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Why Companies Outsource Human Resources


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Is your company considering Human Resources Outsourcing as a way to improve business performance and cut costs? You're not alone.

Jumpstart:HR, LLC (, provider of HR Outsourcing for US Small Businesses and Start Ups, provides helpful infographics and data regarding this fast-emerging trend.

"Let's build a better business, together."
Jumpstart:HR, LLC

Published in: Business, Technology
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Why Companies Outsource Human Resources

  1. 1. HUMAN RESOURCES OUTSOURCING The Cost Of (And Reason To) Outsource Human Resource Functions, & The Companies That Benefit.
  3. 3. Cost Savings
  4. 4. The Cost & Savings to Outsourcing Human Resources Research findings on Outsourcing Human Resource functions indicate that organizations: 24%27% Spend 27%less on HR services per employee than typical companies 29% Reduce HR labor costs by 29%. Operate with 24% fewer HR staff per 1,000 employees 27% 29% 24% 25%50% Spend 50%less on ‘outsourcing‘. Dedicate 25% greater spending to technology 50% 25%
  5. 5. Cost & Savings, continued  The estimated savings from Outsourcing HR, as opposed to retaining an in-house HR Department, is 15-25%  The estimated savings, for full- functioning vendors (including legal consulting support) increases to 45-55%  Companies with less than 100 employees see a 55% savings (about $64,000) $72,000 $132,000 The cost for these companies to outsource is about $72,000, compared to the $132,000 cost of having in-house HR
  6. 6. Cost & Savings, continued  This percentage drops for every 100 employees the company retains  The most cost effective savings are for small companies with less than 100 employees 50% 47% 45% 45% 100-200 200-300 300-400 400-500
  7. 7. Cost & Savings, continued  Prices do depend on the services provided  Industry experts estimate that the cost ranges from about 2-11% of wages  Another way to look at the expense is per employee  Example: It would cost between $500-1,500 per employee per year, for a very small company with only 2-5 employees.  The price might justify a flat fee of around $150 per month  Most companies think in terms of wages, so it is important to estimate the total cost based on provided HR functions
  8. 8. Companies that Outsource HR  Over the past decade, HR focus has shifted towards legal compliance and data collection. Companies without the means to hire specialists can instead outsource, allowing them to gain vast resources for a relatively small amount of money.  The size of a company can be a determining factor. The rule-of-thumb is that when administrative processes begin to slow down the productivity of the company, there might be a need for outsourcing.  The ideal business size is between 16 and 80 people. Once a company has a larger amount of employees, it becomes easier to retain an in-house HR department.
  9. 9. Reasons to Outsource
  10. 10. Reasons to Outsource HR Outsourcing firms may have expertise in specific areas (like the new healthcare reform) which may otherwise overwhelm employers with the brevity of its complexities PAYROLL BENEFITS RECRUITING Tasks taken by outsourcing firms include:
  11. 11. Reasons to Outsource HR, continued PARTIALLY OR COMPLETELY OUTSOURCED HR FUNCTIONS:  Background/criminal background checks  Employee assistance/counseling  Flexible spending account administration  Consolidated Omnibus Budget Reconciliation Act (COBRA)  Healthcare benefits administration  Temporary staffing  Pension benefits administration  Retirement benefits administration  Employee relocation  Payroll administration
  12. 12. Reasons to Outsource HR, continued  Retirement planning  Work/life balance benefits administration  Compensation and/or incentive plans administration  Executive development and coaching  Human Resource Information Systems (HRIS) development  Recruitment/staffing of employees (nonexecutive)  Recruitment/staffing of executives only  Risk management  Expatriate administration  Employee communication plans/strategies  Performance management  Training and development programs  Policy development and/or implementation  Strategic business plans
  13. 13. Reasons to Outsource HR, continued  Save money/reduce operating costs  Control legal risk/improve compliance  Gain access to vendor talent/expertise  Streamline HR functions  Offer services the organization could not otherwise provide  Allow the company to focus on its core business  Reduce the number of HR staff and related staff expenses  Provide consistent/improved service delivery  Allow HR staff to focus more on strategy  Make up for the lack of in-house talent/expertise  Gain access to vendor technology  Avoid the cost of major investments in technology  Make up for a reduction in HR staff  Improve metrics/measurements
  14. 14. Considerations
  15. 15. Considerations in Outsourcing HR  The outsourcing of HR has accelerated over the last decade, and appears to continue on that path  It’s a common practice for companies to parcel out HR functions to a range of outside providers  Outsourcing allows companies to offload work that is not directly a part of their core business  Outsourcing saves companies money  Experts believe that too much outsourcing, however, leaves employees to suffer in areas such as training and career development, which can potentially leave employers to lose important business opportunities
  16. 16. Considerations, continued  Problems can arise when vendors are concerned with maximizing their income and lowering their costs, resulting in low flexibility and poor service.  On the reverse, when HR professionals work for the same company as the employees they serve, their interests are more closely aligned  Companies that provide insurance to only a few executives would not benefit from outsourcing HR
  17. 17. Considerations, continued  An outsourced HR company acts a sort-of business partner to the client company. It is important to evaluate how much control either side wants over the needed HR functions. Businesses do lose of bit of flexibility in the coverage they can offer when they use an outsourced HR company.  An issue with this is employee perception.  Example: Employees are used to seeing their employer’s name on their checks. In using an outsourced HR company, that company’s name will instead appear if it becomes the check signer.
  18. 18. Considerations, continued  The services needed should be a priority in a company deciding the need to outsource or not  The company should be certified by the Employer Services Assurance Corporation  The company should also have experience in the client’s industry and cover that company’s territory  Keep in mind whether the HR company specializes in a Web-based high-tech approach or is focused on face-to-face support
  19. 19. Considerations, continued OBSTACLES FACED: Fear that customer service to employees might be affected Fear about loss of control Fear that outsourcing might impact company culture Fear about loss of HR jobs/staff Resistance from employees in general Resistance within HR Lack of prior outsourcing experience in general Lack of knowledge in what to look for in vendors Resistance within senior management Lack of knowledge on how to locate vendors Lack of qualified vendors Lack of knowledge on how to write RFP for vendors
  20. 20. Considerations, continued BENEFITS HR is able to focus on core business functions Allows HR to spend more time on strategy development and execution Allows HR to be perceived as strategic business partners Improves HR metrics/measurements HR has a better reputation among service management HR has a better reputation among employees
  21. 21. Considerations, continued REASONS NOT TO OUTSOURCE HR: Organization wants to maintain face-to-face contact with all employees Does not want to lose control of HR functions Prefers to develop expertise in- house Feels it would negatively impact customer service to employees Feels it would negatively impact company culture Feels it would be too expensive Feels they would be unable to achieve a cost savings
  22. 22. Considerations, continued REASONS NOT TO OUTSOURCE HR: Prefers to invest in technology in-house Does not have the resources to manage the outsourcing process Encounters resistance within HR Encounters resistance within senior management Encounters resistance from employees in general There is no need due to size of the organization Has had a negative or poor experience with outsourcing in the past
  23. 23. Sources  outsource-hr/  fire-their-human-resource-departments/   uman%20Resources%20Outsourcing%20Survey%20Report.pdf   their-human-resources-work.html?_r=0
  24. 24. Ready to Consider HR Outsourcing? Contact Jumpstart:HR to schedule a free consultation: Web: Email: “Let’s build a better business, together.” Providing Strategic HR Outsourcing for US Small Businesses and Start-Ups