How Do Outsourcing HR Functions Work?


  • By outsourcing HR functions, businesses can alleviate the administrative workload and free up time for more strategic initiatives.
  • Based on its size and needs, a company can hire an external provider for specific HR services or enter into a co-employment agreement with a Professional Employer Organization (PEO).
  • At SheaklyHR, we support businesses with PEO & customized outsourcing services to handle payroll, employee benefits, and other HR-related tasks. Contact us to get started!

For small business owners, it’s often hard to find the right balance between tedious, administrative tasks and strategic initiatives. However, there’s a solution at hand. Outsourcing HR functions can help companies reduce HR workload and focus on growth.

There’s no one-size-fits-all when it comes to outsourcing HR. You need to find the model that best suits your HR needs, whether that’s partnering with a PEO or hiring a Human Resource Outsourcing (HRO) provider. But what are the differences between them?

In this article, we delve into the basics of HR outsourcing, its main advantages for small businesses, and how PEO or HRO services can help you get started.

Let’s dive in!

What is Outsourcing HR Functions?

Outsourcing HR functions consists of hiring an external service provider to manage HR-related tasks and responsibilities on behalf of your business. By delegating time-consuming administrative tasks to a specialized partner, companies can shift their focus to core aspects of their business.

These are the most common HR functions businesses can outsource:

  • Payroll processing: managing employee compensation, tax deductions, and payroll-related compliance
  • Employee benefits administration: handling employee benefits such as health insurance and retirement plans
  • Recruitment and staffing: outsourcing the recruitment process, including sourcing candidates, conducting interviews, and onboarding
  • Training and development: engaging external providers to conduct training programs and skill development initiatives for employees
  • Compliance and legal issues: ensuring that HR practices align with legal requirements and industry regulations
  • Time and attendance management: monitoring employee attendance, tracking work hours, and managing leave policies
  • Employee relations: handling employee grievances, dispute resolution, and promoting a positive work environment

What Is the Difference Between PEO and HRO?

PEO and HRO are two different approaches to outsourcing HR functions. Let’s explore how they differ!

PEOs are strategic partners that act as co-employers, taking over payroll, regulatory compliance, and employee benefits administration. A PEO becomes your Employer of Record — this means they assume risks and legal responsibilities while you stay in charge of running your business.

While PEOs can work with companies of all sizes and industries, small businesses can see more benefits from this partnership.

On the other hand, HRO providers offer a more flexible agreement, supporting businesses in specific HR areas based on their needs. For instance, you can hire an HRO provider just to manage payroll or build a customized plan including several HR services. HRO services tend to be a better choice for businesses that require scalable solutions that can evolve as they grow.

Learn About the Differences Between Partnering with a PEO and Hiring a HRO Provider

HR Outsourcing Benefits You Should Consider

Now that you know the difference between PEO and HRO, let’s look at some of the key benefits they bring to the table:

1. Reduce Costs

Outsourcing HR functions can often result in cost savings for companies. Why? Because you don’t need to invest in recruiting, hiring, and training an internal HR team. And even if you do have an HR team, it can be a smaller one, entirely focused on strategic initiatives that move the needle, rather than calculating paychecks or filling compliance reports.

PEOs can also help businesses save money on ever-increasing employee benefits. Since PEOs work with multiple clients, they can negotiate more competitive rates and better terms for health insurance and retirement plans.

“Companies partnering with a PEO can expect a return on investment – based on cost savings alone – of 27,2%.”

2. Access to Specialized Expertise

HR outsourcing providers are typically experts in their respective fields. Businesses can benefit greatly from their specialized knowledge and skills without needing to invest in internal training and development.

When it comes to compliance requirements, having a strategic partner that’s well-versed in local and international labor laws can be a game-changer. By ensuring your HR practices and policies are aligned with regulations, you can stay away from legal issues and penalties.

3. Improved Technology

Another advantage of working with a PEO or HRO provider is gaining access to advanced HR technologies and systems. This can bring more efficiency and accuracy to your processes, without the need for significant internal investment.

From reliable payroll software to intuitive self-service options, you can take your HR functions to the next level.

4. Time Savings

Small businesses often struggle with administrative tasks that take too much time.

Repetitive, inefficient processes and complex paperwork can slow down your team and distract them from what really matters: growing your business.

By outsourcing routine and time-consuming HR tasks, such as payroll and benefits administration, your internal professionals can focus on more strategic and value-added activities.

This not only improves productivity but also leads to higher employee satisfaction and increased retention. Taking care of your employees and keeping them motivated and engaged is a huge part of HR that certainly has an impact in the long run!

Meet Sheakley HR: Innovative HR Support and Consulting

Spending too much time on administrative tasks? If the answer is yes, it might be time to outsource some of your business’s HR functions.

Allowing an experienced partner to handle payroll processing, benefits administration, compliance, and more, can be a great alternative to move your business forward.

At SheaklyHR, we provide innovative PEO services and HR outsourcing solutions for small businesses that want to delegate some of their most complex, time-consuming activities so they can focus on growth.

Contact us to find out how we can make things easier for you and your HR team!

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