5 Best HR Outsourcing Options for Small Businesses
This article is part of a larger series on Payroll Services.
Human resources (HR) outsourcing is the delegation of specific HR functions and activities to an external provider. Small businesses outsource HR for various reasons such as reducing costs, improving efficiency, and freeing time to focus on their core business. When done correctly, HR outsourcing companies can provide a number of benefits to businesses, including better HR processes, improved compliance, and more cost savings.
We looked at five common HR outsourcing services and weighed the benefits and drawbacks of each.
- Individual HR Consultant – Best for on-site or local one-on-one consulting to build HR knowledge and set up and/or manage your business’ HR practices
- HR Consulting Company – Best for creating job descriptions, forms, policies, systems, employee handbooks, and/or training to support your business
- HR Software – Best for tracking the employee lifecycle, from hiring to termination, in one system that provides legal HR compliance
- HR Service Provider – Best for added HR compliance benefits, as well as a team of consultants to assist with employee relations and HR functions
- Professional Employer Organization (PEO) – Best for full-service outsourcing to a co-employer that hires your employees and provides large company-tiered benefits
Individual HR Consultant: Best for Businesses Needing Dedicated On-site HR Support
PROS | CONS |
---|---|
Hands-on assistance | May have only specialized skills in certain areas of HR (payroll, benefits, or training) |
Costs much less than hiring a full-time HR person | May need software in addition to the consultant which results in more costs |
Consultant can help set up policies and procedures within your business | Consultant may not be up to date on your specific state laws |
An independent HR consultant is best for those wanting the benefit of working side-by-side with an expert at your location who helps you identify HR needs as your business grows. A consultant working a few hours a week will typically cost much less than hiring a full-time HR team member (which can cost nearly $70,000 per year).
Below are a few places to find an HR consultant:
HR Consulting Companies | Best For | Starter Pricing* |
---|---|---|
Finding an inexpensive HR consultant or freelancer to fill the role | 5% transaction fee plus a flat $1 fee for jobs under $20 | |
Finding a consultant worldwide to match your needs | 3% transaction fee | |
Finding a top-rated consultant or contractor from a reputable site | 3% transaction fee | |
*This doesn’t include the fees you pay to your selected consultant, wherein pricing for that is based on the scope of the project, your budget, and the HR consultant’s expertise.
Individual HR Consultant Pricing
Human resources consultant pricing can vary from $50 per hour to write job descriptions to as much as $500 per hour to manage an HR strategy session. However, most HR consultants will range between $100–$150 per hour for the type of HR generalist work you’ll need done as a small business.
A consultant will want to talk with you to help determine whether hourly or package pricing is better based on your specific HR needs. Even so, paying $300–$500 a week for a few hours of HR consulting, or up to $11,000 a year, is still much lower than what you’d pay for a direct hire or a PEO co-employer.
Individual HR Consultant Services
While the services offered by an HR consultant are as varied as the consultants themselves, most can provide small businesses with the basics, such as creating HR policies, providing HR forms, and helping you set up legally compliant processes for hiring, paying, and managing employees.
Some of the other services an HR consultant may provide include:
- Helping you recruit, hire, and onboard employees and managers
- Assisting you with setting up your HR filing system, forms, and processes
- Helping you choose the best HR, payroll, or time keeping systems
- Assisting you in documenting policies and/or writing an employee handbook
- Helping you create job descriptions and org charts
- Training employees and managers on HR best practices, safety, and labor law
- Setting up a performance management system
HR Consulting Company: Best for Setting Up Business Policies and One-off HR Projects
PROS | CONS |
---|---|
Can pick and choose the services you need | Rarely offer end-to-end solutions |
Perfect for one-off projects | May still require HR personnel to work with the agency |
Doesn’t require policies and documents be created in-house | Will not be an in-house agency—all work will be done outside of your company |
We recommend outsourcing to a professional HR consulting firm if individual tasks or projects are your primary need. For example, maybe you want to set up a health insurance benefits program, update your employee handbook, set up policies, or conduct training on how to avoid discrimination in the workplace.
Some HR consulting services for small business owners even provide year-long access to an HR professional. This is a great choice for those who don’t have the budget to hire an in-house HR manager to help you manage employee relations and navigate labor laws.
Below are a few HR Consulting Company options:
HR Consulting Companies | Best For | Starter Pricing |
---|---|---|
Companies that need project work and a dedicated HR person for employees to contact | $197 per hour* | |
Businesses needing multiple policies and HR documents created, as well as recruiting assistance | Custom-priced | |
Employers looking for a dedicated HR manager who can identify HR gaps, streamline processes, and ensure compliance with labor laws | $99 per month | |
*Pricing is based on a quote we received
HR Consulting Company Pricing
Most HR consulting companies offer custom-priced plans—you have to call the provider to discuss your requirements and request a quote. Many providers typically charge hourly rates, ranging from $100–$200. Services can also be bundled into a package for a fixed price, such as a package price to conduct training, hire staff members, or manage benefits enrollment—or you can purchase a fixed number of hours of consulting services per month.
For instance, Jumpstart charges $197 per hour for an HR coordinator, which includes a dedicated HR consultant to handle services as needed, such as setting up an employee handbook, forms, and files. It also has a monthly subscription plan for as low as $250 per month that includes monthly coaching calls with an HR expert.
Similar to Jumpstart, Bambee offers monthly plans with pricing that is based on the number of employees you have (up to 500 only). Fees start at $99 per month and include access to a dedicated HR manager who can set up your HR policies and guide you in managing employee-related concerns (such as terminations) and compliance issues correctly. Bambee also utilizes online tools to keep you informed about labor laws, as well as automate essential HR processes, like training, performance tracking, and document management.
HR Consulting Company Services
An HR consulting firm can provide everything people-related, from compliance to paperwork. It will serve as your HR adviser to ensure your business is on track and help you reduce the risk of labor law violations by setting up best practice policies and procedures. Most offer phone consulting as well, serving as your go-to resource for all employee-related matters.
Some of the services include:
- General HR consulting available by phone
- HR projects like creating job descriptions or conducting a personnel file audit
- Helping you choose what HR systems and processes to set up
- HR strategy to help you plan for growth or improve employee engagement and productivity
- Training your managers and staff
- Helping you recruit staff
- Setting up employee benefits, compensation packages, and other programs
- Helping you manage employee leave programs
Online HR Software: Best for Companies Needing Full-cycle HR Services—From Onboarding to Termination
PROS | CONS |
---|---|
Labor laws included in software | Can become costly with upgrades, depending on services needed |
Reasonably priced plans | Requires an on-site HR representative |
Added benefits and payroll processing | Limited technical support |
We recommend online HR software as best for small businesses that want an end-to-end solution and don’t mind serving as their own HR/payroll professional. Software will typically be the lowest-price option. It has the labor and compliance information built in and includes the added benefit of managing all your employee data in one place, from new hire paperwork to benefits and payroll.
Below are a few Online HR Software options:
Online HR Software | Best For | Starter Pricing |
---|---|---|
Outsourcing the technical aspects of HR—from new hire onboarding and payroll to benefits and labor law compliance | $40 (base monthly fee) plus $6 per employee, per month | |
Startups and small companies needing flexible HR and payroll solutions | $39 (base monthly fee) plus $5 per employee, per month | |
Tech-heavy businesses looking for an all-in-one HR software with access to robust integrations and IT hardware support | $35 (base monthly fee) plus $8 per employee, per month* | |
*Pricing is based on a quote we received
Online HR Software Pricing
Pricing for HR software varies from a few dollars per employee per month to $100 per month or more. In addition, HR functions are built into many benefits and payroll software programs as well; when you buy or subscribe to those software packages, you get the HR compliance features included.
Online HR Software Services
Online HR software provides a system and tools to track everything related to your employees, from onboarding documentation like I-9 forms to performance management. Some, like Gusto, add benefits and payroll at nearly the same price point. All the data is stored online in a cloud-based system that typically provides your employees with some level of employee self-service, via internet or mobile app.
Some of the other services of HR software include:
- HR onboarding and processing of new hire paperwork
- Benefits enrollment and confirmation of benefit options chosen
- Timekeeping and payroll processing, compliant with US labor and tax laws
- Access to employee contact information (and sometimes org charts)
- Employee self-service tool to update personal information and download documents
HR Service Provider: Best for Businesses That Need Full HR Compliance Consulting
PROS | CONS |
---|---|
Benefit of a dedicated HR consultant | Services cost more than software alone |
Offers recruiting and hiring assistance | Company retains all employment risks |
Specializes in compliance and labor law | Still requires some HR management from the company |
We recommend an HR service provider as a step up from software alone to ensure your company is compliant with all labor laws, especially if you’re in a regulated industry (such as banking, healthcare, or manufacturing) that requires licensing, safety, and certifications. An HR service provider is not a co-employer like a PEO, but it provides the benefits of an HR expert at your fingertips.
Often, HR service companies are the same ones that offer standalone software, like ADP, Paychex, or Gusto. However, they provide HR services in addition to the software—for example, running payroll, setting up and educating employees on benefits offerings, advising you on HR issues, or helping you manage employee leave programs. Sometimes HR services are offered as part of premium plan options or add-ons, so you can start out using the software and transition later.
Below are a few HR Service Provider options:
HR Service Providers | Best For | Starter Pricing |
---|---|---|
Businesses looking to outsource the technical aspects of HR and get expert help managing HR and benefits | $40 (base monthly fee) plus $6 per employee, per month | |
Growing companies that need scalable payroll plans and HR services | $40 per pay run plus $3 per employee* | |
Businesses looking for all-inclusive HR and payroll software with access to HR advisory services | $10 per employee monthly; payroll and HR advisory services are paid add-ons ($16 per employee monthly for both solutions) | |
*Pricing is based on a quote we received
HR Service Provider Pricing
Pricing for HR services runs a bit higher than software alone—between $10 and $75 per month, plus an extra $2–$15 per month per employee. What you get in addition to the inclusive software is expertise that can help you resolve employment issues. Some HR service providers price based on the number of phone calls you make per month or the number of employees you have or services you need. For example, if you need them to help recruit, that often costs extra.
HR Service Provider Services
HR services, like software, provide the system and tools to manage hiring, payroll, benefits, and performance management. They also offer self-service features to allow employees access to their own information, like benefits providers or 401(k) balances. In addition to best-in-class tools that are easy to use, HR service companies are advisers to you and your staff, helping you manage day-to-day HR issues that come up.
Some services they may offer include:
- HR, benefits, payroll, and labor law compliance
- Applicant tracking and recruiting
- Dedicated help answering complex HR questions you or employees may have
- Standardized forms, policies, and templates you can customize
- Assistance in updating org charts, job descriptions, and job postings
- HR compliance training so managers and employees abide by labor laws
- Strategic HR consulting to help you structure your organization for growth
PEO: Best for Businesses That Need Large Company Benefits at Reduced Pricing
PROS | CONS |
---|---|
Provides all-inclusive payroll, HR, and tax processing | May not be affordable for some small businesses; and becomes even more costly for larger enterprises that plan to significantly scale their business |
Offers large company benefits at affordable pricing | Requires an on-site HR representative to manage between employees and the PEO |
Handles all labor law compliance issues | PEO becomes the employer of record |
A PEO is a company dedicated to managing your employees, best for businesses that want to outsource everything related to HR, benefits, and payroll. From an HR outsourcing point of view, it’s the top-tier option; it provides the most value, but comes with the highest cost. A PEO actually hires your employees and leases them back to you for a fee. While you manage day-to-day work activities and supervision, the PEO manages HR and acts as the employer of record.
A PEO is also all-inclusive, providing HR consulting to you and often to your employees. It also comes with cloud-based software, employee self-service tools, forms, electronic document management, benefits, and payroll.
Below are a few PEO options:
PEOs | Best For | Starter Pricing |
---|---|---|
Tech-heavy businesses without an HR or IT department that need all-inclusive HR solutions with robust integrations, IT hardware support, and a flexible PEO you can turn on/off | $35 (base monthly fee) plus $8 per employee, per month* | |
Businesses with a limited HR presence that need an affordable solution for 1099 and W2 employee management, as well as enterprise-level benefits | $59 per employee monthly | |
Growing companies with global employees that need critical and strategic HR management in order to focus on company core competencies | $85 per employee monthly* | |
*Pricing is based on a quote we received
PEO Pricing
PEOs are priced in various ways. Some, like Justworks, starter monthly fees are priced as low as $59 per employee (for the first 49 employees; it goes down to $49 for your 50th employee onward). Others cost between 2% and 6% of employee annual salaries.
PEOs based on a payroll model, like ADP, are priced on the number of payrolls you run, costing less if you pay monthly than if you pay weekly. It’s not uncommon to pay $100–$200 or more per employee monthly if you provide health benefits and a 401(k) and use the extensive service offerings of a PEO.
PEO Services
PEOs manage all people, paperwork, forms, legal docs, payroll, taxes, workers’ compensation, and insurance. Your job is the day-to-day supervision of the employee, such as setting their schedules and providing feedback on their work.
Benefits of a PEO include:
- It manages the hiring process, onboarding, and all new hire documentation and forms
- It provides employee benefits, including health insurance and retirement savings
- It manages all payroll and often provide a system for time keeping
- It, not you, deal with labor issues, preventing discrimination and reducing risk
- It provides year-end tax documents, like W-2s, 1099s, and all tax reporting
- It handles workers’ compensation, unemployment claims, and garnishments
- It has HR, benefits, payroll, and labor law compliance experts on staff to answer your questions, as well as questions your workers may have
- It typically provides online self-service options for employees to maintain their own information, as well as download documents they need, like pay stubs and W-2s
Looking for more PEO options? Read our best PEO companies guide to find a provider that fits your needs.
HR Outsourcing Frequently Asked Questions (FAQs)
Is it a good idea to outsource your HR?
Outsourcing HR makes more sense for startups and small businesses as they may not have the resources to hire a full HR team to manage HR operations. This allows employers to delegate specific tasks (such as creating HR policies, processing payroll, and managing benefits plans) to a consultant or HR service provider.
Plus, HR consulting services for small business users have the knowledge, tools, and resources to assist you so you can set up your company with best practice resources based on the specific HR needs you have. These providers will also ensure you stay up-to-date with labor regulations and help you avoid compliance risks.
What should I consider when looking for HR outsourcing services or an HR consultant?
Because an HR outsourcing firm can be a person, vendor, or a group of consultants, you need to do your due diligence and have a contract to clarify terms and expectations. A few areas to consider when looking to outsource HR functions include level of expected HR expertise, availability of transparent pricing, and an agreement on who owns materials created, as well as maintaining confidentiality.
Bottom Line
The best HR outsourcing option for your business is the one that matches your specific needs. HR outsourcing is much less expensive for a small business than hiring a full-time HR person—whether you choose to work with a consultant or manage HR yourself with great software. In fact, until your company gets closer to 100–200 employees, a full-time HR person may not be necessary (unless you’re in a unionized business, plan rapid growth, or have lots of labor law issues).
We find Rippling to be the best overall HR outsourcing vendor for small businesses because it provides both the software and the tools to handle HR functions, payroll, benefits administration, and hiring capabilities. Plus it offers a PEO option that can be turned on and off as your needs change.