How HR Outsourcing Can Help Grow Your Small Business

Small and midsize businesses face unique challenges when managing human resources (HR) operations. C-suite executives and HR leaders are frequently pulled in different directions, juggling compliance demands, the complexities of HR management, and the drive to grow their businesses. All these operational priorities leave little time for more significant, strategic initiatives to help move the company forward.

For many midsize companies, the solution lies in HR outsourcing through a professional employer organization (PEO).

A recent report titled “Rethinking HR Outsourcing: How Midmarket Employers Can Reduce Risk, Support Talent, and Grow the Business with a PEO” sheds light on what businesses stand to gain from HR outsourcing. Developed by Lighthouse Research & Advisory and sponsored by Insperity, the report provides valuable insights into how outsourcing HR functions can help midsize companies overcome their most significant pain points and create a more sustainable path to growth.

What Is a Professional Employer Organization?

A professional employer organization, or PEO, provides comprehensive HR support for small and medium enterprises. The PEO acts as a co-employer, handling critical HR functions such as paying employee wages, remitting payroll taxes, offering PEO-sponsored employee benefits, and more. In doing so, PEOs enable their partner companies to streamline processes and minimize their HR tasks, which can reduce the need for internal HR staff.

For midsize businesses navigating a complex HR landscape, the guidance of industry-savvy HR experts can prove hugely beneficial. PEOs are flexible and scalable, and can be a cost-effective way to help a company meet its HR needs at any stage of growth. By partnering with an HR outsourcing service, businesses can dedicate more time to their strategic priorities.

The Role of a PEO in Solving HR Challenges

Since midsize businesses are typically in the process of expanding, staying on top of HR tasks can prove difficult. HR outsourcing companies enable businesses to focus on their core operations while taking comfort in knowing that critical HR functions are managed effectively. Here are three key challenges a PEO helps small and midsize companies overcome.

1. HR Compliance Support

One of the top challenges for midsize HR leaders is managing compliance with employment laws and regulations. The report shows that only 49% of employers are proactive in being consistently on top of HR compliance. The remaining 51% either react to issues as they arise or, worse, unknowingly fall behind. In doing so, they expose their businesses to legal and financial risks.

PEOs can provide the necessary HR infrastructure and compliance support to help businesses stay ahead of regulatory changes and avoid costly mistakes. By outsourcing certain employer-related responsibilities and compliance tasks and gaining HR compliance support, businesses attain peace of mind and can focus on more impactful areas of their operations. 

2. Freeing Up HR for Strategic Initiatives

HR leaders at midsize companies are often bogged down by administrative tasks such as processing payroll, managing employee benefits, and tracking applicants. As a result, leadership can view the HR function as more administrative than strategic. In fact, nearly 7 out of 10 HR leaders say they are perceived in this way.

By outsourcing routine tasks, HR leaders can shift their focus to more strategic activities, such as workforce planning, customer service, and leadership development. This transformation not only elevates the role of HR within the organization but also enhances the company’s long-term growth potential.

3. Meeting Growing Workforce Demands

As employee expectations continue to evolve, HR teams are expected to provide a higher level of service. However, many HR teams are already stretched thin, making it challenging to keep up with growing demands. About half of HR and payroll leaders say that payroll has become more difficult, and this trend shows no sign of slowing down.

Outsourcing HR functions to a PEO can help alleviate this burden. HR outsourcing companies provide the specialist management tools and resources needed to meet workforce demands efficiently. With a PEO handling day-to-day HR operations such as employee administration, benefit plan sponsorship, payroll, and payroll taxes, internal teams can focus on fostering a more engaged and productive workforce.

Key Takeaways for Midsize Businesses

When considering outsourcing certain aspects of HR, it’s important to understand the potential impact across your HR department. The report offers several critical insights into the benefits of HR outsourcing companies for small businesses​:

• Faster growth: As the data shows, 85% of businesses that use HR outsourcing grow faster than those that do not. This growth is attributed to improved operational efficiency, better talent management, and the ability to focus on core business goals.
• Improved HR compliance: With a PEO, businesses can get help navigating HR regulations, which can reduce the risk of costly mistakes. This risk-reduction support leads, in turn, to a decrease in employee stress.
• Enhanced employee engagement: Companies partnering with a PEO report higher employee satisfaction and retention levels. By outsourcing administrative tasks, HR teams have more time to create a positive employee experience.
• Greater cost efficiencies: Outsourcing HR functions can also lead to operational and cost efficiencies. Businesses can streamline HR processes, consolidate HR vendors, and reduce the number of internal staff or consultants to manage their HR needs (or redirect those individuals to more strategic initiatives).

The Bottom Line

To stay ahead of the curve in a fast-changing landscape, an organization has to be adaptable. HR outsourcing through a PEO ensures that midsize organizations can outpace their larger competitors. By outsourcing compliance, talent management, and other HR functions, companies can focus on their core operations, drive strategic growth, and create a more engaged and productive workforce.

As the report highlights, partnering with a PEO like Insperity can help businesses overcome their HR challenges, reduce employment-related risks, and accelerate growth. Access the full report here to learn more about the benefits of outsourced HR for small businesses​.