HR Outsourcing

For many businesses that don't have the time or the resources to manage HR functions, outsourcing is a cost-effective alternative to hiring an in-house human-resources staff. Today's HR firms offer a wide variety of services to companies that need to focus on their core business activities and still establish and maintain good HR policies. To decide if HR outsourcing is right for you, ask yourself three questions:

• Are you comfortable letting someone else handle your HR functions?
• Do you have dedicated HR representatives or adequate resources to manage your HR needs?
• Can your business afford an HR outsourcing firm?

If you're not comfortable with an outsider handling your HR functions, outsourcing probably isn't your best option. But before you dismiss it out of hand, consider the many HR functions that can easily be outsourced: recruiting, staffing, benefits, payroll and training.

Choosing an HR Firm

For some businesses, cost is the deciding factor in vendor selection. Other companies look for a cultural fit or a commitment to quality. Some things you should consider when evaluating a firm include:

• The range of outsourcing services it offers
• The expertise it has in your industry
• Its general HR experience
• Its available resources
• The flexibility of its contracts

Keep in mind that an HR firm is an extension of your company culture, so try to find one that fits your image. Don't expect a conservative HR firm that works mainly with financial institutions and law firms to be a suitable match for your young, progressive business. It may not attract the right talent pool, and it may not understand your needs well enough to communicate them to prospective candidates.

Depending on the types of things you need to outsource, you'll choose a professional employer organization (PEO) or a hybrid outsourcing firm.

Professional Employer Organizations

If you prefer to focus solely on your core business, or if you have no HR capabilities, then a PEO may be right for you.

A PEO recruits, hires and employs on your behalf. It becomes the employer of record for your employees, whom you essentially lease back from the PEO. It also manages all HR functions for these employees, from employee relations and staffing to benefits administration and payroll. Expect to pay between $90 to $150 per employee per month for a comprehensive PEO solution.

Hybrid Outsourcing Firms

If you're not entirely comfortable handing off all of your HR responsibilities to a PEO, or if you don't need a full suite of services, consider outsourcing a few time-consuming or labor-intensive HR tasks.

For example, many companies use recruiters to find suitable candidates, but opt to retain control of staffing activities such as hiring and firing. Recruiters may charge on an hourly or a per-project basis, and generally command $60 to $120 per hour. Executive recruiters contract for approximately 25 to 35 percent of an executive's first-year salary.

Another key function many companies outsource is payroll. Payroll service usually costs $10 to $30 per employee per pay period.

You can also outsource HR services by the project. HR firms provide all kinds of specialized services, and will develop your employee handbook, set up your compensation program, or establish a performance management system that you can use to evaluate your employees. Rates for these types of services vary by project complexity and duration. Shop for competitive rates by getting estimates from a few different vendors.

Whether you go with a comprehensive solution or outsource specific components of your HR functions, it's important to develop a solid relationship with the vendor. You need to have good chemistry with the outsourcing firm and should feel confident that they will be responsive to your needs. Since they'll be handling your recruiting, hiring, training, benefits and other important tasks, you need to trust them to act in your best interests.