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How Big Is Too Big to Outsource HR?

Outsourcing HR is a common practice amongst startups and small businesses. Brand-new and teeny-tiny organizations simply don’t have the budget, space or energy to bring on a full-time, in-house HR professional, so they use software, PEOs and other third-party HR providers to do all that type of work. Yet, as a business grows, so does its HR needs, and eventually, most medium- and large-sized organizations add in-house HR teams to their staff.

But, you already know all this. From when you first launched to right about now, you have outsourced your own HR needs. However, your business is currently in the process of getting big — maybe too big for your previous HR solutions. How do you know when you need to bite the bullet and hire a dedicated HR team? Do you have to say goodbye to your wonderfully convenient outsourced HR forever?

When You Have the Budget

Brand-new startups with one or two employees don’t need much HR to speak of; a freemium software option will likely do the trick. However, as soon as there is enough budget space to add employees, you should also be looking for budget to pay for outsourced HR.

As is true of all professional services, PEOs and other third-party HR providers vary their prices based on the individual client; some companies with more employees that need more services have one rate, while other companies requiring only a handful of services for a few employees have another. By one estimate, the cost of outsourcing HR ranges from about 2 percent to 11 percent of employee wages. However, another estimate says it costs between $500 and $1,500 per employee per year.

If you don’t need anything complex — for example, if you are only looking for payroll services from a PEO — you might be able to find a lower rate, and it is worth pursuing as soon as your company can afford it.

When You Don’t Have the Time

As the leader of your business, you have too many fingers in too many pies. When your startup first launched, you did have to do everything — you didn’t have anyone else to rely on. Now, though, your business has grown bigger; you have even more things to look after, and even less time.

You don’t want to micromanage every activity within your business. As a primary leader, you should be focusing on big-picture decision-making, not hovering over every task your employees complete. Further, you should be willing to delegate tasks that you don’t have time or energy for, which includes HR. Outsourcing HR will not only move those responsibilities off your plate, but it will move them out of your company and into an HR professional’s hands. Thus, you don’t have to leave any brain space for HR-related concerns; you can let your PEO handle it all.

When Your Foundation Is Ready

Too many business leaders think of HR as a minorly important department. As a result, too many business leaders only make changes to HR policies on a reactionary basis: They enact the essentials, but only when they notice things going wrong will they make changes.

As you might expect, this is not an ideal strategy. Your business will grow, and problems related to HR will become larger and more complex, requiring more of your time to sort out. That’s why you should strive to preempt HR issues by building a solid HR foundation. From your very first thought about building a business, you should be factoring in HR — considering software tools, reviewing PEOs and other service providers, planning what responsibilities will remain in-house, etc. Then, as your business grows, you can scale your HR to your needs immediately as they arise. By doing this, you avoid rushing your HR decisions, and you ensure that your business is never suffering due to lack (or surfeit) of HR.

When You Can Mix It up

Relocating responsibilities to a third party can be traumatic to a business. For the most part, employees aren’t fans of change, and moving such a significant undertaking as HR off-site could introduce some concern amongst your ranks. That’s why the timing of your outsourcing matters. When your business is somewhat stable, and you have the space to make an informed HR decision, you should begin the process of outsourcing HR.

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