Outsourcing HR for Small Businesses

Whether you outsource everything or just some tasks, there are options for your company.

 By Alexandra Walsh

Administrative responsibilities can tax any company. For smaller businesses in particular, managing human resources can be a heavy burden.

When you run a small company with limited time and resources, the last thing you want to do is divert your attention from your core responsibility—providing safe water to residences and communities.

And with today’s emphasis on company culture and loyalty, the role of human resources management and the types of benefits a company offers has become increasingly important for a business’ future.

However, being competitive in these areas isn’t always easy for small- and medium-sized businesses. Smaller companies often don’t have the budgets to support the necessary personnel. Sometimes HR issues can be so thorny it takes experts to navigate them successfully.

Some mistakes in HR management will not only hurt employee loyalty, but can lead to fines. Trusting your HR responsibilities to an employee who only deals with these issues on a part-time basis—or who isn’t sufficiently trained in HR matters—can cost you dearly.

Is There a Solution?

Might there be a cost-effective and expertise-effective solution to your HR problem? One answer is turning to outside sources to bolster areas of weakness. Outsourcing human resource functions can reduce your administrative workload and free up your time so you can focus on your business objectives.

An HR outsourcing company can manage a whole range of human resource functions you might otherwise outsource to many different providers. These functions include everything from payroll processing and benefit plan management and administration to recruiting, training, and more.

With one provider taking responsibility for a range of HR functions, you’ll not only spend less time on administration—but less time managing vendor relationships as well.

Some companies are contemplating “selective outsourcing”—which means outsourcing part of their HR needs, but not all of them. Whether you want a bundled package, or you prefer to pick and choose the services you need, the marketplace is crowded with companies to choose from. The important thing is to find an outsourcing company that will work with you to provide services easy to use and accessible for your employees.

Data and Legal Considerations

HR is responsible for maintaining employee confidentiality in compensation and personal matters, and for ensuring your company’s compliance with federal regulations surrounding health care, 401(k) plans, and the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Another important function of HR is to ensure your company follows legal processes when hiring, especially when hiring noncitizens. Immigration compliance at both the state and federal level is a complicated process your HR staff may lack expertise in.

If your company frequently hires immigrants, it is important to find an HR outsourcing service that has experience in immigration services. This helps protect your company against unintended violations of immigration law—which can be extremely costly.

Some employers have several layers of regulatory compliance to deal with. The regulatory environment is complicated and ever changing. For example, in order to understand and navigate recent changes to the Affordable Care Act, human resources support experts can supply the required guidance. Of course, compliance requirements stretch far beyond the ACA—they are composed of an alphabet soup of laws: COBRA, ERISA, FMLA, HIPAA, PPACA, and more.

Firms specializing in compliance to these regulations sometimes also offer employee benefits, consulting, and brokerage services—providing business leaders with a one-stop shopping experience. When tailoring your benefits package for maximum competitive advantage, a consulting firm with a depth of experience can offer a perspective that ensures your benefits are tailored to attract the employees you need. Every company should be working hard to design a benefits package that will promote employee loyalty, reduce turnover, and even turn employees into brand ambassadors.

When choosing to outsource your HR services, it is important to know exactly what your business needs are. The needs of your specific company will determine which outsourcing resources you need and the service you select. However, there are a few things to consider.

Full-Service Outsourcing

Full-service human resource outsourcing is a good option if you own a small company and cannot yet afford to hire HR personnel. It’s also a good option if you have staff in scattered locations and need HR to work with remote employees. By outsourcing these services, a company makes sure it remains in compliance while working with employees and can provide a healthy working environment.

When companies skimp on HR, they put themselves and their employees at risk. A full-service HR company can help you appropriately manage day-to-day HR tasks like reporting misconduct, ensuring work safety compliance, and coordinating insurance benefits. It can also work closely with your payroll team to handle compensation. In addition to day-to-day tasks, you can request services like recruiting and employee training.

Partial Outsourcing

Partial outsourcing is a good choice for companies that have HR staff but need extra help. For instance, maybe you have an HR representative to handle hiring and checking that employment paperwork is correctly filed. However, HR is more than compliance and staff support. It can be an important resource for employee training and development. If you do not have the resources or desire to hire a full-time training specialist, you can outsource this service.

DACUM Codes
To help meet your professional needs, this column covers skills and competencies found in DACUM charts for drillers, pump installers, and geothermal contractors. DO refers to the drilling chart, PI refers to the pumps chart, and GO represents the geothermal chart. The letter and number immediately following is the skill on the chart covered by the column. This column covers: DOB-6; DOK-2, 8; DOL-1, 4; PIB-9; PIG-2; GOB-6; GOI-2, 8; GOJ-1, 4 More information on DACUM and the charts are available at www.NGWA.org/Certification and click on “Exam Information.”

The most common training HR outsourcing services 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 that’s best for your company’s employees.

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

If you have a small HR staff that is burdened by their workload or inexperienced in certain functions, then partial outsourcing is the best solution for your company’s HR needs

Software-Based Solutions

“Software as a service” (SaaS) is a major player today for providing HR and related services. These range from single traditionally outsourced services like payrollapplicant tracking, and employee training to more complete packages that include a range of record keeping and reporting options.

Some benefits of SaaS—whether you use it for HR or other functions within your company—are the SaaS provider is responsible for system upgrades, backups, and developing and offering new services as the marketplace demands them.

The bigger SaaS packages will typically include mobile apps for users. They will also integrate with some benefits, taking the pressure off your staff to handle benefits administration.

However, while you can often plug your benefits into an SaaS system for the convenience of your employees and management, it can’t give you advice on the nature of your benefits package and what you need to be competitive.

Before You Outsource . . .

When researching HR consultants, you will find ones offering benefits brokerage services, consulting, optimization, and renewal management, as well as some that will take full ownership of your HR administration.

In the first case, you’re signing on with an experienced consultant who will help you design and obtain favorable pricing on your benefits. In the second case, you are essentially taking on a partner who will take over day-to-day responsibilities for the HR arm of your organization.

Before outsourcing your HR, you need to balance what you can afford with what your company needs to provide to achieve a desired position within your industry. A startup will have different needs—and use different tools to attract talent—than a mature company looking to climb the next level of its growth curve.


Alexandra Walsh is the vice president of Association Vision, a Washington, D.C.–area communications company. She has extensive experience in management positions with a range of organizations.

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