Your startup will eventually need to enlist an HR team to oversee the back-office operations.
After all, your time is best spent growing and managing your team – not coordinating interviews and sending out paychecks.
An outside HR firm can assist with key tasks such as staffing, benefits consultation, and legal operations. This translates into cost savings, increased efficiencies, and risk mitigation.
Another option is to hire an in-house HR person. It can be difficult, though, to find these varied capabilities in a single person at a price a startup can afford.
Here’s how to know if your startup needs to outsource HR operations.
1. Follow the “Face to Face” Rule
If most of your company’s HR functions need to be carried out in person, don’t outsource.
HR functions include hiring, recruiting, and developing company culture.
Growing companies need an in-house HR person to handle complaints, strategically boost performance and morale, and review the performances of growing numbers of employees.
This is especially important due to the competitive job market, as companies must make an extra effort to attract and retain top talent.
By contrast, larger firms with a dedicated HR manager often outsource their administrative HR tasks, such as payroll.
Now the HR manager can skip mundane work and focus on key employee-facing tasks.
These are some commonly outsourced HR functions:
- Payroll services
- Benefits management
- Employee-related compliance
- Background screenings
- Employee Assistance Program (EAP) and counseling
Remember the importance of keeping HR functions that need to be performed face-to-face In-house.
2. Consider Your Business’s Liability
The right HR person can protect you and your startup from liability.
Rapid growth and lean staffing can incur serious legal risks, and an HR professional can help you navigate a number of evolving laws and policies.
For example, a savvy HR person will help you with:
- Hiring rules
- EEOC requirements
- IRS reporting
- Collective bargaining agreements
- Recruiting restrictions and requirements
Outsourcing helps “you feel confident you’re in compliance and [can focus] on improving your company versus making sure all your HR paperwork is filled out properly,” said Anthony Soohoo, CEO of Dot & Bo’s, a San Francisco furniture company.
Consider the significant expense of a single reporting violation or tax oversight. For less money and to great returns, you could instead hire an HR team for the entire year.
Consider your business’s liability when scaling your HR operations and deciding whether to outsource.
3. Measure the Cost
Outsourced HR can help you cut costs and streamline your operations.
To determine whether it will, decide how much you’re willing to pay for a set of HR services. Perhaps you need a few hours of HR advice each week or help with payroll.
As you consider the costs and benefits, you may discover inefficiencies in your HR processes that are reducing your revenue.
According to Deloitte, 47% of companies who use outsourced HR do so to save on costs related to in-office capacity issues.
Expert guidance from an HR professional can further help you to save on your two largest costs payroll and benefits.
Another benefit of outsourced HR teams is that they eliminate the sizable expense of hiring, training, and providing benefits to a new team member.
Decide if the time and resources saved by outsourcing are better spent on an in-house hire, and weigh the cost of hiring no one against the risk of exposure to liability.
Should You Hire an Outside HR Firm?
Deciding on the best HR strategy can be challenging for any startup. For startups, HR encapsulates the challenges of growing, staying lean, and avoiding costly liabilities.
Weigh the benefits of an outsourced team against an in-house HR person. Will hiring an outside HR firm steady the path to success?
If you can enlist the same expertise and capabilities without sacrificing growth and company culture, outsourcing may be right for you.