Quick look: By 2026, the HR outsourcing market is expected to grow by $10.90 billion. But what is causing this rapid expansion? Here, explore the latest HR outsourcing trends, including the various types of HR outsourcing companies, which HR duties SMBs are offloading the most, and how to choose the right partner to help your organization simplify its workload and succeed.
Over the last few decades, a common trend impacting both large and small employers has been the growing complexity and difficulty of modern human resources (HR). However, that’s typically where the similarities end.
Many large organizations have in-house resources to properly manage all aspects of HR administration—a luxury most small businesses don’t share. In fact, in many cases, HR management tasks fall on business owners who must properly execute these duties while juggling all the other responsibilities of running a company.
Here, explore what services HR outsourcing businesses provide, key HR outsourcing trends, and how to choose an outsourcing partner that will truly simplify your HR workload.
What does an HR outsourcing company provide?
Before diving into the latest HR outsourcing trends, it’s important to understand the various types of HR outsourcing companies, which include the following:
- Benefits consultants: Firms or individual professionals who assist companies with selecting, purchasing, and administering benefits plans.
- Payroll processing businesses: Companies that partially or entirely take over payroll processing duties on behalf of other businesses.
- Staffing companies: Agencies that match employers and staff-level employees.
- Executive recruiting firms: Organizations that specialize in helping businesses fill executive, upper management, and other senior-level positions.
- Diversity, equity, and inclusion (DEI) consultants: Firms or individual professionals who help businesses develop inclusive, diverse workforce policies and programs.
- Professional employer organizations (PEOs): Organizations that enter into a joint-employment relationship with a business and provide comprehensive solutions for HR, payroll, risk and compliance, employee benefits, recruiting, and more.
- Administrative services organization (ASO): ASOs provide similar HR management services to PEOs but without establishing a co-employment relationship. A company’s employees remain on its FEIN number and the employer assumes all associated risk. ASOs handle day-to-day HR administration but do not sponsor employee benefit programs or workers’ compensation coverage.
- Employee leasing company: An employee leasing company supplies new workers to a business, primarily on a temporary basis for work on a specific project with distinct start and end dates.
- Human resources information system (HRIS): An HRIS is a software platform used to collect and store employee data. While many HRIS includes features for recruiting, performance management, time and labor tracking, and more, they should not be a standalone solution for HR management. Rather, an HRIS is a valuable tool for experienced HR managers.
Top HR outsourcing trends
The HR outsourcing market, particularly in North America, is quickly expanding. According to market research organization Technavio, the global HR outsourcing market will be dominated by this continent, and 56% of the market’s growth from 2022 to 2026 is slated to come from it. Technavio also expects the market to experience an incremental growth of $10.90 billion between 2021 to 2026.
This is not entirely surprising considering the growing workload of today’s HR departments. The Society for Human Resource Management (SHRM)’s State of the Workplace Report 2021-2022 revealed that nearly 75% of HR professionals feel their department is working beyond capacity and stretched too thin. Meanwhile, another 42% believe that limited time and dedicated personnel is their biggest barrier to achieving organizational priorities.
Which HR services are the most in demand?
HR departments are responsible for an array of tasks to maintain the entire employee lifecycle, like recruiting, onboarding, training, administering benefits and payroll, maintaining compliance, and more. So, which of these functions are the most heavily outsourced?
HR Dive’s recent Identity of HR Survey explored that question by polling around 400 U.S. HR professionals and found that between 2021 and 2022:
- The use of outsourced payroll services jumped 15%
- Staffing services experienced an approximate 11% increase
- Executive recruiting services rose almost 8%
- Benefits outsourcing and consulting increased by almost 4%
Additionally, the survey found that 36% of HR employees believe that finding and acquiring talent is their top stressor. And interestingly, smaller departments with between 1 and 5 employees were more likely to use payroll vendors. In contrast, businesses with larger HR departments were more likely to outsource executive recruiting, DEI, and staffing.
The value of a PEO
Business leaders outsource HR functions to simplify their operations, but sometimes that outsourcing leads to the time-consuming process of managing multiple vendors.
A PEO can solve that issue by providing comprehensive HR solutions, including payroll, tax, and benefits administration and management, HR guidance, recruiting and talent management, risk and compliance services, and more.
And the PEO industry is booming. According to the National Association of Professional Employer Organizations (NAPEO):
- 487 PEOs exist in the U.S.
- They provide HR solutions to 173,000 small- and medium-sized businesses (SMBs) and employ 4 million people
- In 2020, those collective 4 million employees were paid $216 billion
- The SMBs that use a PEO account for over 15% of all employers with 10 to 99 workers
- Between 2008 and 2020, the number of staff employed in the PEO industry grew at a compounded annual rate of 7.6%
- PEO clients grow 7-9% faster, experience 10-14% lower turnover, and are 50% less likely to go out of business than SMBs that don’t use a PEO
- The ROI of using a PEO (in cost savings alone) is over 27%
Not all HR outsourcing firms are the same
The HR outsourcing industry isn’t expected to slow down anytime soon, especially as HR becomes even more complicated and time-consuming for smaller employers.
Business owners struggling with HR and looking for solutions could benefit from offloading duties to a trusted partner. However, with such a large number of HR outsourcing companies to choose from, it’s important to understand how to identify which is the best for your organization.
If your business only needs help with one specific duty, a siloed vendor like a payroll processing company could be the right choice. However, HR is complex, and many SMBs require an outsourcing partner that can manage all of its complexities. In this instance, a PEO could be the answer.
For example, ExtensisHR, a nationally recognized PEO, provides the following solutions:
- Comprehensive HR services, including in-depth HR guidance, payroll management, tax administration, and more.
- Full-cycle recruiting, included in its PEO solution at no additional cost (something that not all PEOs offer, but may be especially helpful as 84% of organizations recently reported labor shortage challenges).
- Risk and compliance expertise on EPP, risk management and workplace safety, state unemployment and workers’ compensation, and more.
- Benefits administration and management, including expert consultations and extensive, competitively priced employee benefit plan options.
- Work Anywhere® technology, allowing your mobile-first workforce to securely manage critical tasks from anywhere, at any time.
- PEO Premier®, a white-glove solution designed for businesses that wish to outsource all HR functions completely.
And while other PEOs provide a suite of HR services, examining their credentials is crucial. For example, did you know that less than 1% of PEOs have all three major industry certifications (IRS Certified PEO, ESAC accreditation, and CI certification)?
Could outsourcing HR tasks help your business save time and grow? Contact the experts at ExtensisHR today to find out.