Exploring the Cost-Effectiveness of HR Outsourcing Services for Small Businesses

Whether your business uses single-source outsourcing, software-as-a-service (SaaS), or a professional employer organization (PEO) arrangement, HR outsourcing saves money and time. It also gives you peace of mind, especially in a sticky HR situation.

Many small businesses attempt to handle HR tasks independently or ask one of their employees to take on additional HR responsibilities on top of existing duties. However, this only works so long before problems arise.


Among the first services small businesses seek to outsource are payroll functions. These complicated activities require compliance with labor laws, tax deductions, and tracking time and attendance. They also need the expertise of a human resources professional. If a company takes this on itself or has one of its team members juggle HR and payroll duties, it will likely run into compliance issues that are costly to correct.

Payroll and HR outsourcing firms typically offer expert support, employee benefits, and management of sensitive HR matters. They can also help a company with risk management strategies by mitigating risks, including lawsuits, discrimination claims, or non-compliance with labor laws. Optimized outsourcing can reduce up to 20% of a company’s annual in-house HR costs.

The cost of hiring and training an in-house HR team is a big concern for many small business owners. Outsourcing this function will free a company’s management team to focus on the company’s growth rather than administrative tasks, bogging down productivity. Many HR outsourcing companies can provide excellent service at a very reasonable cost. These range from Application Service Providers (ASPs) that create software to simplify HR practices to Professional Employer Organizations (PEOs) that manage employees and clients while providing a fee for key HR and administrative services.


In addition to payroll management, HR outsourcing firms often offer employee benefits administration services. They can help small businesses streamline processes, ensure accuracy, and provide employees access to affordable health and wellness plans.

The cost-effectiveness of human resources outsourcing services for small businesses can be seen in the increased productivity of focusing on more strategic business functions and reduced time spent on administrative tasks. For example, two in five business leaders cited recruitment, onboarding, and retention as the most problematic aspects of human resources. Still, third-party providers can improve these areas and reduce costs by eliminating unnecessary hiring and training expenses.

Additionally, the cost-effectiveness of HR outsourcing services for smaller companies can be seen in the enhanced performance and improved job satisfaction of employees. This is often seen in the form of better employee morale and engagement, which can lead to higher profitability rates for a company.

HR outsourcing services often come with compliance support, which can be important for businesses struggling to maintain compliance in a changing regulatory landscape. This can help companies share liability with an HR partner and mitigate the risk of costly fines or lawsuits. This service is typically available through PEOs, though ASOs can also provide this service.

Employee Relations

Typically included in HR outsourcing packages are employee relations services that allow your employees to get help with problems you need to be trained to handle. For example, if your employees are having issues with each other or your business is facing a worker issue that could become legal, these experts can de-escalate the situation before it gets out of hand and save you a lot of money by avoiding costly lawsuits.

In addition to employee relations services, you can find providers to help you improve your company’s performance management, such as conducting performance appraisals and evaluating new hires. Some HR outsourcing packages also include talent management, which allows you to attract and retain top talent to meet your business goals.

Finally, most HR outsourcing services also provide employee benefits support to your workforce. This can include advising your workers on available insurance options, managing all aspects of employee benefits enrollment and administration, and facilitating open enrollment events.

The costs of HR outsourcing vary depending on your needs, which type of service you select and how long you contract for that service. Some HR outsourcing providers charge a flat monthly fee, while others may charge a per-employee rate or a combination of both. To determine which services are most appropriate for your business, consult a professional HR consultant and discuss your budgetary considerations with them.


Training employees is a critical HR function that can help your business increase employee performance, boost morale and cultivate a company culture that attracts quality talent. A good HR outsourcing provider can provide high-quality training services for a fraction of what it would cost you to hire in-house experts.

Customer support is another key HR function that can help your business thrive and stay competitive. For example, some of the best HR outsourcing services offer 24/7 support and a comprehensive online library of resources to help you with your HR needs. Others provide virtual assistance and on-site support, which can be particularly beneficial for companies with a limited budget and who need more hands-on help with their HR needs.

If your company is growing and you need additional expertise in HR, consider an HR outsourcing service that offers payroll administration, benefits management, recordkeeping, client management and policy compliance management for a reasonable monthly fee. Another option is Insperity, which provides HR solutions through a robust software platform tailored to your company’s size and needs. Prices vary based on the features you select.

A PEO or professional employer organization is a third-party service that acts as a co-employer for your workers and provides liability protection, strategic HR expertise and a hand-off approach to payroll and worker’s comp. They also offer access to affordable health and insurance benefits for your employees.


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