The Ultimate Guide to Outsourced HR Services
Wondering where to start with HR outsourcing? You’re in the right place to learn everything you
The Ultimate Guide to Outsourced HR Services
Wondering where to start with HR outsourcing? You’re in the right place to learn everything you need to know!
There are lots of fun and exciting parts of running a business: HR is not one of them. It’s tedious, complicated, and if you get it wrong, you’re in a whole world of trouble. Wouldn’t it be great if someone else could handle this for you?
That’s where outsourced HR comes in! Today, we’ll walk you through all things outsourced HR, what services they can take off your plate, and how to find one that best suits your needs.
What Are Outsourced HR Services?
Outsourced HR is the process of hiring an external provider to handle some or all of your business’s human resources responsibilities. This may be an individual or an entire team, depending on your specific needs. Outsourcing is intended to act as an alternative to, or work alongside, in-house professionals.
This approach allows businesses, especially small to mid-sized organizations, access to professional HR services and support without going through the process of finding, acquiring, hiring, training, and paying an in-house specialist. This approach provides your business with customizable and scalable solutions to meet your HR needs, helping you to save time and money and boost your overall operational efficiency.
Although we’ll talk about it a bit more in-depth later, this support can include payroll processing, employee benefits administration, recruitment, training, and compliance.
What is the Difference Between PEO and Outsourced HR Services?
Outsourced human resources, also known as human resources outsourcing (HRO), is when you pay an individual or business to handle some or all of your human resources tasks and responsibilities.
A professional employer organization (PEO) is what’s known as a co-employment model. This means that the PEO becomes the legal employer of your staff and handles all HR and legal tasks while you focus on running your business.
PEO is a type of outsourced HR that can be customized to meet your business’s specific needs. This can be a great way for small and mid-sized, newer, or growing businesses to meet their aims without having to hire a full-time professional.
Types of HR Services You Can Outsource
Payroll Administration
Payroll is one of the most commonly outsourced HR tasks, and it’s easy to see why. Each year, on average, small businesses in the U.S. spend 260 hours carrying out payroll tasks. On top of that, it’s complicated, and one small mistake can have devastating consequences.
Outsourcing takes all of this off your plate and is handled by a specialist provider. This can include tasks like:
- Calculating employee wages
- Handling tax withholdings
- Processing direct deposit
- Distributing checks
- Issuing tax forms (W‑2s and 1099s)
- Meeting filing and payment deadlines
Typically, they’ll use advanced payroll software and follow the IRS-recommended EFTPS system. This means that your business will remain compliant and on track with all federal tax payments. Save time and avoid legal disputes; what’s not to like?
Employee Benefits Administration
If you offer employee benefits, then managing these can feel like a full-time job in itself. Health insurance, 401(k) plans, dental and vision coverage, FSAs/HSAs, paid time off, and any other perks can all be outsourced. Professionals can handle everything from enrolling new employees and processing claims to tracking eligibility and managing changes in coverage.
They can also oversee all COBRA and ACA compliance-related matters. This helps to keep your business up to date on the right side of regulations. You may also find that these professionals have established relationships with insurance providers, allowing you to access better rates than you otherwise couldn’t.
Recruiting & Talent Acquisition
Recruiting new staff is essential to your growth. Unfortunately, it’s also one of the most time-consuming things you can do. So why not outsource it?
Let the professionals take over key steps in the hiring process, such as writing job descriptions, posting on job boards, reviewing resumes, and conducting initial interviews. If you’d like to be a bit more hands-on with the final selection, then you can just let them shortlist candidates or handle the process up to the point of hire.
Some providers also handle onboarding tasks like collecting paperwork, setting up payroll, and walking new hires through company policies. This ensures a consistent, legally compliant process and helps you avoid costly hiring mistakes.
Background Screening & Drug Testing
You only want the best working for you, and to ensure candidates meet your high standards, you require rigorous screening. Including the time it takes to do this, it can also be a minefield to navigate to make sure you do everything legally and above board. Background check providers can:
- Verify a candidate’s identity
- Confirm past employment
- Run criminal background checks
- Check credit reports (when appropriate)
- Handle drug screening
They understand which checks are needed, how to conduct them legally, and carry them out without bias. This helps you remove the guesswork, avoid missing any red flags, and prevent any legal issues that can arise if handled incorrectly.
No matter how well everyone gets on, there’s always going to be some form of conflict in your workplace. Whether it’s gossip around the coffee machine or serious crime, it needs to be dealt with appropriately. Outsourcing employee relations brings in HR professionals who are trained to handle sensitive situations without any sway of bias or internal politics.
These experts manage workplace grievances and disputes, resolve performance issues, and provide counseling to employees and managers. They also help with disciplinary action, attendance problems, labor relations, and documentation to ensure legal compliance.
Learning & Development
Training your staff is a crucial part of long-term strategy and growth. But how are you going to go about that? Outsourcing learning and development allows external providers to design, manage, and deliver training tailored to meet your business and employees’ specific needs.
Compliance training, technical skills, leadership coaching, and DEI workshops can all be handled with outsourcing. An often-overlooked benefit of outsourcing is the insight these providers bring from working across different industries. They offer fresh and engaging ideas that your staff truly buy into and benefit from.
Performance Management
Annual reviews are just the tip of the iceberg when it comes to managing your employees’ performances. Setting expectations, giving feedback, and helping your employees grow as staff and people all fall under this umbrella.
Outsourced HR providers can create custom performance systems that match your company’s goals. They’ll help implement regular review cycles, train managers to give productive feedback, and design improvement plans when needed. They are also an objective party, so they won’t be swayed by personal relationships, as internal staff members may.
Policy Creation
Clear HR policies help to set expectations, protect your business, and guide consistent decisions. Creating and maintaining those policies can be tough, especially when you have to consider the ever-changing legality surrounding it all.
Outsourced HR firms can write or review policies like your employee handbook, harassment and attendance policies, independent contractor agreements, PTO structures, and flexible work arrangements.
They also ensure your policies align with all federal, state, local, and industry employment laws. By outsourcing this task, you get legally sound documentation that’s tailored specifically to your company and easy for employees to understand and follow.
Compliance & Risk Management
HR compliance is a responsibility that never ends. One misstep and you’ll find yourself on the wrong end of audits, fines, or lawsuits.
Outsourcing your HR services can take over compliance in areas like FMLA, OSHA, ADA, EEOC, wage laws, and more. They audit your current practices, develop policies, track changing regulations, and guide you through any HR-related risks.
Whereas risk management services can also include workforce diversity planning, safety compliance, and claims handling (e.g., workers’ comp, unemployment).
Workplace Safety
Even if you don’t work in high-risk industries like construction, manufacturing, or logistics, workplace safety is essential.
Outsourcing these responsibilities allows you to gain expertise from companies that specialize in training, inspections, manuals, and compliance programs. They can even run workshops and role-playing scenarios to give your team hands-on experience.
You’ll often find that as part of this service, providers will also handle claims management and workers’ comp documentation. The result? A safer work environment, fewer accidents, and reduced legal liability.
Legal Compliance
With the ever-changing rules and regulations surrounding workplace legislation, do you really have the time to keep up? No, of course you don’t; you’re running a business. Leave it to the experts instead.
Hiring, firing, or tax setup. Providers help ensure compliance with regulations by conducting audits, developing compliant procedures, and mitigating legal risks at local, state, federal, and industry levels.
They can also support contract compliance and safety regulations and set up legal HR entities, which is very helpful if you operate across multiple states or regions.
Time Tracking
Tracking employee hours and managing day-to-day HR tasks can be tedious, to say the least. By outsourcing, you get access to third-party tools or software that automatically record hours worked, track PTO, and integrate with payroll. No more incorrect timesheets, wage errors, or disgruntled employees.
HR Technology Support (HRIS/HCM)
Modern HR runs on tech, from applicant tracking systems to payroll platforms. Outsourced HR tech providers help you set up, manage, and maintain these systems. Whether it’s onboarding automation, benefits platforms, or analytics dashboards, they ensure everything works smoothly and stays up to date.
They often provide support for HRIS (Human Resource Information Systems) or HCM (Human Capital Management) software, giving you the tools to manage the full employee lifecycle without needing a full internal IT team.
HR Strategy & Succession Planning
Fail to prepare, prepare to fail. Never has that been truer than when it comes to your HR policies. Strategic HR defines your culture, helps plan future hiring, and prepares you for leadership transitions.
By outsourcing this, you work with experts who align with your goals and values to help shape policy that works for you. This can include succession plans, identifying high-potential employees, and guiding long-term organizational development.
Employee Engagement & Recognition
There’s nothing worse than training someone up or having a high-flyer on your team, only to lose them to another business. And with the cost of replacing an employee ranging anywhere from 40%-200% of their annual wage, depending on position, retention is crucial.
Outsourced HR providers can run engagement surveys, analyze culture gaps, and build rewards programs that celebrate your employees’ milestones or achievements. This can include recognizing employees for their hard work in ways that are consistent, meaningful, and compliant. Think bonuses, awards, wellness incentives, or recognition events.
Benefits of Outsourcing HR
Cost-Effective
One of the most appealing benefits of outsourcing your HR is the money you can save.
Hiring someone in-house is a costly and time-consuming process. Job posting, recruitment, interviews, screening, training, salary, benefits, all have to be factored in. Then imagine a few months down the line, you realize they’re not a good cultural fit, and you have to go through that entire painstaking process all over again.
Outsourcing lets you benefit from HR services without taking on someone full-time. Typically, you can subscribe to specific plans that allow you to pick and choose the services you require, not a one-size-fits-all approach. This way, you can meet all of your needs for a significantly lower overall cost, especially if you’re a smaller business that doesn’t require a full-time HR department.
Lower Insurance & Benefit Premiums
Because HR firms manage plans for a range of businesses, chances are they’ll have established relationships with benefits providers. This grants you lower premiums, which you wouldn’t be able to while operating alone.
Win-win. You spend less while allowing your staff to gain access to competitive healthcare, retirement, and insurance options. This also makes your business a more appealing place to work, improving staff retention while attracting a higher calibre of employee.
Outsourced HR providers also handle things like open enrollment, claims processing, and benefits adjustments. Now you and your team can focus on growing your business, not dealing with tedious administrative tasks.
Access to Expertise
HR outsourcing firms employ professionals who specialize in multiple services. When you outsource, you gain immediate access to them and their years of expertise. Some will have a wide-ranging resume, covering a range of business types, while others will be more suited to your specific industry.
For the latter, it means you don’t have to rely on generalists, instead tapping into the knowledge of specialists who know your industry inside out. That translates to better decisions, fewer mistakes, and greater peace of mind knowing your HR is being handled by the experts.
Time Savings & Productivity Gains
HR is a blanket term for a whole host of different tasks. And doing this properly takes time…a lot of it.
Outsourcing saves hours each week, allowing your staff to focus on their actual roles. This then creates a knock-on effect, boosting productivity, improving efficiency, turnaround times, and reducing overall stress for those balancing their normal roles with HR duties.
Many outsourcing providers also use advanced systems and automation tools to make routine tasks even faster and more accurate, further increasing business-wide efficiency.
Reduced Risk & Compliance Assurance
HR comes with a long list of compliance checks and legal responsibilities. Not only are these complex, but they can vary from state to state, and you have to deal with federal and industry-related regulations. Factor in that these can change seemingly overnight, and keeping up with these can be an absolute nightmare.
Carrying out standard HR duties while understanding this legislation and dealing with on-the-fly internal emergencies, it’s very easy for internal staff to get overwhelmed. If this happens, mistakes can be made. And if mistakes are made, this could end up costing your business time, money, and worst of all, your reputation.
Just save yourself the headache and outsource. From wage and hour laws to workplace safety, anti-discrimination policies, and tax regulations, the specialists can handle it all and keep your policies, practices, and documentation up to date and compliant.
They can conduct audits, update handbooks, and guide disciplinary actions or employee terminations to ensure everything is handled properly. Again, this means that you’re operating legally, reducing the risk of fines, lawsuits, or damaged reputations.
Data Security
Handling employee data like pay details, health records, or disciplinary notes comes with major privacy and security responsibilities. Outsourced HR providers understand this and are typically armed with some of the most advanced security systems to protect against any breaches. Encryption, multi-factor authentication, secure servers, and compliant software platforms all come as standard.
For small businesses, this level of protection can be difficult to access independently without putting a huge dent in your budget. Outsourcing gives you peace of mind knowing that your most sensitive data is protected and handled with care, reducing the risk of data breaches, loss, or unauthorized access.
Scalability & Flexibility
Your HR needs don’t always stay the same. Maybe you’re expanding quickly and need help onboarding new hires. Or the opposite, and you’re downsizing and want to scale back HR support.
Outsourcing allows you to do both!
This kind of flexibility is especially helpful during periods of growth, restructuring, or seasonal fluctuations. You only pay for what you need, and you can adapt without having to constantly hire or let go of internal HR staff. Many providers also offer customizable service packages so you can build the support system that works best for you.
Enhanced Employee Experience & Engagement
A strong HR plays a big role in shaping company culture and how your staff feel about where they work. Outsourcing helps improve overall employee morale by making HR processes smoother, faster, and more professional. That includes everything from onboarding and payroll accuracy to access to great benefits and clear communication.
Employees are more likely to feel valued and supported when HR works seamlessly. That, in turn, increases engagement, reduces turnover, and strengthens your workplace culture. Some providers even offer engagement tools, learning platforms, and culture-building resources as part of their service.
Tips on Choosing the Right HR Outsourcing Partner
Tip 1
Identify Your Needs
First things first, what do you want to outsource?
Do you just want to pick and choose certain tasks, like payroll and benefits processing, while your internal team handles the rest? Or do you not want to think about HR at all and let the experts handle everything?
Once you’ve made a specific list of your needs, you’ll be able to narrow down your search and find a partner that can do exactly what you want. Without this list, it’s very easy to get swept up in their sales process, and you end up wasting money on services you don’t need.
Remember, if you don’t clarify your requirements upfront, you may end up choosing a provider that sounds great on paper but doesn’t actually solve any of your problems.
Tip 2
Expertise & Specialization
Sometimes HR generalists are fine, and you won’t need to look beyond them. However, in more high-risk industries then finding a specialist that knows all the different regulations, labor laws, and compliance in your field can make all the difference. For example, a provider that regularly works with healthcare or construction businesses will already know the unique regulations you have to follow and any potential pitfalls to avoid.
Beyond general HR knowledge, see if they have subject-matter experts in areas like benefits, employee relations, training, or safety. A more specialized firm may offer targeted solutions that give you an edge and reduce your legal exposure.
Don’t be afraid to ask for case studies, testimonials, or references to verify their track record. It’s all well and good for them to tell you about how good they are, but can they prove it to you?
Tip 3
Cultural Fit
While you’re hiring an HR firm, it’s the individuals staffing it you’ll be working with day-to-day. They might be the best HR professional on the planet with years of experience in your industry, but if they’re not the right cultural fit, it won’t work.
Consider whether they align with your tone, values, communication, and work ethic. If you operate in a fast-paced environment where you need to deliver quickly, then a rigid, bureaucratic partner may not be the best fit.
Remember, you could be dealing with them on a daily basis. A strong cultural fit improves communication, builds trust faster, and leads to smoother collaboration over time.
Tip 4
Communication and Support
Look for partners who are responsive, proactive, and easy to reach. How will they deal with your concerns or requests? Do you have a hands-on specialist who is embedded in your team? A dedicated account manager contactable via phone? Or is it a ticket system?
It all comes down to how involved you want your partner to be. Regardless, something that should be non-negotiable is a 24/7 emergency contact line. If something happens, having an immediate response is essential to minimizing the impact and any legal troubles you may face.
Tip 5
Consider Price
Always compare providers and see what you’re getting for your money. One provider may seem cheaper on the surface, but is that for a reason? Perhaps the more expensive one has access to better technology, a deeper understanding of your industry, and a better support network.
Make sure you understand exactly what you’re getting for your money. Is it a flat rate monthly rate, or do you pay ad hoc per service? If anything seems vague in your contract, ask for clarification to avoid any unexpected costs when your first bill comes in.
And this really should go without saying: make sure you can afford it. Don’t stretch your budget and make your operations struggle in other areas because you like a certain HR company.
Tip 6
Technology & System Compatibility
If you already use software like payroll, scheduling, and benefits platforms, make sure your provider can integrate with them. If their systems don’t talk to yours, then you can end up duplicating work, causing delays, or having to fork out on new tech subscriptions just to make things work.
Their own dashboards should be user-friendly and come with features that suit both in-office and remote teams. Ask about scalability and what security measures they have in place to keep your data safe. This should also be compatible with your device(s) of choice, be that desktop or mobile devices.
Tip 7
Flexibility and Customization
Your business isn’t one-size-fits-all, and your HR support shouldn’t be either. Find a provider that offers flexible packages or the ability to cherry-pick services. This way, you’re not stuck paying for ones that you won’t use, and it gives you the ability to tailor service levels, adjust plans, or add/remove modules, giving you better control and cost efficiency.
Tip 8
Scalability and Long-Term Fit
As your business grows, so will your HR needs. You may need more frequent hiring support, better systems, or more strategic planning. You may also expand into different markets, which may require a new level of understanding of laws and regulations.
Make sure that if you scale the quality of your service won’t dip. If your team triples in size, will they be just as responsive and on the ball? Can you easily add new seats to their systems, and if so, will it be able to handle this increased bandwidth?
You’re not just looking for a partner that suits your needs now, but one that is still going to meet expectations in five years.
Tip 9
Request a Demo
Never skip the demo. Seeing how a provider’s system works in real time (and how well they explain it) gives you insight into their professionalism, transparency, and fit for your needs. A good demo will show you more than just features; it will demonstrate exactly how they will tackle and resolve your problems.
Tip 10
Always Check the Reviews
Sales reps can harp on all day about how great their service is and what they can do for you. But are they just schmoozing you to get you to sign on the dotted line? This is where reviews come in.
Checking out sites like Trustpilot and Google Reviews is the perfect way to see exactly what real-world customers are saying about them. One or two bad reviews are to be expected, so take this with a pinch of salt. But if you notice any patterns (both good and bad), then this is likely a true reflection of their service.
How Can I Get Outsourced HR Services For My Business?
Now you’re an expert on all things outsourced HR, there’s just one thing left to do: find a partner for your business!
Here at Commercial Experts, we’ve already helped countless U.S. businesses like yours find the best HR outsourcing partner for them, and we’d love for you to be next!
All you have to do is tap the button on this page below and answer a few quick questions about your business. Then, based on your responses, get a range of free outsourced HR quotes tailored to meet your specific needs.
Don’t like what you see? No problem: this service is 100% free, no strings attached, so walk away with zero obligation.
FAQs
What is outsourced HR?
Outsourced HR is when an external provider handles some or all of your human resources tasks, such as payroll, recruitment, and compliance. It offers expert support without needing a full-time internal HR team, helping businesses save time, reduce costs, and stay compliant with employment laws and regulations.
What HR services can be outsourced?
You can outsource payroll, benefits administration, recruitment, compliance, training, policy creation, performance management, and more. Providers offer flexible service packages, allowing you to choose the support that best fits your needs, whether you need a little help or full-scale HR management.
Is outsourced HR good for small businesses?
Yes. Small businesses often lack the time and resources for full HR teams. Outsourcing gives them access to expert support, improved compliance, and reduced risk. It’s a cost-effective way to manage HR without hiring in-house staff, especially when scaling or navigating complex regulations.
How do I choose the right HR partner?
Start by listing your HR needs. Then compare providers based on industry experience, pricing, communication, and flexibility. Ask for demos, read reviews, and ensure their services match your goals. The right partner should align with your company’s values and scale with your business.
How can I get outsourced HR for my business?
Just tap the button on this page and answer a few quick questions about your business. Then you’ll receive a range of tailored HR quotes from some of the U.S.’s leading providers. This is a free-to-use service with no obligation to commit, so if you don’t like what you see, walk away without spending a penny.
