3 Questions to Determine if HR Outsourcing is Right For You

November 23, 2012

There are three different ways for your business to handle the process of hiring, paying, and taxing employees. You can manually manage it in-house, you can use an HR software program, or you can outsource your HR to a third-party firm.

If your business is growing, you may be wondering if now is the time to outsource your payroll and benefits, so before you commit to a major overhaul of your business’s HR department, ask yourself the following questions. Once answered, you can be sure you’re making the right decision for your business.

How much time do you spend on payroll each pay period?
As a business owner, you yourself may be the person in charge of handling payroll every time payday comes around. This can take up a lot of time that could be better spent managing your business. On the other hand, you may be paying one or more employees to collect timesheets, calculate wages, deduct taxes, and provide benefits, all of which is tedious and time consuming.

Calculate the number of hours you and your employees spend on payroll multiplied by your hourly pay rate. If this amount exceeds what a typical HR outsourcing firm charges, it may be more economical to switch. You and your employees can then increase your productivity by devoting more time to the running of your business.

HR software programs can also help you cut down on the amount of time you spend on payroll while still keeping the process in-house. These types of programs still require effort from you to perform maintenance and support and manage your employees effectively.

How much time do you spend on employee recruitment and hiring?
The effort of searching for a job candidate, vetting resumes and references, and initiating the hiring process can also take up significant portions of you and your employees’ time.Time, of course, is money.
An HR firm can take over the preliminary elements of the hiring process, from writing and posting job listings on your behalf, to interviewing and training new recruits. Once again – if the cost to your business from hiring in-house is greater than the cost of outsourcing it to an HR firm, it may be more economical to switch.

Although an HR company can save you significant time in the hiring process, it also requires you to give up significant amounts of control over that process. The more time you wish to save, the more control you have to concede.

How comfortable you are with that loss of control is entirely your prerogative – you may wish to go the more costly route in order to maintain oversight of who to hire.

How complex are your tax and employee benefits needs?
According to Nonprofit Quarterly, “…The most important reason that organizations outsource HR functions is because of the need to comply with employment laws and regulations. Even small organizations can face heavy fines if they fail to comply with them.” Is this an issue you run into with your business?

The type of employees you have – salaried versus hourly – and the kinds of benefits you offer will determine how complex your HR and payroll processes are. The more complex they are, the more likely you will need an outsourced HR company to manage them accurately and effectively.

Remember: No matter who manages your tax obligations, you are ultimately responsible for any errors made or any missed or late payments to the IRS. It is also your responsibility to ensure that your employees are protected by worker’s compensation insurance and any other mandated regulations.

There are a number of factors to take into account before you decide to make the switch to an outsourced HR firm. Your answers to the above questions will help you determine whether outsourcing is right for you.


Megan Webb-Morgan is a web content writer for www.ResourceNation.com. She writes about small business, focusing on topics such as small business HR.


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