February 2, 2021 | By Wendy Katz
Outsourcing HR can save time, free up resources, reduce the need to hire extra personnel as your company grows. In particular, the use of a Professional Employer Organization can improve employee benefits and ensure compliance with regulatory demands.
But that is just the beginning. Here are seven facts about outsourcing your HR and how it will benefit both you and your employees.
According to a study by The Conference Board and Accenture, 87% of U.S. companies that currently outsource one or more major HR functions would do so again and intend to continue to do so. The programs that are outsourced the most often are 401(k) administration, pensions and related benefits administration, and access to health benefits.
When done correctly, HR outsourcing means a positive ROI. Much of those savings come from not having to add extra full-time team members to HR as the number of employees grow. Instead, PEOs provide the support HR teams need without requiring additional HR employees.
Partnering with a PEO provides access to their master benefits plan negotiated at scale by experts. That means small and medium-sized companies get better rates on health insurance and other benefits than they could if they tried to purchase benefits on their own.
A study by QuickBooks revealed that a typical small business owner spends almost five hours a pay period just on calculating and filing payroll taxes. The tedious task of dealing with payroll only gets worse as your business grows and using payroll software only helps so much. When done in-house, it means that a HR team member has to deal with the tedium; and this is often not the best use of the time of your higher-level HR professionals.
An outsourcing provider has people who can do payroll faster, who know which tools to use, and who are willing to deal with the administrative burden. The time that would be spent on payroll can then be used for more important things such as focusing on revenue-generating activities.
When job seekers check out your company, you might assume that they look at salary first. In fact, 60% of job seekers look first at the kind of benefits you have to offer. This can seriously hurt smaller businesses in the quest to attract talent, as it can be very hard for a small business to offer the kind of benefits that bring in top talent.
As mentioned, working with a PEO gives smaller businesses a massive advantage when offering good benefits. Instead of finding a good plan for your small number of workers, your employees can be placed in the PEO's master plan with thousands of others, allowing you to offer much better benefits for a lower cost.
Most people of working age are reasonably healthy, and the spending tends to come from a relatively small number who have chronic conditions, sick kids, etc. Over half of healthcare spending comes from around five percent of your employees.
A major factor for setting your healthcare premiums comes from the number of employees you have. Insurance companies will raise premiums on smaller pools of employees. PEOs solve this problem by placing your employees in a much larger pool, resulting in numbers that are much more favorable to the insurer. That results in lower premiums.
Improved benefits and a more responsive HR improve employee satisfaction. Also, when your HR team is happy, that helps elevate the entire workplace culture.
Employee surveys tell the story. Seventy-three percent of employees of companies who outsource HR recommend their workplace, as opposed to 68% of those who don't. Twenty-nine percent plan on staying with the company until they retire, as opposed to 21% of companies that handle all HR internally.
Outsourcing HR improves satisfaction, which reduces turnover. The costs of locating, hiring, onboarding, and training new team members are high. The typical cost of turnover is, in fact, 1.5 to 2 times the employee's salary.
Reducing turnover also brings some intangible benefits such as improved institutional memory, better workplace culture, and improved productivity.
These seven facts show us that outsourcing HR benefits not just companies but their employees. For employees, outsourcing HR provides improved benefits, especially in healthcare, resulting in them staying in jobs longer. The cost benefits are quite tangible for owners and CEOs, especially when it allows them to avoid expanding the HR team. Managers don't have to worry about making mistakes when doing payroll and can relax and focus on core business priorities. Finally, for the HR team, outsourcing supports them in their job duties so they can concentrate on providing great service to employees.
Wendy Katz is the Chief Financial Officer at Questco Companies. Wendy is aiding our clients’ drive for profitability and compliance by providing pragmatic insights and sound financial solutions to constantly evolving HR challenges.