Human Resources: When to Go In-House and When to Outsource HR

If you’ve been weighing the pros and cons to outsource HR, you know that it’s not a simple decision.

There are a lot of variables to consider, and your needs may be unique.

For example, you may be a small company that, until this point, had payroll under control. Now that you’re growing and have to hire more employees, you may need onboarding support, time and attendance solutions, and a more seamless payroll processing system.

Since you must focus on your growing business, you’ll want to take a more hands-off approach to human resources.

So, what do you?

Hire in-house or outsource HR?

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When Should You Hire In-House vs. Outsourcing HR?

No two businesses are identical, which is why you need to consider your goals, daily operations, business size, and more. Before you choose, focus on:

• The size of your business in terms of the services needed to run your business efficiently.
• The pros and cons of outsourcing based on your core business objectives and the systems you currently have in place.
• Researching your competitors to assess what route they have taken and whether it’s working for them.

Recommended reading: 9 Reasons You Should Outsource Your HR

Outsourcing human resources means you will bring an outside company onboard to facilitate various HR tasks and functions, including employee benefits, tax filings, and workers’ compensation.

Outsourcing HR typically works best for small and medium-sized businesses that are not large enough to run their own in-house HR team. Considering 99.9% of businesses in the U.S. are small, the vast majority will benefit from outsourcing. Startups, small businesses, and medium-sized businesses rarely have the resources to develop an HR department that ensures efficiency and compliance. In contrast, many large companies will operate in-house for all of their HR needs, as they have the budget and staffing to do so.

Although each case is different, outsourcing generally works best for:

• Businesses with 0–10 employees: You should focus on the growth of your business, not HR tasks you can easily outsource. This ensures greater productivity and support where you need it most.
• Businesses with 10–50 employees: As your business grows, there are more moving parts, especially in terms of HR. The more hiring you do, the more staying compliant becomes a concern. Even if you have an HR manager, you can work with a PEO to manage benefits, compliance, and payroll. That way, your HR manager can spend their time recruiting talent and strengthening your company culture.
• Businesses with 50–500 employees: If you’re a mid- to large-sized company, you likely plan to scale your company. At this point, you may be running into compliance and expansion issues that are new territory. While you may consider an in-house department at this stage, this option can be costly. As you build a small team to handle key HR tasks on-site, it’s recommended that you outsource payroll, benefits, time and attendance solutions, etc.

It’s also important to note that this is not an “all-or-nothing” decision. You can outsource some or all of your HR tasks. Some companies prefer to partner with PEOs, as they will take full responsibility for HR administration, whereas other companies only require support for payroll taxes and benefits.

The Pros and Cons of Outsourcing HR

There are many pros to outsourcing HR, which is why you need to decide what matters most to your organization.

Outsourcing is one of the most powerful trends in HR management. One of the major reasons you might outsource HR is because this approach will allow your employees to focus on the goals of the company. The other primary reason is that outsourcing will minimize risk.

When you partner with a company you can trust, they will handle all the HR complexities and procedures that you may otherwise worry about day in and day out. From compliance laws to HR policies, working with a PEO company can provide you with greater peace of mind.

Overall, some of the greatest pros of outsourcing HR include:

• Beneficial skills and knowledge: Whether you require expert support during tax time or would like legal advice, working with a professional company that is specifically trained in HR, means that you can take a back seat. This will allow you to focus on what truly matters — your business.
• Greater compliance: All it takes is one compliance-related mistake to sink your reputation and business. That is why it’s important to take a proactive approach. From payroll to pensions, you need to remain compliant, and a dedicated PEO company can help you do just that.
• Reduced costs and higher efficiency: Not only will you save money because of the time you’ll save, but outsourcing HR means that you’ll avoid some of the most common legal pitfalls. If you fail to comply with the law, whether or not it was intentional, you could face hefty fines and penalties.

While focusing on the cons, some companies do not wish to relinquish control. In other cases, giving up control in this area is beneficial. For example, you may not see this option as losing control. Instead, you may see the value of outsourcing difficult-to-manage tasks that may cause issues for your company down the road.

If you do not select the right PEO, you may also feel as though your experience is rather impersonal. That’s why it’s important you take the time to partner with the right PEO based on your unique and complex needs.

Want to Outsource HR? America’s Back Office Can Help

America’s Back Office has proudly served small and medium-sized businesses since 1998, becoming a leader in HR outsourcing and labor law compliance. Our highly trained professionals will take the burden of human resources off your plate, allowing you to spend more time caring for your customers, strengthening relationships, and growing your business.

As we say at America’s Back Office, “we do it better, more accurately, and at a lower cost than internalizing HR functions.”

Ready to create a customized HR plan that fits your needs and budget? Get a quote today!