How Much Does Outsourcing HR Cost?

PRemployer on October 14, 2021

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Companies often choose to outsource certain tasks that are difficult to find specialized employees or that are more cost-effective to have someone else do. Sometimes, a company finds an outsourcing opportunity that meets both of those. 

HR outsourcing offsets the difficult and legally challenging tasks involved in managing HR, making it easier and more cost-effective for companies to adhere to regulations while giving employees the proper care. Understanding the costs helps you determine the best HR outsourcing solution for your business. 

How HR Outsourcing Benefits You 

HR outsourcing allows you to shift your company's administrative burden. You can ease the load on your internal team by partnering with a trusted HR outsourcing provider. This service frees up your internal resources to focus on employee well-being while your HR outsourcing solution provides you with payroll tasks and benefits administration. 

The Types of HR Outsourcing 

There are several types of HR outsourcing options available to you. We'll cover each one below and provide a brief description of what you should expect from each service. 

Payroll Processing 

Payroll processing provides solely what the name suggests: payroll processing services. The upside to this route for HR outsourcing is that you know what you get. However, a payroll processor does not take on any liability, so if mistakes occur in your payroll, your company bears the legal and financial burden for those mistakes. Because of this, you will still need to carefully review any payroll runs and remit taxes to the appropriate agencies. 

Administrative Services Only 

Administrative Services Only (ASO) provides slightly more HR outsourcing services than a payroll processor. An ASO can handle your payroll and offers additional HR tasks like benefits administration and regulatory compliance. Your company is still on the hook for any mistakes or errors made with an ASO, limiting your time savings because you still need to review the work an ASO does for you.  

Professional Employer Organization 

A PEO builds on the payroll processing and ASO models to create the most comprehensive HR outsourcing solution for your organization. Payroll processing and ASOs act more like consulting services because they take less responsibility for the work they do. A PEO, however, offers you actual support and service, in addition to legal and regulatory guidance. With a PEO, you can expect to receive payroll services, benefits administration, as well as additional cost savings built into your plan.  

A PEO facilitates these savings through a co-employment relationship. Co-employment allows your PEO to become the employer of record for your team, leaving you with full operational power. You'll still be in charge of the day-to-day operations of your business, and the PEO is only the employer of record. But co-employment allows your PEO to negotiate better healthcare and workers' compensation rates than you could get on your own because they can leverage rates with economies of scale. With a trusted PEO partner helping you navigate the complexities of managing a workforce, you can offer the benefits your employees want at costs you can afford. Having quality coverage makes it much easier for you to attract and retain top talent in your industry by showing employees you care for their well-being. 

A PEO will also grow with you, and companies that partner with a PEO see more extensive growth than similarly sized companies that do not use a PEO. As your business needs change and you have new legal and employment challenges, a PEO can help you face those changes. A PEO offers you the most comprehensive HR outsourcing option when you need them by providing you the services and support you need.  

Breaking Down Administrative Fees 

Every business decision you make includes an analysis of cost. HR outsourcing should be no different. Of the three major HR outsourcing options, payroll processing and ASOs offer you a standard plan priced per employee or at a flat rate. Billing often occurs per pay period, taken directly from your bank account during payroll processing. The cost for their services often ranges from $45 to $1500 per month, depending on the size of your business, which breaks down to $20 to $200 per employee or 2% to 10% per paycheck.  

That is a hefty cost for limited services. While a PEO charges similar rates, the services and support received for that cost vastly outweigh the limited services and support you get from other HR outsourcing options. 

The Most Comprehensive Option for You 

When it comes to HR outsourcing, there is only one genuinely comprehensive and cost-effective option for small businesses, and that is a PEO. Partnering with a PEO eases the burden on your internal team, shifting the mundane and legally complex tasks to HR experts. PEOs can give you the added benefit of making this transition cost-effective to your bottom line. A PEO gives you the services and support you need both now and in the future as your company grows. Your PEO can grow and change with you, adapting the services and support you need as your company needs change. All of this at costs you can afford.  

Small businesses overwhelmingly prefer PEOs to other HR outsourcing companies. While payroll processing services or ASOs might be right for some companies, eventually, they will outgrow the services provided and need to look for a new vendor. With a PEO, your HR outsourcing partner grows with you and contributes to your company's growth. 

How a PEO Could Lower Costs Related to Your 401(k), Healthcare, and Other Employee Benefits


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