Businesses, big or small, require HR services for streamlining their operations and everyday tasks. These serve as the essence of the smooth functioning of the organization.
The downside? The cost.
For the budding companies, establishing a dedicated HR department would be over their budget especially, amidst other core expenses. Besides, there might not even be a need to have a dedicated team.
On the other hand, big corporations do have a full-fledged team. However, the HR functions are broadening, especially after remote working came into play. The core objectives have started to shift towards employee-centric functions from the earlier work-centric ones.
Thus, it gets increasingly difficult for a few individuals to handle all aspects. Including more professionals would just mean more expense.
As per a Deloitte study, 64% of the companies consider cost-savings as the primary factor driving them towards outsourcing. Thus, instead, companies today opt for HR outsourcing. It is seen as a cost and time-effective alternative.
We bring forth a comprehensive guide detailing HR outsourcing services and costs incurred.
Human Resource Outsourcing is the process of subcontracting your HR functions to an external provider. It is an agreement made with the third-party provider to transfer the management and liabilities of your HR.
It is considered a strategic HR initiative as you can simultaneously focus on your core functions and effectively control your HR operations.
The industry standard price ranges between $45 and $1500 per month. Of course, the price depends on various factors. Typically, it can be customized based on individual requirements, and thus, the wide range.
Further, the providers follow different HR outsourcing pricing models.
The model followed is based on the type of services provided and the one that suits your needs. This brings us to the question, what type of HROs exist.
HR outsourcing providers offer custom services that you can choose from. The following are the types of services in the global market.
These organizations provide complete end-to-end HR services. They gather complete responsibility for your HR functions but work as independent entities. Simply put, they act as an independent HR department for your company.
They encompass all services including recruiting or providing suitable employees, managing everyday activities, planning and strategizing, etc.
Generally, such organizations charge you depending on your company size. They either charge an annual flat fee or a percentage of the employees' pretax income. The HR outsourcing cost per employee ranges up to $300 per year.
Often referred to as co-employer or employment partners, PEOs assume shared legal responsibilities and liabilities. This approach allows you to have control over your core HR activities.
PEOs provide expert support in services such as assistance in onboarding, compliance management, employee benefits, payroll administration, etc. However, here’s what they do not do:
According to the National Association of Professional Employer Organization (NAPEO), businesses using a PEO are 50% less likely to go out of business and 7-9% more growth than usual. Thus, even huge corporations consider PEOs as advantageous than in-house HR.
The Human Resource Organizations also offer individual services. These custom service arrangements are beneficial if you require only a few HR services or are looking to outsource only specific services. The HR outsourcing costs in such cases depend on the services required and the company size.
These are the different types of outsourcing systems followed. Let us now move on to the outsourcing services offered.
Recruitment is one of the most expensive yet crucial tasks of HR. It can cost up to $8000 to handle just 100 candidates.
However, recruitment goes beyond merely conducting interviews. It includes applicant tracking, candidate screening, candidate selection, onboarding tasks such as drafting relevant contracts, policies, documentation processes, etc.
As a global recruiter, remote recruitment and onboarding can be more arduous. Hence, you can outsource your recruitment to third-party providers.
While PEOs offer to help you with the onboarding and contracts, some HROs even offer to manage the entire recruitment process, from conducting interviews, candidate selection, and onboarding. Thus, you can either completely outsource your recruitment or get assistance for specific tasks.
Hired employees require organizational training to understand the work culture. However, on average, in-house training can cost nearly $1273 per employee per year. To reduce this training expense, you can opt for outsourcing employee training along with recruitment.
As a global recruiter, you should be familiar with the steep penalties that one incurs from failing to follow labor laws and regulations across countries. Thus, compliance management is another major function you can outsource.
Service providers review and revise your policies and laws to ensure you stay compliant with the changing laws and regulations.
The HR outsourcing cost for compliance management is about $12,000 per year, less expensive than a whopping $200,000 when managed internally.
Similar to the labor laws, the payroll regulations and tax norms are different across countries. Also, your payment norms for full-time employees will differ from that of the part-timers and contractors. Thus, global companies like yours prefer outsourcing payroll regulation.
The HR outsourcing cost per employee for payroll regulation is up to $250. Their services include direct deposits, payment processing, tax filings, online portals, etc.
Employee compensation and benefits such as hikes and bonuses differ majorly on their hierarchical position and role. PEOs and HROs follow up with the industry standards and make sure your employees get well-deserved and fair compensation for their job.
Benefits include insurance plans, LTA and data consumption reimbursements, etc.
According to an ADP survey, the HR outsourcing costs for managing compensation and benefits is up to $165, 17% lesser than in-house costs per employee per year.
Apart from the core HR functions, you can keep a chunk of your windfall when you outsource to specifically tap into the technological expertise of an HR services company. SaaS companies offer technical assistance such as online HR portals, employee dashboards, and the like. Technological outsourcing costs up to $70-$100 per user per month.
These are the commonly outsourced HR services and the prevailing price tags.
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Identifying the factors affecting your outsourcing costs and optimizing them supplements more capital for your core operations. The key here is to find a balance between curtailing your HR outsourcing costs and maximizing business value.
As mentioned earlier, the cost of HR outsourcing majorly depends on your:
In simple terms, the bigger your company is, the more volume and deep your HR functions are, and hence, the more the outsourcing costs.
When deciding to outsource your HR functions, you should address the following questions.
The answers to these questions give you a clear plan of whether to opt for outsourcing and if so, which outsourcing services you do require. Choosing the right outsourcing type helps optimize the above factors and goes a long way in cost reduction.
According to this Harvard Business Review, optimized outsourcing reduces almost 20-30% of your annual in-house HR costs. The next question is how.
By sharing or outsourcing the most expensive HR functions, you can reduce a substantial amount in your budget, which could otherwise be used to enhance your core operations. With outsourcing, you can control where your money goes. You can choose what services you require and pay only for those necessary ones.
The outsourcing service providers take the expenses of the required functions and spread them across multiple client organizations meaning, that a high level of service can be provided to a company at a much lower cost.
In addition to being cost-effective, outsourcing brings several other benefits to your table.
Of course, this list isn’t exhaustive. Refer to our HR outsourcing benefits (we can probably link the relevant post here) to learn more on these benefits.
HR outsourcing lets you do more by doing less. Thus, it could be the future of global organizations and small businesses.
At Multiplier, we offer a wide array of outsourcing services, all in one platform.
We serve as your local HR platform in every country. Employ, onboard, and manage your international team hassle-free from a single window.
All of this, at a reduced cost.