3 Ways HR Outsourcing Makes Your Business More Profitable

Many businesses view HR as a cost center and necessary evil. In reality, human resources can be a driver of profits. You may be afraid that as your business grows, HR expenses will only increase. But we’re here to show you how HR outsourcing can be the solution to managing human resource costs while improving your bottom line. 

What Happens When You Don’t Outsource HR

Small to mid-sized businesses are always looking for ways to save time and money and redirect their focus from managing day-to-day tasks to driving business growth. That’s because administrative inefficiencies can account for a significant portion of a business’s operational costs.

Consequently, 41% of small business owners choose to handle HR themselves. And 70% of small businesses add HR tasks onto the workload of employees who manage it on an ad-hoc basis in addition to their primary job.

As a result, outsourcing certain functions—like human resources—is an increasingly smart way to go. Ultimately, HR outsourcing gives you and your staff more time to spend on the high-value work that benefits your employees and your profitability. So here are the top three ways that HR outsourcing can make your business more profitable. 

1. HR Outsourcing Reduces Your Operational Costs

Contrary to popular belief, HR doesn’t have to be costly. According to Deloitte, 59% of businesses use outsourcing to reduce their expenses—because having a fully staffed internal HR team can be expensive. According to Glassdoor, the average salary for an HR generalist is $70,000. However, a fully-staffed human resource team could cost upwards of $220K or more a year. And that’s not including additional costs for legal expertise, workplace safety consultants, or recruiting agencies. 

Most of the costs associated with having employees come from paying their wages. But HR outsourcing helps your business save on tangible HR costs. How? HR outsourcing reduces the cost of: 

• Healthcare, benefits, and employee perks 
• Workers’ compensation and Temporary Disability Insurance (TDI)
• Taxes and the administrative costs of handling payroll

About 70% of your labor costs are made up of all of the expenses above combined. So when you outsource to an HR partner, labor costs are significantly reduced. Outsourcing to an HR partner provides buying power. An HR partner can extend their buying power to you so you can “buy in bulk” and save on healthcare, benefits, and other labor expenses, thus getting more value for your dollar. 

2. HR Outsourcing Reduces Your Liability 

43% of small business owners have reported being threatened with or involved in a lawsuit. The cost of litigation for small businesses can be anywhere from $3,000 to $150,000. 

If you’re a business owner, you know what it’s like to feel the pressure to maintain compliance, but you can relieve some of that pressure by outsourcing HR. HR outsourcing can de-risk your organization, and further free you up to focus on core competencies. 

A full-service HR partner helps your business stay compliant with federal, state, and local labor laws and reduces your liability so you can avoid the potentially catastrophic costs of employee-related lawsuits. With an HR partner, you no longer have to deal with the unknowns of HR compliance. 

3. HR Outsourcing Improves Your Productivity 

Roughly 41% of human resources’ time is spent on necessary, but tactical work. A survey Obsidian HR conducted found that 23% of HR and business leaders spend over 11 hours a week on payroll and benefits administration. Payroll and benefits administration requires a lot of administrative work from ongoing processing to compliance and reporting. But the time spent on this work doesn’t provide as much ROI to the organization. 

For example, does your current HR have the time to offer career development opportunities, evaluate your technology and tools, or find new ways to support productivity and innovation? If the answer is no, it’s likely because they’re too busy handling administrative work. 

Outsourcing HR frees up your existing HR staff to focus on more strategic initiatives. These strategic efforts are often focused on improving the employee experience—which in turn improves employee retention, satisfaction, and thus company productivity. 

Ready to Outsource Your HR? 

HR outsourcing can stand in for an HR team if you don’t have one, but it doesn’t have to replace your existing team—whether it’s a team of one or several employees. Instead, HR outsourcing supports both. The right HR partner can fill in or support your existing HR staff by offering administrative bandwidth and specialized knowledge when it’s needed or be your HR team. 

To learn more about the benefits of outsourcing HR, download our guide below. And if you’re ready for the next step, consider Obsidian HR.