The Cost of HR Outsourcing for Small Businesses, Explained

Let’s cut straight to the chase.

70% of companies who outsource do it to save money.

So before you declare your independence from the contractors and scoff at the idea of HR outsourcing for small businesses, ask yourself this: Are you saving money by employing people to handle HR for you?

Or, god forbid, are you doing it all yourself?

Read on to find out.


How HR Outsourcing Benefits You

Outsourcing any service means additional operating costs for your business. So, it’s natural to wonder what it brings to the table, and whether it’s worth it in the long run.

Should I Outsource HR?

Should businesses outsource HR? Should small businesses outsource HR? After all, small companies have only a handful of people on the payroll.

But consider this.

Large, multinational corporations have dedicated departments for every aspect of the business: sales, management, R&D, marketing, customer support, legal, accounting, IT, web services.

And yes, even HR. There’s a department for everything.

So it may surprise you to learn that large companies are 66% more likely to outsource their services than smaller ones.

And – let’s be frank – those large companies got that way because they know what they’re doing. Human resource management involves a lot, and it’s not easy to find the right talent to handle the task.

What Outsourcing Does That You Can’t

The benefits of outsourcing HR are numerous:

  • You free up time to focus on running your business, not filing paperwork
  • Professional HR services are top talent finders
  • You don’t have to hire additional staff to manage HR
  • Paying contractors works out cheaper than employees when accounting for training and benefits
  • The technical aspects of HR are handled by trained professionals
  • Better risk management and legal compliance
  • A more competitive strategy for your business

A professional HR service takes care of every aspect of people management that you don’t want to.

Services Available

Ultimately, that’s something you’ll negotiate with your provider. But the range of services includes everything that makes you dread sitting down with a calculator and a stack of spreadsheets:

  • Payroll services
  • Tax filing
  • Recruitment and job posting
  • Training and personal development
  • Regulatory compliance
  • General administration

These tasks are deceptively simple. Because the reality is that even the most humdrum-seeming responsibility involves a ton of extra work.

Take, for instance, recruitment.

It’s one of the most expensive aspects of running a business. Low-skilled labor can be found with a local paper ad or a job listing on Craigslist. But professional employees aren’t easy to find.

Moreover, finding them isn’t the hard part of the job. You need to screen your potential new hires, interview them, follow up, make a decision. They need to be onboarded to whip them into fighting shape.

There’s documentation to file and contracts to be signed – and all of that is before they start turning you a profit.

What about handling accounting and payroll tasks?

Dreary, and dull. But filing your taxes? That’s downright agonizing.

Offloading the Extra Stress

Remember: Your business needs you at your a-game to succeed. Your time and nerves are already burdened with the day-to-day.

And you might not think it, but a reduction in stress and the time invested in mundane tasks like admin will help your business flourish more than the numbers will tell you.

The Cost of HR Outsourcing for Small Businesses

Human resources outsourcing is like any other service – the more you need, the more it costs. The common factors that affect the overhead include:

  • The size of your business
  • The number of employees
  • How much your employees earn
  • What state your business operates in
  • The services you opt for (or don’t need)

Average Out-of-Pocket Expense

On average, the monthly expense of outsourcing HR varies wildly. The cheapest HR services can cost as little as $45 per month, while a premium package can run up to $1,500.

Why does the price vary so much, and where does that figure come from?

It’s calculated in part as a percentage of each employee’s salary. For small businesses, the rate tends to be lower because handling a small workforce tends to amount to less work per person.

The rate HR outsourcing firms charge usually amounts to between 4% and 8% of each employee’s salary before tax. In practice, this amounts to anywhere between $20 and $200 per employee per month.

More employees – and more people to manage – mean a greater monthly fee. Yet managing more people at the same firm is more efficient.

Typically, the per-employee rate goes down the more people work for you.

Additional Fees

Most HR firms charge a one-time fee for a full audit of your HR practices.

This ranges from anywhere between $250 and $750. It’s an upfront cost that’s important to determine what policies need to be adapted or optimized.

Some firms may charge for a review (and rewrite) of your HR manuals or employee handbooks – which generally costs several hundred dollars.

But there’s an upside…

Many HR outsourcing firms allow multiple plans for you to choose between. The most common is the “all-in-one” package that works out cheaper on average, per employee.

The other is the “needs must” option that allows you to pick and choose to your liking.

It all begins with an inquiry.

Affordable HR Outsourcing in Your Area

If you know where to look, you can find HR outsourcing for small businesses at affordable prices – no matter your budget.

Over at Cheapmenow, we help small businesses locate the best prices in town from trusted brands. Find your next B2B supplier today based on where you are, what you do, and how much you’re willing to pay.


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