How Much Does HR Outsourcing Cost?
Last Updated: August 16, 2022
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A Human Resources (HR) department is responsible for employee well-being and ensuring compliance with applicable laws. Its success at doing both is a critical to a company's success. Given today's economic climate where benefit programs are in flux and efficiency is paramount, effective HR management has perhaps never been so important.
If you find that the demands on your HR department are taking away from the advancement of new business strategies or are proving too costly then you may want to consider human resources outsourcing (HRO). HR outsourcing allows a company to move some or all HR functions to an HR outsourcing firm where they are handled by experienced professionals. Whether your business has 15 or 1,500 employees, there are numerous benefits to HR outsourcing. This buying guide highlights them and explains how much you can expect to pay for HR outsourcing services.
The Benefit of HR Outsourcing #
Shifting human resources processes to an HR outsourcing company can have numerous advantages for your business including:
- Cost reduction: Outsourcing human resources can reduce financial burdens. Not only through staff cutbacks, but you may also receive reduced workers' compensation insurance premiums, health insurance costs, legal fees, and more.
- Allowing you to focus on business: While a HR department is unquestionably important, many of its day-to-day tasks are monotonous administrative duties. Choosing to outsource HR, however, can allow HR personnel to focus on more important activities like developing and implementing progressive policies. This can improve operations, boost employee morale, and increase retention rates.
- Access to experts: Certain aspects of HR management, especially legal and technical, require a high level of expertise. This can prove to be a hassle for businesses of any size. Small companies may be forced to put such important responsibilities in the hands of staff with insufficient training. The expertise of HR outsourcing firms, however, can make sure that your business remains in compliance and on the cutting edge of human resource solutions.
Types of HR Outsourcing #
Human resource outsourcing can be placed into three major categories:
- Professional Employer Organization (PEO): A PEO will take over all of your company's HR processes and assume full legal responsibilities for employees, becoming business partners with the owners and a co-employer of the workforce.
- General HR outsourcing firms: These companies handle a wide variety of HR services, such as payroll, risk management, and benefits administration.
- Specialist HR outsourcing firms: This type of HR outsourcing company focuses on a specific area of human resources, such as recruiting.
HR Outsourcing Average Costs - Samples #
If your business is considering outsourcing human resources, the prices below should give you a general idea of how much you can expect to pay. Keep in mind that actual prices may vary, depending on what services your specific needs are.
Pricing for outsourcing human resources typically works in one of two ways, either as a fixed fee (per employee per month) or as a percentage of each employee's individual monthly salary.
- Using the first pricing method, you can expect to pay anywhere from $20 to $200 per employee each month.
- Using the second pricing method, you'll pay approximately 2% to 10% of each worker's annual salary.
You can also choose a la carte HRO services such as policy and manual auditing (About $250 to $500) and employee screenings (About $25 to $50 per person).
Consider what actual businesses from across the country have paid for HR outsourcing to better understand what outsourced HR might cost your company:
A non-profit in Philadelphia paid around $3,500 for basic HR services such as regulatory compliance, payroll, and HR management.
An IT company from Colorado paid around $100 per employee per month for payroll and benefits administration.
A financial services company in New York paid roughly $200 per month for payroll, risk management, and HR technology.
Medium and large businesses:
A Minnesota manufacturer paid around $600 per employee per year for HR management, technology, and compliance.
An Arizona design agency paid approximately $60 per employee per month for complete HR outsourcing.
A St. Louis health care company paid around $80,000 for total HR outsourcing.