The HR department of any company is all about the non-core processes of the organization – payroll management, benefits management, attendance, grievance management, recruitment and more. While these become crucial to the end product/service of the company, they don’t directly contribute to the revenue stream. This is especially the case with small businesses with less than 25 employees – think of most startups. In this case, the entrepreneur would want all available to get out there and generate the much-needed sales. The work of the HR manager, on the other hand, would be an in-house process, mostly seeing to the best talent being recruited and that enough is being done to retain them. Having a fully-fledged HR department makes the job of running a company easier but when you are strained for the same, it is a wise choice to outsource it.

If you think that the needs of running an in-house HR department is coming in way of new business strategies and investment, or is proving to be too costly, looking for outsourcing is a wise choice. Handled by experienced professionals, outsourcing allows for moving most HR functions out of the office. It is, however, necessary to understand how outsourcing your HR would help. Well, depending on the size and shape of your company, outsourcing will:

• Help cost reduction – staff cutbacks, reduced work compensations, reduced legal fees, reduced infrastructure and more
• Allow focus on the core business activities – doing away with monotonous administrative tasks and improving profiting operations
• Access to experts – HR management through proven technology, high expertise, and professional skills

A pertinent question that now needs to be answered is how much it will cost to outsource your HR activities.

This will again depend on the kind of outsourcing you are looking at. HR outsourcing comes in three basic forms:

• Professional Employer Organization, wherein a PEO will take over the HR department and assume the full legal responsibilities of the same. The PEO becomes a business partner of the organization and also a co-employer of your workforce.
• General HR outsourcing firms, wherein, third party organizations will handle a wise set of HR roles including risk management, payroll, benefits administration and similar things
• Specialist HR outsourcing firms, wherein the third-party company will only focus on specific area of the HR administration, especially recruiting.

Now, how much do you need to pay? While the actual prices may vary depending on the HR outsourcing service provider you choose, there are two methods of payment.

• First is on a fixed fee basis wherein you can expect to pay between $20 and $200 for every employee they manage.
• Secondly, it’s on a percentage basis, wherein, you pay between 2% and 10% of each of your employee’s annual salary.

Other costs would include:

• Manual auditing, between $250 and $400 per month
• Employee screenings, between $25 and $50 per employee

Further, depending on the setup of your organization and the industry you are in, HR costs can round about to:

• Non-profit making small businesses – about $3500 for basic services
• IT payroll management and business administration – about $100 per employee
• Financial company’s risk management, payroll, and HR technology – about $200 per month
• Manufacturing company’s compliance, technology, and HR management – about $600 per employee annually
• Design agency’s HR outsourcing – about $60 per month per employee
• Healthcare company Hr outsourcing – about $80000 annually

Retained HR Outsourcing v/s Pay-As-You-Go

The average HR fees for retained services are about $13-$26 cheaper as compared to the pay-as-you-go basis. Retained HR consultancy will allow for a minimal service fee as it makes this worthwhile for a growing business.

On the other hand, the pay-as-you-go scheme makes sense if you are trying to complete a special project when you have recruited staff on the project basis and they aren’t long term employees of your organization.

The Factors Affecting HR Costs

A varying set of internal and external factors affect the consulting fees for HR outsourcing. The main differential will, however, be the business size and in terms of the number of employees you have. The better staffed you are, the greater will be the volume of HR functions. Also, you might want to understand which specific HR functions you would want to get help with. As an example, if you have a fixed fee payroll structure which can be easily taken care of by a data entry specialist, the cost of outsourcing will prove to be greater. You will have no need for highly qualified HR specialists and technologies taking care of the same.

The HR is not fundamentally, revenue generating work process in an organization. Therefore, organizations look them to be completed as fast and as cheaply as possible. For most medium level businesses and startups, it does make sense to outsource the HR formalities while being able to focus on the core activities. For bigger organizations, however, having an in-house HR team means more than just recruiting and payroll management. In the latter case, outsourcing is not quite recommended.

When comparing costs, do also calculate the expenses of maintaining a separate infrastructure for the HR people at your office – which could have been incorporated into a real production process. At the end of the day, it’s all about being able to keep your costs on HR management at its lowest. If outsourcing helps, there is no reason you should be having an in-house setup.