Let’s be honest: handling HR in-house can be overwhelming. Payroll, hiring, compliance—it all adds up, fast. For many business owners, the stress of managing these tasks pulls focus from what really matters: running the business.
That’s where HR outsourcing (HRO) comes in. Here we’ll break down the benefits, functions, and smart tips to help you decide if outsourcing human resources is right for you.
What is HR Outsourcing?
HR outsourcing, also called human resource outsourcing, is when a business hires an external provider to handle some or all of its HR tasks. Instead of managing HR processes in-house—like payroll, recruiting, benefits administration, or compliance—you partner with a specialist who takes care of these functions for you.
The main purpose of HR outsourcing is to give organizations more flexibility and expertise without the cost or complexity of building a big HR team internally. By outsourcing human resources, companies can focus on their core business, stay compliant with changing laws, and often reduce costs. It’s a way to make sure important HR tasks are handled accurately and efficiently, freeing up time and resources for growth.
Why Do Companies Outsource HR?
Managing HR in-house can be expensive, time-consuming, and risky, especially when it comes to compliance and payroll. HR outsourcing lets businesses access specialized expertise, save money, and free up their teams to focus on strategy instead of paperwork. It’s also a way to stay up to date with changing laws and HR best practices, without having to build a big in-house department.
Ultimately, companies are looking for ways to stay lean, compliant, and competitive, and HR outsourcing can offer a shortcut to accomplish those goals.
What HR Functions Can be Outsourced?
A wide range of HR tasks and functions can be outsourced. Here are some of the most common:
- Payroll: Managing employee payroll processing, tax withholdings, and issuing paychecks.
- Recruitment and Hiring: Sourcing candidates, screening resumes, and running background checks.
- Benefits Administration: Handling health insurance, retirement plans, and other employee benefits.
- Compliance and Legal Support: Making sure your business follows labor laws and stays updated on new regulations.
- Employee Relations: Addressing workplace issues, conflict resolution, and employee policies.
- Training and Development: Organizing employee onboarding for new hires and ongoing professional development and training for your team.
- HR Technology: Providing and managing HR software or platforms.
6 Benefits of HR Outsourcing
HR Outsourcing can have a real impact on businesses, whether you’re just starting out or managing a growing team. Here are the main benefits of HR outsourcing:
1. Savings
With the average HR professional salary in the U.S. sitting at $65,853 (ZipRecruiter) outsourcing can save businesses up to 70% on employment costs, especially when using providers in countries with lower living expenses. That money can be put back into the business, fueling growth or bigger initiatives.
2. HR Expertise
HR outsourcing partners have teams that live and breathe HR. This is especially valuable when local regulations quickly change, or specialized knowledge is needed.
3. Strategy
By letting experts handle admin-heavy HR functions, leaders and in-house teams can spend more time on what really matters, like building culture or strategy.
4. Improved Compliance
HR outsourcing helps you stay on top of legal requirements and avoid fines or legal problems as regulations change.
5. Scalability
As companies grow, their HR needs often change quickly. HR Outsourcing makes it easier to ramp up (or down) support without the hassle of hiring or firing internally.
6. Employee Experience
Employees benefit from quicker responses and more reliable HR support, which leads to smoother overall experience.
Can You Outsource an HR Department?
Yes, you can outsource an entire HR department if it makes sense for your business. Many companies, especially small and mid-sized ones, find that outsourcing HR gives them access to the same level of support and expertise as a larger organization, without the high costs of building a full in-house team.
With HR outsourcing, a provider can take over all core HR functions like payroll, hiring, benefits, compliance, and employee relations. This means your business gets a dedicated team to manage day-to-day HR needs, answer employee questions, and handle any issues that come up, all without having to hire multiple full-time staff.
Some companies choose to outsource just a few HR tasks, while others hand over the entire department. It depends on your needs, budget, and how much control you want to keep. Either way, outsourcing human resources can be a flexible, efficient solution that scales as your business grows or changes.
When Should You Outsource HR: The Key Reasons
Deciding when to outsource HR depends on your company’s size, resources, and priorities. Here are some signs it might be time to consider outsourcing human resources:
- You’re Spending Too Much Time on HR Tasks: If managing payroll, hiring, or compliance is taking you away from running your business, outsourcing HR can give you back those hours.
- You Don’t Have In-House HR Expertise: Small businesses especially may not have a dedicated HR pro. An outside provider brings that know-how instantly.
- You’re Growing Quickly: Rapid growth means more employees, more paperwork, and more chances for things to slip through the cracks. HR outsourcing helps you keep up.
- You’re Worried About Compliance: Employment laws change constantly. A good HR outsourcing provider stays on top of regulations to help you avoid costly mistakes.
- You Want to Save Money: Building an HR team is expensive. Outsourcing HR can be a more cost-effective way to get the support you need.
Before making the leap, think about what’s slowing your business down, your budget, and how much risk you’re comfortable managing on your own. If HR is becoming a bottleneck, outsourcing might be the smartest move.
How to Choose an HR Outsourcing Partner
Finding the right HR outsourcing partner can make a big difference in your company’s success and employee experience. As you research options, keep these factors in mind:
Experience
Look for a provider with a strong track record and experience working with businesses similar to yours. You want a partner that understands your industry and can tailor their services to fit your needs.
Functions
Consider the range of HR functions offered. The best providers can handle everything from payroll and benefits administration to recruiting, onboarding, compliance, and HR technology. Make sure they can support both your current needs and any future growth.
Technology
Technology and ease of use matter, too. A good HR outsourcing service should offer user-friendly software for employees and managers, making everyday tasks simple and accessible.
Support
Support and communication are critical. Choose a provider that offers responsive, knowledgeable customer service and clear communication channels. You want to know that help is available when you need it.
Costs
Finally, review pricing and contract terms. Look for transparent pricing and flexibility, so you’re only paying for the services you use, with no hidden fees.
Is HR Outsourcing Necessary?
HR outsourcing isn’t a must for every business, but it’s often the smart choice when handling HR in-house feels overwhelming or expensive.
If you’re stretched thin, struggling with compliance, or want expert support without hiring a full team, human resource outsourcing can make life a lot easier. It’s not required, but for many companies, it’s the simplest way to manage HR well and focus on what matters most.
How Paycor Helps with HR Outsourcing
Now that Paycor is part of Paychex, businesses can tap into a full suite of HR outsourcing services through Paychex. This includes everything from payroll and benefits to recruiting, compliance, and HR consulting, which helps you streamline HR tasks, reduce costs, and get access to expert support.
With options for both partial and full HR outsourcing, plus easy-to-use technology and dedicated support, Paychex makes managing human resources simpler and more efficient for any size business.
HR Outsourcing FAQs
Still have questions about human resource outsourcing? Keep reading.
What does HRO mean?
HRO stands for Human Resource Outsourcing. It’s when a company hires an outside provider to manage some or all of its HR functions, such as payroll, benefits, or compliance, instead of handling everything internally.
What is HRO Payroll?
HRO payroll refers to outsourcing your company’s payroll process to a third-party provider. This service includes paying employees, managing tax withholdings, filing payroll taxes, and ensuring compliance with payroll regulations.
What is the role of HRO?
The role of HRO is to take over HR tasks that would otherwise be managed in-house. This might include payroll, recruitment, employee benefits, compliance, and more. The goal is to save time, reduce risk, and give companies access to HR expertise.
Do you lose control by outsourcing HR?
Outsourcing HR does not mean giving up control. You still set company policies and make major HR decisions; the provider handles day-to-day tasks and offers guidance. With the right partner, you typically get more transparency and better reporting, not less control.
How much does HRO cost?
The cost of HRO depends on the size of your business, the services you choose, and the provider. Some charge a flat monthly fee, while others bill per employee or per service. Generally, outsourcing HR is more affordable than hiring a full in-house team.
What function is outsourced the most in HR?
Payroll is the most commonly outsourced HR function. Many companies also outsource benefits administration and compliance support, as these areas are complex and time-consuming to manage internally.
What HR functions should not be outsourced?
Some HR tasks are better kept in-house, especially those closely tied to company culture or sensitive employee issues, like workplace investigations or high-level strategy. It’s also smart to keep direct control over decisions about hiring or firing key personnel.
Should I consider outsourcing HR if I already have an HR department?
Even if you have an HR team, outsourcing HR can help lighten their workload, provide specialized expertise, or cover areas where you need extra support. Many companies use a mix of in-house and outsourced HR to get the best results.
What is the difference between ASO and HR outsourcing?
ASO stands for Administrative Services Organization. With ASO, you get support for HR administration without entering into a co-employment relationship (unlike a PEO). HR outsourcing (HRO) is a broader term that covers any situation where HR tasks are managed by an outside provider, whether or not there’s a co-employment model involved.