Did you know that nearly 50% of businesses fail within the first 5 years? And that nearly 90% of startups fail after only 1 year?
There are various reasons why a business may fail, but neglecting the HR function is a major contributing factor.
If you aren’t investing in your HR strategy, your business will likely face these issues:
- Compliance risks
- Bad hiring practices
- Low morale and toxic work environment (sexual harassment, bullying, discrimination, etc)
- High turnover rates
- Poor performance
- The above issues could ultimately derail your business.
How to get benefits to Outsource Your HR
So, do startups and small businesses need HR?
In short, yes!
HR plays a critical role in protecting your business from legal issues and creating the right policies, practices, and strategies to help your business function more smoothly, hire and retain top performers, and drive business results.
In fact, research shows that companies with effective HR practices have up to 3.5 times the revenue growth and as much as 2.1 times the profit margins of companies with less capable HR practices.
Outsourcing HR saves time and money, but your employees may prefer interacting with in-house HR staff.
In this article, we help you learn how to outsource your HR, and help you decide if outsourcing HR is the best solution for your company.
Already know you want to outsource your HR function? See our guide to the best HR outsourcing companies.
Few resources are more important to your company than your employees. When you properly tend to your employees, you improve the daily experience of the people you count on to execute your day-to-day business tasks.
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As necessary as proper employee management is, not every company has the capacity (or desire) to handle it all in-house. That’s why many business owners outsource HR. In this guide to HR outsourcing, we’ll walk you through situations in which HR outsourcing may help, the many kinds of HR outsourcing functions that third-party HR companies offer, and the pros and cons of outsourcing HR.
What is HR outsourcing?
HR outsourcing is an arrangement through which a business owner hires a third-party company to oversee some or all of the business’s HR functions. You can outsource your company’s payroll processing, employee benefits administration, talent acquisition, or all of the above and more.
Types of HR outsourcing
If you plan to outsource your HR, you have two main options – HR outsourcing (HRO) or a PEO (personal employer organization) – to handle your HR tasks. The services each option provides overlap heavily; it is the way they are legally structured that differs.
A PEO uses a co-employment model, which means your employees will appear on the books of your PEO provider for legal and tax purposes. However, you still have control over your employees in terms of what they are working on, whether they can be promoted or fired, etc. A PEO typically handles all of your HR tasks, though some providers allow you to pick and choose the specific services you want them to take on. With this model, the PEO bears the full legal and financial weight of all your company’s employment practices.
An HRO does not use the co-employer model, which means your employees will remain on your business’s books and you bear the legal responsibility for their actions. There is a bit more flexibility in the services an HRO handles for you – you can outsource one or two tasks, if that’s all you need, or all of them.
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