How Outsourcing HR Can Increase Retention Rates

Unlike many employees, the "Great Resignation" just won't quit.

March 2022 saw another record-breaking number of resignations: 4.35 million voluntary resignations in a single month. This level of turnover can be deadly in some industries.

Luckily, studies have found that having an outsourced HR partner like a Professional Employer Organization (PEO) can decrease turnover rates by as much as 10-14%. For employers, that means substantially decreased costs, since it can cost between half and two times an employee's income to replace that employee. However, the question arises as to why outsourcing HR has such a substantial impact on retention across so many different companies and industries. 

Four factors stand out as contributors to higher retention rates:

Factor #1: The Benefits Outsourced HR Firms Can Offer

A great benefits package can go a long way toward retaining employees. Today's employees want high-quality benefits, including voluntary benefits. They need health insurance that will pay for their needs as well as options like dental, vision insurance, accident insurance, and more. 

Employees want to know that their employers are looking out for them: that they'll offer high-quality benefits that those employees need to be able to take care of their families. Outsourced HR companies can offer better benefits, which can attract employees who are more likely to stick with your business. This is a substantial difference for many employees--and it makes them more likely to stick with the businesses that can offer those options. 

Factor #2: Quality HR Practices

An outsourced HR provider can help provide better overall HR practices that can enhance employee satisfaction and help keep them with your company. Seventy-three percent of outsourced HR clients' employees recommend their workplace as a great place to work, while only 68% of other businesses' employees feel the same. Outsourced HR clients believe that their facilities have better accountability, better commitment to their employees, and better overall working conditions. 

When you choose to outsource your HR, your company can develop better hiring practices and streamline the process of getting employees into their roles. You can also create better training opportunities, expanding employee knowledge, and putting them in a better position to understand what is expected of them. The administrative burden lifted from your internal HR team allows them to focus on creating a better company culture. 

Factor #3: Increased Engagement

Employees that work for companies with an outsourced HR partner are more likely to be engaged at work. Twenty-nine percent of employees who work for companies that outsource their HR plan to remain with that employer until they retire, compared to just 21% of employees who work for companies that handle all of those processes internally. Meanwhile, 14% of non-PEO clients plan to leave their current organization within the year, compared to just 8% of those who are employed by companies that use PEOs. 

Factor #4: Error-Free Payroll

Payroll mistakes can cause serious difficulties for employees. They expect their employer to be trustworthy: to pay them on time and make sure that they get the payment they deserve for the hours they have put in at work. After just two errors, 49% of employees will start looking for another job. One in four employees will start looking for a new job after the first payroll problem. The more problems employees experience, the greater the likelihood that they will pursue employment elsewhere. 

By ensuring error-free payroll, you can go a long way toward retaining employees. Employees want to know when their paychecks will arrive and what they can expect on them when they do. By outsourcing your HR, you can get error-free payroll every time, which will create a deeper sense of security and commitment in your employees. 

Outsourcing HR isn't just an excellent way to decrease your HR costs and offer more to your employees. It's also a great way to increase employee retention and engagement. When you partner with a PEO, you'll find that employee satisfaction increases across your organization, making them more likely to stick with you long-term.