When Should Your Business Outsource HR?

It is not uncommon for businesses to outsource specific human resource functions. Companies have been using third-party vendors for payroll services, background checks, etc. for years. What is surprising, though, is the rapid growth this industry has had over the last decade.

Today, human resources is a multi-billion dollar industry.  Why? Generally speaking, HR is a back office function that doesn’t require a full-time staff member unless the company has over 100 employees. Many small to mid-size businesses realize that HR isn’t growth oriented, so working with businesses that specialize in HR outsourcing is a valuable partnership.  The question is why does your business need to outsource HR and what are the benefits?

Why Outsource HR?

Not all companies need to look outside the organization for human resources, but it does make sense for many small to mid-sized organizations. A full-time HR generalist working in-house might cost you as much as $100,000 a year, plus benefits and taxes. The right HR consultant can take the same responsibility in a much more cost-efficient manner. With a HR firm to handle the day to day responsibilities, companies can concentrate on their core competencies and growing the business.

Some common reasons companies choose outsourcing include:

  • The business is small enough that hiring a full-time HR professional is impractical and expensive.
  • Management doesn’t have the expertise to handle HR effectively.
  • Outsourcing provides more depth and flexibility for the business and its employees.

If you are still not convinced that outsourcing is the logical path for your business, consider these facts:

  • 26% of companies that outsource save money – This fact alone is enough for most businesses to see the benefit. Why not save money when possible?
  • 23% of companies outsource to focus on strategy – The administration of human resources is time-consuming, especially when management has more critical tasks to focus on.
  • 22% of companies outsource to improve compliance – Compliance issues are increasingly challenging and penalties can be debilitating to a small business. Tapping outsourced expert’s results in better compliance and fewer problems down the road.
  • 18% of companies outsource due to a lack of experience in-house – Companies need to focus on their strengths and reinforce their weaknesses, so handing off a business function where they lack expertise is a great business decision.

Qualities of an HR Firm

More and more HR professionals are giving up the traditional in-house career path to open their own consulting firms. These firms offer:

  • Dedicated HR services
  • Independent work arrangements
  • Since many of these firms are small businesses themselves, they can appreciate the day to day challenges their clients face.


While HR consulting firms vary in size and services, they dedicate their time to a handful of clients based on each one’s needs. The team that makes up these firms usually consist of veteran HR practitioners that left larger companies to form their own specialized consulting business.

HR Consultant vs. HR Outsourcing

You often hear these terms used interchangeably, but they are different. An HR consultant works on specific issues such as:

  • Executive compensation
  • Building employee morale and teamwork
  • Training for specialized functions or new programs


An outsourcing firm focuses more on the heart of human resources like:

  • Payroll
  • Benefits
  • Compliance


Ideally, you can find a firm that offers both, like Kona HR Consulting Group. While they market themselves as HR outsourcers, they offer the best of both worlds. Their comprehensive portfolio of services covers the “bread and butter” aspects of HR outsourcing, but they also provide consulting to existing clients for free.

What Services Can You Expect From an HR Firm?

The services vary based on the consultant, but, ideally, any firm you consider will offer a la carte products like:

  • Compensation– Direct employee payment strategies based on market benchmarking to help your firm attract and retain top talent
  • Benefits– Administration of health care and life insurance plans, administration of 401(k) and IRA plans plus providing employees with voluntary benefit choices
  • Payroll – Payroll is one of the most complex responsibilities of HR. A successful consulting firm uses an automatic and customized payroll system that includes expense management and reporting.

Many firms also provide a bundled package for comprehensive HR management that adheres to industry standards for compliance.  For startup or newer companies, full outsourcing options can provide a valuable turnkey HR solution.

Considerations When Selecting an HR Firm

Once you decide that HR outsourcing is the right choice for your business, what do you look for in a consulting firm? Transitioning from in-house HR to a third party practitioner can be a challenge on many levels.

  • Start by reviewing the HR team and their credentials. You should look for a company that offers veteran consultants that are used to working with different sized businesses, especially small and mid-sized.
  • You want individuals with hands-on experience in the world of employee benefits, payroll / compensation, and compliance.

Take the time to investigate the technology used by the firm, too. For example, effective consultants like Kona HR have a top-rated technology partner like Maxwell Health. Maxwell offers an online platform customized for your employees and benefit offerings, so employees can enroll and manage their own benefits while reducing the administrative burden on your team.

The key to a successful and profitable HR outsourcing arrangement is flexibility. Look for a firm that is motivated enough to create individualized solutions.