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  • Writer's pictureDaniel Jimenez

Should your small business outsource HR in 2024?

About this time every year we start to get a bevy of calls from small business leaders considering outsourcing their HR for the next year. Some call knowing outsourcing is the way they want to go and are vetting all of their potential partners. Others are not completely convinced outsourcing is right for them and want us to help walk them through it.

It is for those people I am writing today’s post. The leaders who may have outsourcing in the back of their mind but aren’t sure it is right for them. And if it is for them, do they go with a firm, an individual or a PEO (because those are all very different).

should your company outsource HR?

How Are You Currently Handling HR?

One of the first questions I ask to determine if outsourcing makes sense centers around how the company is currently handling HR. Do they have an in-house (experienced) HR leader? Do they have an office manager handling administrative duties and HR? Are they currently outsourcing and just aren’t happy with the relationship? Have they been winging it and have no HR support?

The last two are easy to move forward from. If you have no HR support or you are unhappy with your current outsourced solution, then outsourcing is a viable option to explore further.

If you have an in-house HR leader, there are many more questions to answer. Why would you consider switching to outsourcing? I believe that once small businesses have an HR leader in place, it is best to keep that position in-house. If the leader isn’t right, then make a change, but switching to outsourcing may not be a great solution. Sometimes a leader tells me they hired an HR leader before they really needed one and now need to cut costs. I explain that I don’t believe it’s ever too early to hire an HR leader and that costs may be able to be cut elsewhere.

There is a caveat to this. If your HR person has retired or moved on of their own accord, then switching to outsourcing may be ok, but we rarely suggest replacing an active in-house person with a consultant. Very rarely.

There’s a lot that goes into that discussion, too much for this post, but my belief is that if you’ve been handling HR with an experienced HR leader, keep that in-house as your employee have become accustomed to that and that leader can help your business grow better when they are focused on nothing but your business.

For the group that has an Office Manager (or some other non-HR professional) handling HR then I talk to them about how that is going. If it is going well but the Office Manager just needs more support or knowledge, then our HR Hotline may be the best option. If the role is getting too large (based on the next factor below) and the Office Manager needs to focus on their primary duties and have HR taken off of them, then outsourcing is likely a good bet.


How Many Employees Do You Have?

As I stated earlier, I do not think there it is ever too early to hire an HR leader. Someone to build culture and people infrastructure from the ground up is invaluable. You have to be diligent about finding the right person, but if you do, they can help your business in ways you never imagined.

For those who have not hired in the beginning and now find themselves needing HR support, I find that there is a number of employees where that support (from an experienced professional) becomes critical. It varies from business to business but averages around 20 employees. Some businesses need it earlier, some later, but 20 is average. At that point, there are enough people related needs that someone who understands the law (especially here in California) and has the experience to navigate employee relations is key.

Again, if you have an OM or someone else handling HR then maybe full outsourcing isn’t what you need. A simple hotline service where they can get advice from an experienced professional may be enough.

At 20 employees however, it is time to get a bit more sophisticated with your people programs. Therefore, if hiring in-house is out of budget or not necessary at this time based on your business setup, then outsourcing may be a great fit.

What About Future Growth?

Small businesses who are experiencing growth need HR support as soon as they can get it. You want to establish that support before you need it, not during. Trust me, it gets hairy for all of us when you pull the support in during the middle of massive growth. If you know you are going to be hiring, onboarding and putting more sophisticated people programs in place in the next year, start thinking about your HR support now.

I will sometimes have business leaders say that they don’t think they will really need anything for a few months and I make sure to really dig into that. It’s fine if you are exploring options early, but don’t wait too long to start the process.

Firm, Individual or PEO

Often times, small business leaders believe that an HR outsourcing/consulting firm and a PEO are the same thing. They are not. A PEO leases employees to you, they own the employee relationship and the risk that comes with it. This has it’s pros and cons which I won’t get into in this post. I typically suggest PEO’s in the beginning for some or when still rather small (15 or less) but rarely find them cost effective once the employee count rises.

My company is a firm. This means I have multiple employees and many clients. Working with us gives you an entire HR team (with one dedicated point of contact). It also means we are balancing multiple client projects and needs. Something I believe we do well but important to note.

An individual consultant likely only has one or two clients. They are focused in on those clients and may specialize in one area. They may give more dedicated time to a business, but may not always have the bandwidth to do everything a business needs.

There are certainly pros and cons to each setup so talking it through with someone knowledgeable is important. The answer to “should I outsource” isn’t an easy one and something that needs careful consideration.

Then, once you have decided to outsource, finding the right chemistry with a consultant is the next step…and a whole different matter.

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