By: Sara Jensen, Vice President of Business Development

According to a recent Research and Market report, “Global Human Resources Outsourcing Market 2016-2020,” analysts forecast human resources outsourcing to grow at a rate of 12.74% over the next four years.

Human resources outsourcing is when a business contracts with a third-party organization to handle either a portion or all elements of the business’s HR functions, such as recruitment, payroll, benefits administration, etc.

Why would a company consider outsourcing all or part of their human resources activities?  Time, cost-savings and compliance are some of the most common reasons.

1)      Time Savings: Companies that outsource look at what functions they do that are core to their business and let outsourcing partners handle the rest.  Time spent processing payroll, for example, is time that could be spent on activities to drive growth of the business.

2)      Cost Savings:  The cost for the outsourced service can typically be lower than the cost to maintain that same activity in-house.

3)      Compliance:  Staying up-to-date with today’s ever-changing tax and employment laws is time-consuming, difficult and risky.  The risk of non-compliance poses serious legal and financial threats to employers.  Many companies prefer to outsource these activities in order to utilize the knowledge and expertise of the outsourcing partner to remain in compliance.

While the reasons to outsource remain consistent, the type of outsourcing service that would provide the most value to your company could vary depending on your needs.  Here are the different types of HR outsourcing solutions:
Professional Employer Organization (PEO)

A PEO is a firm that provides a service under which an employer can outsource all of its HR functions, such as employee benefits, payroll, workers’ compensation, risk/safety management, training, etc.  An employer would typically outsource these functions for the entire workforce.  This can be a good solution for small to mid-size businesses (typically between 10 – 200 employees).  Many PEO’s won’t partner with a company with less than 10 employees and once a company grows large enough, it makes more business sense to handle these functions in-house.  When a business outsources to a PEO, they enter into a co-employment relationship, where the business remains as the on-site manager, and the PEO acts as the Employer of Record.
Employer of Record (EOR): Contractor Payroll and Human Resources Outsourcing

An EOR for the contingent workforce, also known as “payrolling”, is similar to a PEO in that they act as the Employer of Record and are responsible for all of the HR functions, payroll, benefits, etc. while the client remains as the on-site manager.  The key difference however, is that EOR Payrolling companies provide this service for self-sourced contingent workers (temporary, contract employees, interns, etc. that the client has self-identified), not the client’s permanent employees.  This type of outsourcing relationship is ideal for companies that have a consistent usage of self-sourced contingent workers and are looking to free up time and create cost-savings in managing this workforce.

Temporary Staffing Service

A temporary staffing service handles the recruitment and hiring of temporary employees (also acting as the Employer of Record).  They assign the temporary employees to their clients to fulfill specific projects or special work needs such as employee absences, seasonal work, etc.  This solution is great for companies that want to outsource the recruitment and administration of hiring and managing the temporary employee(s).

Human Capital Management / Payroll Processing

A Human Capital Management company provides outsourced services that allow the business to remain as the employer while outsourcing administrative functions for the entire workforce such as payroll processing, time and attendance tracking, software for onboarding, benefits administration, etc.  This solution is a good fit for companies that are looking for the time and cost savings benefit of outsourcing certain elements of their HR and/or payroll processing but want to retain their employer status.

Here is a snapshot of how each of the different types of services compare side by side:

Service PEO EOR/Payrolling Temp Staffing HCM
Employer of Record Yes Yes Yes No
Payroll Services Yes Yes Yes Yes
Recruiting/Staffing for open positions No No Yes No
Back Office Support Yes Yes No No
Employee Benefits Yes Yes Yes Yes
Human Resource Support & Management Yes Yes No Yes
Payroll Funding No Yes Yes No
Workers Comp, General Liability & Other Insurances to cover employees Yes Yes Yes No
Unemployment Yes Yes No No
Coverage of ALL client employees Yes No No Yes

Determining what type of outsourcing need your company has is the first, and most important, step in going down the outsourcing path.  You don’t want to partner with a company that meets some of your needs, but not all.  Conversely, you don’t want to pay for the access to a long list of services that you don’t really need and will never use.  Once you determine what your needs are, finding the right outsourcing partner can go a long way in saving you time, money and ultimately will allow you to grow your business.

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