Everything you need to know about holistic HR Outsourcing
Human resources is a core component of all successful businesses. When strategic HR services are delivered well, the results are apparent (productive employees, exceeded goals, stellar reputation, not a compliance issue in sight). The hard work, innovative thinking, and streamlined processes that created those wins? Less so. It’s the invisible department no organization can function without.
Because of the importance of human resources — and the broad spectrum of skills, knowledge, and experience in which an HR department needs to excel — many organizations look to third-party experts, such as MEA, for holistic HR outsourcing (HRO). In fact, four out of five companies use outsourced HR services for at least one essential function. This guide will walk you through everything you need to know to make informed decisions about your own organization’s HRO needs — and how to meet them confidently.
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Employers face multiple HR challenges
Research shows that, overall, organizations aren’t confident in their core HR competencies.1 Less than 40 percent of businesses believe they are successfully updating employee handbooks, reviewing performance, onboarding, monitoring labor laws, or maintaining their org charts.1 Why is it so hard to stay ahead of human resource tasks? Here are some common HR challenges employers face:
Limited HR headcount; lots of needs
Many growing companies don’t have the budget to hire a fully staffed HR department. Organizations have to choose between hiring an HR coordinator or generalist who can do a little of everything, but might lack strategic skills, or an HR manager or director who can lead and cast vision … but who may not be the best person to crank out administrative tasks. Even less ideal, staff who aren’t trained in HR may take on human resource responsibilities in addition to their main roles to help the organization “get by.”
Outgrowing current HR capabilities
This is a great problem to have! When organizations are expanding quickly, human resource tasks can get left by the wayside, especially if no one is prepping for regulatory requirements associated with growing your business and your people.
HR knowledge gaps or functional challenges
Scrappy HR departments may realize they lack experience in one of the many key functions. Or an organization may notice they are falling behind when it comes to attracting and retaining top talent, having clear and consistent compensation practices, managing various leaves of absence, or complying with employment laws and regulations.
Inefficient systems, time-consuming processes
Sometimes the HR challenge is as simple as this: It’s just taking too dang long! When small departments have too much to do, they don’t have time to optimize their systems, leading to ongoing capacity burdens.
General lack of HR experience
Finally, blindspots are called blindspots for a reason. Suppose an organization has never had a dedicated HR department. In that case, they may be learning as they go and missing out on best practices and key functions. Although failure may be a powerful teacher, it’s not the one you want to rely on while growing a business.
- “2019 Small Business Finance and HR Report,” by Elliott Brown, OnPay.com. Updated 16 Feb 2023. Accessed 13 Sept 2023.
Five Benefits of HR Outsourcing
Outsourcing some or all of your organization’s HR functions can bring big returns, both in the short- and long-term. Here are five of the ways outsourcing can deliver an impressive ROI.
Compliance and risk management
Third-party HR providers well-versed in employment law can help businesses comply with federal, state and local regulations, even as those rules morph and change. Outsourcing HR can help mitigate risks with cutting-edge HR processes, stay on top of HR compliance monitoring and reporting, and ensure employees have the appropriate compliance training and development.
Cost savings and increased efficiency
Budget-conscious organizations can reduce overhead and payroll costs by contracting HR services. With strategic outsourcing, you can get HR-director-level expertise and strategy for the cost of an HR generalist’s salary (or less). Better processes built on a wide view of what does (and doesn’t) work in the industry make for more streamlined departments — in other words, organizations that outsource can be both faster and better at HR.
Access to subject matter experts and current best practices
Unlike small internal HR departments, which have to know a little bit about many things on limited research time, well-staffed HR Outsourcing companies have several consultants, each with deep knowledge in a wide range of topics at the ready. Instead of one part-time generalist, you have the equivalent of an army of HR experts on your team.
Scalable and flexible capabilities
Outsourcing HR gives you more flexibility to quickly adapt to your organization’s needs. If you have a big new project or a hiring push, you can quickly scale up third-party help instead of having to build out your in-house department.
Focus on growth
HR tasks demand significant time and attention and can distract from long-term planning and strategic thinking, especially for smaller businesses. Taking HR responsibilities off the hands of owners, leaders, and non-HR team members allows them to do what they do best: Growing their businesses.
Types of HR Outsourcing providers
There are many ways that businesses can get their human resources needs met, and each has its pros and cons. Here are some common kinds of firms offering HR services:
Professional Employers Organizations (PEOs)
Organizations pay PEOs to take on co-responsibility for their employee benefits, taxes, and payroll. This allows smaller businesses to have the buying power of much larger corporations, manage risks, and share some administrative heavy lifting. Internally, someone still has to manage HR and fulfill essential human resource tasks, including processing payroll, hiring, onboarding, benefits administration, training and development, and more.
Administrative Services Organizations (ASOs)
ASOs are similar to PEOs , except that they unbundle separate services so organizations can choose different providers for each function. Organizations retain their own EINs but, like PEOs, still need to maintain their own HR administrator to manage the relationship and perform other human resource duties.
Holistic HR Outsourcing Organizations
In contrast, organizations like MEA offer the full spectrum of HR services, essentially becoming their client’s HR department. Holistic HRO companies handle the full life cycle of employment, from talent acquisition to employment separation and everything in between. There are some independent contractor holistic HROs or boutique agencies with particular niche fields, but most effective holistic HROs offer the benefit of extensive and knowledgeable staff.
Functional HR Outsourcing Companies
Alternatively, organizations can pick and choose to outsource separate HR functions to providers who offer more limited areas of expertise, including recruiting firms or benefits brokers. This is helpful for larger organizations with small, focused gaps in their knowledge, but less efficient for those with varied HR needs.
HR Functions to outsource
With holistic HRO, organizations can outsource all of their human resource functions to experienced, knowledgeable consultants. At the very least, a holistic HRO provider should be able to cover nine core HR functional areas. These are the “table stakes” of comprehensive HR outsourcing services:
A core function of holistic HR services includes appropriately retained applications, employment files, medical files, and I-9 documents.
Recruitment, Selection, and Onboarding
Services that cover the beginning of employment include compliant job postings, applications, and tracking and collection data. HROs can also handle candidate screenings, offer letters, background checks, employee assessments, offers of employment, onboarding, orientation, and more.
Employee Relations and Performance Management
Holistic HROs should be able to craft performance management philosophies, create and maintain employee handbooks, oversee labor law posters, create and carry out disciplinary policies, manage performance reviews, and more.
These services can include compensation philosophies, compensation plan administration, time tracking, FLSA issues, pay decisions, employee bonuses, and more.
Training and Development (T&D)
Outsourced HR providers can help create T&D philosophies, integrate learning management systems, provide training, manage tuition reimbursement, and more.
HROs can manage relationships with benefits brokers, maintain employee benefits guides, ensure benefits compliance, handle enrollment, and more.
Leave of Absence Administration
Outsourced HR providers can help employers comply with a variety of leave-of-absence regulations, ensuring employees are cared for and employers meet all relevant laws.
Separation from Employment
HR providers oversee the end of employment as well, including processes for employee termination, retirement, and death.
Holistic HR outsourcing companies can help clients select, update, and maintain efficient systems for applicant tracking; time tracking; performance management; employee self-service portals; and more.
These are the tactical, administrative musts of holistic HR outsourcing. The real value of an invested holistic HRO is in their dynamic, strategic partnership. Your goal should be a provider who can transform these HR functions, not just check them off their list. What does that look like? It means the HRO is evaluating every one of these functions for not only compliance but effectiveness. They put in the time to deeply understand your organization’s needs, so they can tailor processes to meet your specific goals. The cream of the HRO crop are consultants, sounding boards and innovators. That’s what you’re aiming for when searching for a holistic HRO partner.
How much does HRO cost?
Different HR services providers have different pricing and payment structures. PEOs generally charge an administrative fee per employee per month, in addition to other costs, so your outsourcing expenses will be higher as your staff grows. Holistic HR outsourcing providers may charge an hourly rate or a monthly management fee. It’s important to make sure the fees fit your budget and that you’re getting all the services you need for the price you’re paying.
The cost of not outsourcing HR
It’s also important to consider the hidden costs of not outsourcing holistic HR functions. If you continue to try to do everything in-house without the necessary resources or experience, you could incur significant costs over the long run:
- Inefficiencies, clunky processes, and other less-than-best practices create unnecessary drag on already over-stressed HR staff and departments.
- Compliance blindspots and oversights can result in time-consuming audits, complaints, and even financial and other penalties.
- Team members who should be focused on acquisitions and innovation are sidelined by HR administration, racking up huge opportunity costs in lost growth.
- Multistate complexities, compliance worries, and legal unknowns can wear on business owners over time, take a toll on mental health and erode decision-making quality.
How to choose the right HRO partner
Vetting potential holistic HR service providers should be a deliberate, unrushed process. Outsourcing all of your human resource needs is no small decision! Finding the right partner can set your organization up for success. Choosing hastily can create even more HR headaches (at the minimum) and lead to compliance nightmares and major personnel issues.
Can they cover all your HR needs?
Most importantly, is this potential partner truly holistic? Can they offer all core HR functions — and do them well? Check with provided references and ask around: Does their reputation match their menu of services?
Do they have across-the-board expertise?
Do they have deep knowledge of all core HR functions? Do they have experts who can step in when you have needs that go beyond everyday administration (like a workplace investigation led by an employment attorney or responding to an EEOC complaint, for example)?
Are they interested in your long-term future?
Are they curious about your goals? Do they have the scope to keep up with you as you grow? Are they not only completing the necessary HR functions but thinking creatively to improve outcomes, meet your organization’s goals and anticipate future challenges and opportunities?
Is their quote well-researched & tailored to your organization?
Have they taken the time to really understand what your needs are and what it will take to fill them? Shallow quotes can lead to conflict later on; make sure you’re both going in with all your cards on the table.
Transitioning to holistic HR outsourcing
Handing the HR reins over to your chosen HRO partner can be an exercise in trust, but if you’ve hired a competent firm, it doesn’t have to be stressful! Here are some important transition considerations to take into consideration.
How do you want the relationship to look and feel to employees?
Most organizations choose to give their new outsourcing partner an internal title, email, phone number, and access to internal communication systems. They want the transition to outsourced HR to feel seamless to employees and welcome the consultant as “one of us.” In contrast, some businesses prefer the way third-party contact info can emphasize the objectivity of an outside HR organization. But most companies would rather fold their outsourced HR into their internal communication practices.
Do you want on-site support?
Do you need (or prefer) your outsourced HR consultant(s) to work on-site with you? Is remote or hybrid support an option? How are your employees used to interacting with HR?
What access and decision-making do you need to share?
Go through all HR functions and note what systems and vendors your consultant(s) will need access to. Discuss what decisions the new partner can make on their own and when they need to consult with the organization before acting. Clarity on roles, expectations, and points of contact will make for a smooth transition.
How do you want to communicate?
Talk through the communication rhythms you’d like to establish. How often will you check-in? Will you have periodic reviews?
How will you communicate the new relationship?
Talk through both the formal and informal ways you will help employees understand where to go for HR information and support. Develop an internal communication plan, and equip team members who were handling HR tasks before with easy ways to connect colleagues to the new consultant.
Why MEA should be your HR outsourcing partner
The MidAtlantic Employers’ Association is here to help your organization reach its full potential. The only way to do that is to help your people reach theirs, too. We offer comprehensive, HR-driven business solutions — all the tools you need to grow your business, all in one place. One of our cornerstone services is holistic HR outsourcing. Here’s what makes us different than our competitors:
Our comprehensive HR assessment
We begin every long-term potential HR outsourcing partnership with an in-depth, full HR-life-cycle assessment. We look at your core HR functional areas, assess your processes, meet your HR team members and your leaders, and get a clear understanding of your challenges and opportunities. We share our findings through a 35- to 40-page report that includes a 12-month roadmap of suggested enhancements. We never go into a holistic outsourced HR relationship without this initial grounding. Our pricing and (very flexible) contracts are tailored to the needs we uncover in this assessment; we don’t offer cookie-cutter services.
Our team has deep experience
Our consultants have extensive experience in all HR functions, both core and more niche. Our team shares knowledge and supports each other’s learning. You might have one lead consultant, but you get the benefit of the shared know-how of a full department of HR experts who have seen it all and operate at the top of their games.
We build long-term relationships
We’re invested in your long-term success. We talk over your future goals during the assessment because we want to make sure we’re ready to grow alongside you. We bring the full force of our experience to make sure all of your HR functions are optimized, customized, and setting you up for a very bright future. Most of our clients stick with the same consultant year after year. Our consultants are all W2 employees of MEA, so they are committed to and invested in their roles, our core values and principles, and the members they support. We like being able to provide the continuity that’s so rare in a high-turnover industry. In the unlikely event that your favorite consultant is no longer available, MEA will onboard your new consultant quickly, so there’s no interruption of services.
We only work with the best
We use a variety of best-of-breed partners to deliver top-shelf HR services. We’ll never force a particular provider on you (and we are happy to work with the vendors you already have relationships with), but we have vetted and trusted options for HR and ancillary services.
Access to MEA’s full spectrum of resources & membership benefits
Essential Membership is included with holistic HR outsourcing services, including benefits, such as credit for training purchases, discounts on project services, and more. If you have needs that extend beyond HR, we can introduce you to our other teams, including Legal and Compliance Services.
Join a network of 650+ member organizations
Finally, when you join MEA, you not only get access to our extensive resources, but you become part of a well-connected network of 650+ other organizations. Our members share best practices, problem-solve together, and often refer business to each other.