5 Best HR Outsourcing Options for Small Businesses in 2022
Charlette has over 10 years of experience in accounting and finance and 2 years of partnering with HR leaders on freelance projects. She uses this extensive experience to answer your questions about payroll.
Jennifer Hartman is an HR Specialist and staff writer for Fit Small Business, with over 15 years of experience in accounting, payroll, and human resources.
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. There are many reasons you may decide on HR outsourcing for your small business, including reducing costs, improving efficiency, and freeing up time to focus on your core businesses.
When done correctly, HR outsourcing companies can provide a number of benefits to businesses, including better HR processes, improved compliance, and cost savings.
We looked at five common HR outsourcing services and weighed the benefits and drawbacks of each.
- Individual HR Consultant – Best for onsite 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 employee lifecycle from hire 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 Onsite 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 Consultant Sites: | Best For: |
|---|---|
Finding an inexpensive HR consultant or freelancer to fill the role | |
Finding a consultant worldwide to match your needs | |
Finding a top-rated consultant or contractor from a reputable site |
What an Individual HR Consultant Costs
Human resources consultant pricing can vary from as low as $50 per hour to write job descriptions to as much as $500 per hour to manage an HR strategy session. But 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.
An HR 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.
An HR outsourcing company will 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 project needs you have.
Below are a few HR Consulting Company options:
HR Consulting Companies: | Best For: |
|---|---|
Companies that need project work and a dedicated HR person for employees to contact | |
Companies that need multiple policies or documents created along with help with recruiting |
What an HR Consulting Company Costs
HR consulting companies 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 offers a monthly subscription plan for as low as $250 per month that includes monthly coaching calls with an HR expert.
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 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 |
| Affordable pricing | 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, from new hire paperwork to benefits and payroll in one place.
Below are a few Online HR Software options:
Online HR Software: | Best For: |
|---|---|
Outsourcing the technical aspects of HR, including new hire paperwork, payroll, benefits, and labor law compliance | |
Companies that need free multilingual HR and payroll services | |
Businesses that need all-inclusive HR and payroll with dedicated support |
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 in to 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 and TriNet Zenefits, 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:
Online HR Software: | Best For: |
|---|---|
Outsourcing the technical aspects of HR, including new hire paperwork, payroll, benefits, and labor law compliance | |
Companies that need free multilingual HR and payroll services | |
Businesses that need all-inclusive HR and payroll with dedicated support |
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 provide 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
Consider Rippling to manage your candidate sourcing activities, onboarding and offboarding processes, app security and access, and staff information. It also offers payroll and benefits administration and has a PEO option that can be turned on and off when needed.
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 a 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: |
|---|---|
Tech-heavy businesses without an HR or IT department that need all-inclusive HR solutions with robust tech integrations and IT hardware support | |
Businesses with a limited HR presence that need an affordable solution for 1099 and W2 employee management, as well as enterprise-level benefits | |
Growing companies with global employees that need critical and strategic HR management in order to focus on company core competencies |
Visit our 8 Best PEO Companies in 2022 article for detailed information.
PEO Pricing
PEOs are priced in various ways. Some, like Justworks, are priced as low as $39 per month per employee (for 100-174 employees; it goes up to $49 for smaller companies). Others cost between 2% and 6% of employee annual salaries. PEOs based on a payroll model, like ADP, are priced based on how many 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 month, per employee, if you offer 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:
- They manage the hiring process, onboarding, and all new hire documentation and forms
- They provide employee benefits, including health insurance and retirement savings
- They manage all payroll and often provide a system for time keeping
- They, not you, deal with labor issues, preventing discrimination and reducing risk
- They provide year-end tax documents, like W-2s, 1099s, and all tax reporting
- They handle workers’ compensation, unemployment claims, and garnishments
- They have HR, benefits, payroll, and labor law compliance experts on staff to answer your questions, as well as questions your workers may have
- They typically provide online self-service options for employees to maintain their own information as well as download documents they need like pay stubs and W-2s
Things to Consider When Outsourcing HR
Because an HR outsourcing firm can be a person, vendor, or 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 agreement on who owns materials created and maintaining confidentiality.
Bottom Line
The best HR outsourcing option for your business is the one that matches your specific HR 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.
