The Best HR Outsourcing Services of 2020

Update:  We've updated this page to include a new partnership between Paychex and PayActiv to support employees impacted by the coronavirus.

Human resources are a critical component of businesses. It comprises recruiting, onboarding, managing health benefits, and providing safe and respectful office space for employees. For small businesses, however, creating and sustaining a human resources department can be challenging because of budget or resource limitations. 

The solution for many companies with these constraints has been to use human resource outsourcing (HRO) services. HROs cut the costs of hiring a full-time HR staff while managing recruiting, hiring, training, payroll and benefits administration. To help you choose the services that's right for your business, we analyzed 30 HROs. Explore our recommendations for HRO firms below.

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.

HR departments are responsible for maintaining the security and privacy of employee data, including compensation and personal matters. This department must also ensure your company's compliance with federal regulations surrounding healthcare, 401(k) plans and the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Another critical function of HR 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, it is important to find an HR outsourcing service that is well versed in the law and has previous experience with the process. This helps protect your company against unintended violations of immigration law, which can be extremely costly.

Many companies forgo hiring HR staff during the early years of the business. However, this is risky. When you do not have a human resources manager, 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 human resources. An HRO can help you meet all your company's human resources needs, even if you're on a limited budget.

February 2020: The New Jersey Civil Service Commission recently ruled that public employers must follow a new domestic violence policy, which requires public employers to create a confidential system for employees to report domestic violence occurrences. While this new policy is specifically for New Jersey, it is possible that other states will follow suit and implement similar policies. If you choose to handle HR responsibilities on your own, it's your job to keep up to date with every federal and state law and policy change. However, if you partner with an HRO, it will help to ensure your business remains compliant as new laws are enforced. This is why it's important to choose an HRO that is familiar with your industry and region.  

HR outsourcing services typically follow one of two pricing models:

• A fixed monthly per-employee fee, or;
• A percentage of each employee's monthly pretax salary

Regardless of which model an HRO uses, your total costs will vary depending on the number of employees you have, the state where your business operates and the specific services you need.

The pricing model of HROs differs from that of professional employer organizations (PEOs), which are companies that provide similar services but under a co-employment model. (There are more details on PEOs below.)

Pricing with both HROs and PEOs can be flexible, depending on which provider you're working with. You'll likely have to sign a contract, but some companies let you pay for services a la carte so you can enroll in exactly the services that you need. Others provide flexible bundles to help you get a comprehensive set of services.

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 expense that comes with 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, as well as federal and state laws, and 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 hiring 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 trainings 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 training programs that are best suited for your company's employees.

Other common partial outsourcing services include 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. It should, however, have expertise in employment compliance to insulate your company from penalties or lawsuits.

Each of the HRO services we evaluated offer 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. 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 HR responsibilities, including hiring and firing, employee training, tax and compliance obligations, and more.

Which option is best for my business?

Whether you 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, on the other hand, you'd rather have an expert shoulder the full legal and financial responsibilities of employing staff members, hire a PEO.

If you are interested in learning more about PEOs and the companies we recommend, visit our best picks page.

In 2020, the demand for human resources outsourcing to increase. Research from Global Industry Analysts Inc., predicts that the global market for these services will reach $43.8 billion within the next four years. This increase is due to changes made within many companies' human resources departments, like cuts to department staff. Technological advances and software have further reduced the need for in-house HR staffworkers. 

Another factor that has contributed to the rise of HROs (and will continue to contribute to more small businesses using HROs in 2020) concerns compliance, both with state and federal regulations. In-house HR staff may have a difficult time staying up to date with changing regulations, such as new labor laws. Overlooked rules can have expensive consequences. HROs closely monitor shifting employment laws and apprise clients of these changes and how they can comply with the new laws. 

Artificial intelligence in human resource technology is also influencing the growth of HROs, according to HR Executive. One example of this is that AI can scan and sort through hundreds of resumes to find candidates who have the required experience for the role. This saves hours compared to what a small in-house HR staff can do.

Business.com strives to research and review companies fairly and objectively. For our review of HR outsourcing services, we began with 30 companies. After analyzing each company, we pared our list down to 19 services. From this list, we researched various aspects of the services each company offers, including benefits administration, employee recruiting, payroll management and employee training.

From these 19 companies, we reduced our list to eight companies. We then delved into further research of each company before arriving at our best picks.