintended violations of immigration law, which can be extremely costly.

HROs can also prove beneficial for managing employees. Many companies forgo hiring HR staff during the early years of the business, but without a knowledgeable HR expert, your company is vulnerable to a host of potential legal issues. For example, employees do not have a neutral party to discuss issues with, nor is there a specialist to ensure that your hiring paperwork is appropriately completed. You can't afford not to invest in HR services. An HRO can help you meet all your company's human resources needs, even if you're on a budget.

If a human resources function exists, it can probably be outsourced. You can outsource a couple HR functions at a time, or all your HR functions 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 and 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 functions, this is not a complete list of HR services that can be outsourced. Speak with an HR representative if you have questions about additional HR functions to outsource.

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 can offer without the expenses of hiring a team. A full-service HRO is also advantageous if you have workers in different parts of the U.S. or world. HROs are knowledgeable about global, federal and state laws, so they will work with your company to ensure it is in compliance.

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 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 that your employment paperwork is correctly filed, but suppose you need help with employee development. Many HROs offer employee training programs. 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.

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

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

Many HROs give you the option of selecting a full-service package or the specific services your business currently needs. The HRO you choose should, however, have expertise in employment compliance to insulate your company from penalties or lawsuits.

Each of the HRO services we evaluated offers comprehensive packages to assist your company with its HR needs so you can focus on other tasks pertinent to your business.

During your research, you may have come across another term ‒ professional employer organizations. 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 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 professional employer organization, the company you hire acts as a co-employer and is responsible for all 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, visit our best picks page.

Does HR outsourcing save money?

Yes. Outsourcing 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 atop 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 your start your business. A company's human resources is more than one HR professional can manage alone, and having no HR expertise at all leaves you at an even greater risk for legal ramifications. The specific functions you outsource – and when – 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 (if you don't have someone in-house to do the job).

What are the disadvantages to HR outsourcing?

Although HR outsourcing has many advantages, it 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.

Additionally, outsourced HR is 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. It may also take longer than an in-house HR department would to perform functions like settling employee disputes or hiring new recruits.

Outsourcing any business process always comes with a security risk. Most HRO companies use web-based software, leaving your business and employee information 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, or process payroll and tax filings, an HR outsourcing company can help. An HRO can ensure you meet compliance requirements as well. As federal, state, local and industry regulations are constantly changing, it can be hard to stay up to date. Find an HRO company that is experienced in your region and industry to maintain legal compliance.

You could also outsource tedious administrative HR tasks, giving your in-house representative(s) more time to focus on important things like recruiting the right employees and fostering team growth and development.  

Business.com strives to research and review companies fairly and objectively. For our review of HR outsourcing services, we began with 20 companies. We found these companies based on extensive HRO research, key industry players and recommendations from other review sites.

After analyzing each company, we pared our list down to the top 11 services. From this list, we researched various aspects of the services each company offers, including administrative HR tasks, benefits administration, employee recruiting, payroll management, employee training and development, risk and compliance, HR technology, and additional services. We also established the type of accreditations and customer reviews each company had.

From these 11 companies, we chose the three that stood out as the best for small businesses, benefits administration, and employee development. We then reviewed their pricing structures, contract requirements, employee minimums, mobile access and standout features. 

We looked even further into these three best picks, evaluating the customer support and features that each plan offers. We contacted support representatives by phone, online chat and email, posing as small business owners. We inquired about each HRO's plan structure, pricing and contract requirements. The three companies withstood each round of our testing and stood out in all of our interactions with them.

As part of our research into HR outsourcing, we reached out to small businesses in our community to see what HRO services they use and what features their teams find most valuable. This helped us to identify the most important HRO features, which include customization, payroll, employee benefits, and training and development. 

Dan Bailey, president of Wikilawn, said his team of 13 employees uses Paychex for HR functions like payroll and employee benefits. He said Paychex's customization and setup support have been key in streamlining his company's HR.

"Paychex has been very helpful in tailoring their services to meet our company's needs," Bailey told business.com. "They've also appeared onsite with us before to assist our current HR professional in setting up a system that would make things run more smoothly."

Speak with your HR staff to see what duties take up the most of their time. This will help you discover which HR features would be most beneficial to outsource. For example, Rex Freiberger, CEO of Gadget Review, said his business partners with ADP's HRO program for payroll, employee benefits and HR administration. 

"Most of our processes are outsourced with the help of ADP," said Freiberger. "Payroll and benefits are the biggest, but we also outsource HR administration. Recruitment and employee development are handled by on-staff HR."

Freiberger found ADP's customer service to be very responsive and resourceful whenever his team ran into any HR issues, which is another selling point for him.

Brian Patrick, CEO of Pest Strategies, said his five-person team needed an experienced third-party service to handle all their HR-related activities; they chose G&A Partners for its robust employee training and development services.

"Since we are a small team, we require all of our employees to perform their best so that the company can thrive," said Patrick. "Investing in our employees' career development and skills enhancement is one of the best decisions we made. The move boosted productivity levels, increased [efficiency] and enhanced output quality."  

Although employee development is a critical aspect of HR management, Patrick said many small businesses have a misconception that it is expensive, out of reach or unnecessary. He said G&A Partners provided his team with advanced training and development features while remaining cost-effective.

Whether payroll, employee benefits, or training and development is the most important HR function you need to outsource, there is an HRO provider that fits your needs and your wallet.