Should you hire a full-time HR manager or outsource your HR functions?

by | 1 Sep, 2020

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According to People Management, the majority of HR teams are staffed with an average of ten employees with some companies having fifty or more! Of course, for a small business, you might not need ten people in our HR team but you might not realize the workload required of an HR professional.

Depending on your business type and size, according to SHRM‘s advice on ‘Starting an HR Department from the Ground Up,’ your HR team (or manager) may need to handle the following functions.

  • HR staffing plan
  • HR budget
  • Tax obligations
  • Payroll system and administration
  • Company-wide staffing plan
  • Job descriptions
  • Pay structure
  • Benefits plans
  • Employee handbook
  • Safety procedures
  • Employment posters
  • Hiring procedures
  • Personnel files
  • Performance evaluation process

Depending on the knowledge of your HR manager and his or her capacity, that may be outside the scope of his or her ability to complete each week or each month as these matters are needed to deal with. 

SHRM also notes, ‘…when additional federal laws kick in – some at the threshold of 15 employees – maintaining a focus on myriad compliance laws while growing the business can become difficult. Having an HR professional on-site is more efficient to address issues such as hiring, firing, leave management, training, discipline, policy development and enforcement, and benefits. At this point, a small organization may want to think about establishing a dedicated HR department. See Federal Labor Laws by Number of Employees.‘ As you can see, an HR manager has a lot on their plate but it begs the question: should you hire a full-time HR manager or outsource your HR functions?

The benefits of hiring an HR manager

  1. An in-house manager can get to know your business intimately since they’re on the inside.
  2. An in-house manager works directly with the management team, allowing them to adapt at short notice.
  3. An in-house manager can relate to employees and inform them of important company benefits, providing a human touch. 

The disadvantages of hiring an HR manager

  1. Hiring an HR manager is expensive since the average HR manager salary is $104,768 but the starting salary is over $80,000 and the upper level of the salary can reach around $130,000 or more. Of course, some HR managers do settle for less but many may not stay if they aren’t earning their potential. 
  2. Retaining and training an HR professional is expensive and they may have gaps in their knowledge.
  3. Laws, regulations, and best practices evolve so your HR manager will need to keep abreast of all changes, which may be difficult when they are busy with the job.
  4. With a single HR manager, your company has to negotiate its own medical and retirement benefits, which could end up costing the company more.

The benefits of outsourcing HR functions

  1. Outsourcing HR functions is cost-saving on full-time salaries.
  2. Outsourcing is cost-saving on employee benefits since PEOs can get better rates than small businesses.
  3. Outsourcing is cost-saving on training since it costs thousands of dollars to train and retain employees.
  4. Outsourcing helps you avoid penalties for non-compliance with ever-changing laws and regulations.
  5. Outsourcing allows you to spend less time on HR functions, which frees you up to focus on other tasks at hand. Many business owners spend most of their time on administrative tasks and HR comprises of multiple complicated administrative functions that not every owner is aware of. 
  6. Outsourcing ensures there are no mistakes since a PEO has an expert team for you and your business. 
  7. Access to HR integration platforms.
  8. Happier employees with less turnover.

The disadvantages of outsourcing HR functions

  1. Some argue that outsourcing to a PEO means you lose control of essential HR processes.
  2. An outside company has an influence on your culture.
  3. Your company won’t have institutional knowledge in-house.
  4. You may have resistance from some employees. 
  5. Some argue that there could be security risks involved in outsourcing.

The benefits of having an HR manager and an outsourced team

A solution for your business may lie somewhere in the middle. You may want an HR manager and to outsource some or all of your HR functions. That way, you feel you have more control over your in-house HR but your HR manager has more time to complete all HR functions efficiently and accurately whilst still meeting deadlines.

Although, in recent years, in-house HR departments are facing a backlash. In Tech Crunch‘s piece ‘HR has lost the trust of employees,’ they discuss abuse in in-house HR departments that have lost employee’s trust with the Uber fiasco – and how neutral third parties are winning employees over. The Wall Street Journal also has an article entitled, ‘Companies Say No to Having an HR Department’ argues that having no HR functions can be detrimental to a company – such as when hiring – but often companies are managing without in-house teams.

If you do have an HR department or even just a single HR manager, we have solutions in our article ‘How HR Departments and PEOs Can Work Together.’ Since HR is a vital function, 80% of companies now outsource one or more HR tasks. You could choose to outsource your payroll or your benefits program or both – or simply your compliance paperwork! Whatever you want to outsource, a PEO can offer tailored solutions for you.

Check out our article called, ‘Outsourcing Payroll- Just the First Step,’ which posits, ‘A common piece of advice given by business consultants is: focus on what you do best and outsource all non-core functions of the business.’ When you outsource non-essential business functions, your employees can focus on growing your business and focus on your expertise whilst a PEO can focus on theirs; it’s a win-win.

A PEO offers business solutions and can help you stay compliant with state and federal labor laws and regulations. A PEO can also help your company provide much-needed benefits at an affordable rate. For more information, take a look at our pieces on ‘What a PEO is and the Benefits it can Provide for Growing Organizations‘ and ‘Small Businesses Can Get More By Doing Less‘ which talk more in-depth about the benefits of outsourcing to a PEO.

One major reason to outsource is that many small businesses are not able to offer healthcare solutions and benefits for employees with millions of American workers who are uninsured and underinsured. It’s also reported that 60% of workers would stay in an existing job with benefits than move to another company and often benefit’s packages are the deciding factor when choosing to work for one company over another. 

From keeping your payroll on track to offering competitive rates on medical, vision, disability, and dental plans as well as compliance, tax filing, and 401k, a PEO can help you avoid the headache of HR functions. 

What Navigate PEO offer

At Navigate PEO, we provide HR business solutions that meet your needs. We help your company deal with HR functions or we work alongside your HR manager to manage employee benefits; HR functions like medical plans, EAP, and 401k; payroll administration; and compliance. We take the pressure off your business by providing expertise that isn’t easily gained in a small team. We already have years of experience and training and we can work alongside your talented HR team, your HR manager, or even just a point of contact. Take a look at our HR Services page for more details. 

Should you outsource or hire in-house?

Whereas for small companies, you may get away with using managers to manage some HR functions, once you get bigger, you’ll definitely need an HR manager, but, with that said, that HR manager cannot possibly know every regulation or manage every HR tasks solo. Recruitment and training alone can take up many HR manager’s time. So, the solution to hiring an HR manager is yes, you’ll need one eventually but in the meantime, it’s best to outsource some or all of your major HR functions so your business can focus on what you do best! 

Get in touch to find out how much we can save you.

Tom DiSilva
Tom DiSilva has been providing professional human resource services for over 30 years. As the CEO of Navigate PEO, he actively partners with organizations of all sizes in the Greater New England area and across the country to help their businesses grow. He has expertise in HR and Labor Management, offering guidance and support for key areas of business such as negotiations, operations management, employee coaching, and employee benefits design. . He is an active member of The Society for Human Resource Management (SHRM), The National Association of Professional Employer Organizations (NAPEO), Professional Association of Co-Employers (PACE), and The American Payroll Association (APA). He is deeply committed to giving back to the community both personally and through Navigate Cares, which provides support for several nonprofit organizations such as the USO, The Boys & Girls Club, and the 3Point Foundation.

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Disclaimer: this article does not represent expert advice and is provided for informational purposes. Please get in touch if you would like expert HR advice.