10 Benefits of Outsourcing HR

Quick look: The benefits of outsourcing human resources (HR) affect every aspect of a business, from recruiting top talent to leveraging cutting-edge technologies, and everything in between. Explore the rapid growth of the HR outsourcing market, the top 10 advantages of outsourcing HR functions, and what to look for when evaluating providers.

HR outsourcing is the contractual agreement between an employer and a third-party provider, where the employer transfers the management and responsibilities of certain HR functions, including payroll, benefits administration, compliance, recruiting, and more. From small businesses that outsource the bulk of their HR function to medium-sized organizations that may need specialized support, many employers partner with professional employer organizations (PEOs) and human resource outsourcing (HRO) providers.

With human capital management playing an increasingly important role in business, there’s never been a better time to consider how you can leverage the power of HR outsourcing services.

The rise of HR outsourcing

If you’re considering outsourcing some of your business’s HR tasks, you’re not alone.

The human resource outsourcing market size was estimated at nearly $20 billion in 2024, and is expected to reach over $31 billion by 2030.

This is not entirely surprising considering the growing workload of today’s HR departments. Gartner recently reported that 51% of chief human resource officers (CHROs) experienced an increase in requests for support from their teams, up to 45% say it’s more difficult to handle the conflicting demands on their time, and 71% of HR leaders believe burnout among HR teams is more prevalent than before the COVID-19 pandemic.

Why outsource HR services?

Teaming up with a PEO or HRO provider can deliver multiple benefits, from tapping into industry-leading expertise to potentially reducing costs.

Here are the top 10 advantages of outsourcing HR functions:

1. Access top-notch HR knowledge

The days of HR being purely transactional are long gone. The field has grown more complex, and an organization’s people function is now responsible for the end-to-end employee lifecycle, including:

• Recruitment
• Employment relations
• Compensation and benefits
• Performance management
• Payroll and tax administration
• Learning and development
• HR technology
• HR operations

Each of these areas requires skill and knowledge to be managed effectively and efficiently. Luckily, the right HR outsourcing partner can provide access to experts in all these categories and more.

PEOs and HROs typically employ subject matter experts who specialize in the above domains. Nevertheless, business leaders should evaluate potential service providers before selecting a partner. Some key criteria to consider include:

• Certified PEO (CPEO) status from the IRS, demonstrating that the business aligns with the highest regulatory standards set by the U.S. government and the PEO industry’s financial assurance program.
• Accreditation from Certification Institute (CI), signaling the company meets all industry professional risk management best practices, strives to foster safe work environments, and effectively manages workers’ compensation losses.
• Certification from the Employer Services Assurance Corporation (ESAC), ensuring the provider provides surety bonds to protect the payment of wages, payroll taxes, employee benefits, and insurance premiums.
• SOC 1 Type 2 compliance, confirming commitment to service, security, and compliance.
• The provider’s client retention rate and Net Promoter Score (NPS), a measure for gauging the provider’s customers’ overall satisfaction with the company’s product or service and their loyalty to the brand.
• Company culture accolades that signal a happy, productive team of experts (i.e., Great Place to Work® awards).

2. Maximize compliance

Non-compliance can be catastrophic for businesses, resulting in fines and reputational damage that’s hard to fix, which is why HR compliance issues must be proactively managed. However, frequent changes and increasingly complex legislation can make it challenging for employers to keep up.

From employment relations experts to payroll and tax professionals specializing in multistate workforce compliance, working with an HR outsourcing provider can give you peace of mind knowing your HR operations meet all applicable legal requirements.

3. Minimize risk

Every organization faces some level of business risk, but without proper mitigation, employers may face fines, reputational damage, and more. For example, if an employer accidentally discriminates against a staff member, their brand may become tarnished, making it difficult to hire and retain the talent they need. The incident can also be costly and result in legal issues.

Many HR aspects, including managing grievances, disciplinaries, and dismissals, can be highly sensitive and complex. Having additional support for these high-risk activities is often wise, and HR outsourcing can be the solution. Experienced PEO and HRO partners have extensive experience in navigating complicated HR issues and can help businesses minimize these risks and become employers of choice.

4. Potentially reduce HR costs

For small- and medium-sized businesses (SMBs), managing HR expenses presents an opportunity to enhance efficiency and competitiveness. However, offering enticing employee benefits, deploying learning and development solutions, and hiring the right talent can be time-consuming and expensive.

HR outsourcing providers can manage all the above in a cost-efficient way. HROs and PEOs have access to world-class employee benefits at competitive rates due to their large group bargaining power. Many partners can also facilitate access to sophisticated learning and development programs, reducing the costs of purchasing, deploying, and maintaining expensive tools on your own.

HROs and PEOs can also support SMBs by developing and executing a recruitment strategy, absorbing some of the effort, time, and cost of talent acquisition.

Lastly, the expertise an organization can get from HR outsourcing minimizes the risk of compliance fines, allowing it to focus its budget on other areas.

5. Increase efficiency

Effective, streamlined processes and systems drive success, yet many businesses experience HR-related inefficiencies.

Do you have time to develop and continuously improve HR-related business processes? What about selecting next-gen HR technology and maintaining it as needed? If the answer is no, working with a PEO or HRO partner may benefit your organization.

HR outsourcing providers offer a wide range of HR processes, tools, and systems as part of their service. If you select a high-quality PEO or HRO, you can rest assured that they operate efficiently using these systems and will continue to do so.

6. Better attract and retain talent

Smaller employers are often disadvantaged when competing with larger organizations for top talent due to a lack of employer branding and employee benefit offerings. The latter can also negatively impact employee turnover, preventing growth and causing businesses to hire costly replacements.

A seamless, tailored HR function can help you become an employer of choice. Your HR outsourcing partner can help you achieve this through expert resources, economies of scale, and industry-leading technology. Additionally, some PEOs, like ExtensisHR, offer full-cycle recruiting services at no additional cost.

7. Improve HR technology

HR tech is vital to helping businesses, managers, and employees stay productive and meet core HR needs. As HR broadens in scope and technology continues to advance, the latest tools and programs are becoming key issues on business leadership’s agendas.

Human resources information system (HRIS) technology typically sits between HR and IT, requiring cross-functional work. In many cases, HR technology is a resource-intensive sub-function, requiring a large budget to implement and maintain systems that require constant changes. Stakes are also high regarding results, as effective HR technology can increase the speed of transactions and cut costs, while mistakes can lead to costly, underused systems.

HR outsourcing allows businesses to cross HR tech off their list, as PEO and HRO partners can manage it on their behalf. Depending on the provider, this can include everything from technology deployment to its maintenance and day-to-day operation. Tools provided can include HRIS platforms and mobile apps, learning and development portals, and more.

8. Increase employee engagement

Larger organizations often invest significant resources to improve employee engagement, but with slimmer budgets and headcounts, smaller employers may have fewer opportunities to do so. Exploring a PEO or HRO solution can provide SMB employers with these important business tools, as employee engagement is correlated with multiple aspects of the HR function.

Access to higher-quality benefits, formal learning and development resources, user-friendly HR technology, and HR expertise all help smaller employers address engagement concerns and build a great company culture. Additionally, PEO and HRO partners can provide supplementary resources (i.e., guides and best practice materials) to help businesses improve workplace culture and support engagement initiatives.

9. Leverage flexibility

A flexible workplace is highly sought after by today’s top talent. However, time and cost constraints cause many smaller employers to adopt a one-size-fits-all approach to HR.

PEO and HRO partners provide these smaller businesses with personalized HR services based on each organization’s industry niche, market, and employees. HR outsourcing can enable them to access the resources they need on-demand and make changes when needed. The best way to remain agile is to work with a partner offering the same flexibility.

10. Focus more on strategic work

HR has developed into a more strategic function, but executive resources must remain focused on revenue-generating activities. Working with a PEO or HRO allows business leaders to cross HR off their to-do lists and prioritize higher-value initiatives.

From strategy to execution, an HR outsourcing partner can help administer Fortune 500-level benefits, reduce the complexity of being an employer, minimize employment risk, hire and retain top talent, and more, allowing an organization’s senior leadership to focus on business growth and profit.

How to choose an HR outsourcing company

With hundreds of HR outsourcing providers on the market, deciding which to partner with can be tricky. Some considerations to keep in mind include:

• The provider’s track record: Ask for verified reviews and case study testimonials, in addition to checking for the awards and accolades mentioned above.
• Stand-out offerings: While some services, like payroll and employee benefits administration, are offered across the board, be sure to ask for the provider’s key differentiators. This could be benefits tailored for a multigenerational workforce, or recruiting services (even better if they’re complimentary, like ExtensisHR).
• Level of customer service: Unfortunately, many HR outsourcing providers leave their customers lost in endless phone menus or waiting for an email response that isn’t just an automated reply. It’s critical to confirm that your potential partner offers easy, reliable access to dedicated HR managers and a customer support team for your employees.

ExtensisHR not only provides a wide range of HR solutions, but continuously adapts its benefits plans to meet top talent’s wants and needs, includes recruiting services within its PEO solution, and has a customer service team that picks up the phone in 11 seconds or less.

Want to learn more about the benefits of HR outsourcing? Download our free eBook to discover how it can propel fast-growing businesses, or contact the experts at ExtensisHR to learn more about our PEO and HRO solutions.