Income Tax

Should You Outsource Your HR Department?

Many business owners know the frustration of spending valuable time on non-revenue generating tasks. A crucial component for all sizes of companies is cost effectiveness and profitability. Not only does outsourcing allow management to use more time and resources towards the growth and success of the business, but it may ultimately save the organization money in the long run. C2 has this conversation everyday with prospective clients.  Whether and when outsourcing your company’s HR function makes sense depends on a lot of variables, many of which are unique to each business (e.g., type of industry, number of employees, geographic location(s), benefits needs, etc.) But some considerations are applicable to most all companies and are important to consider when deciding whether it is time to outsource the HR function.

Why Outsourcing Makes Sense

When attempting to keep human resources in-house, small businesses are often delegating various HR functions to several different people. For example, in a small company the Chief Financial Officer might have responsibility for handling payroll while the Department Managers are responsible for onboarding, disciplining, and termination of employees under their supervision. And a third manager or executive may have responsibility for coordinating company benefits. Also common is the scenario where a small company hires a single “HR Manager” to administer everything.  Both scenarios are problematic.  In today’s complex world, specialties have developed within HR precisely because the range of federal and state regulations have grown exponentially – especially over the last decade.  As such, no single HR professional is equipped to adequately handle all the different facets of a compliant HR program, and having non-HR professionals try to take on these additional responsibilities without adequate background or training is ill-advised.

The general lack of in-house HR expertise will eventually begin slowing down the productivity of your company and staff because the HR function eats up more and more of their time. Payroll processing in-house can be not only immensely time consuming but also prone to avoidable mistakes. The various benefit deductions, garnishments, direct deposit adjustments, paid time off tracking, federal and state regulation changes and more, are all easily missed. Errors in payroll administration can also be very costly. Overpaying employees is a clear example, however, even underpaying employees and dealing with the accompanying bureaucratic headache when employees come seeking an explanation can be inefficient and costly.

What Are the Experts Saying?

Some research has shown that companies can save as much as $450 in administrative costs, per employee, by outsourcing their HR function.  Milan Yager, former President and CEO of the National Association of Professional Employer Organizations (NAPEO) stated, “When businesses are able to outsource their non-core activities, they are able to focus on the business of their business.”  This reality reflects our modern-day climate where keeping up with constantly evolving employment and state compliance laws are a full-time job – much less administering the payroll and other HR benefits that companies need to function properly. Businesses in the modern age need to be resilient and responsive to change in order to be competitive. Outsourcing the HR function to a trustworthy and professional firm, can allow you to put more efforts towards expanding your business opportunities, and free up personnel to work on critical tasks that could ultimately affect your bottom line.

According to NAPEO, small businesses that outsource their HR department grow 7 to 9 percent faster and have employee turnover that is 10 to 14 percent lower than small businesses that try to perform the HR function in-house. Small businesses are also 50 percent less likely to go out of business when they outsource their HR needs. These results are directly attributable to having a team of HR experts comparable to the ones enjoyed by Fortune 500 companies.

In addition, outsourced HR almost always comes with improved data security for small companies. Statistically, most small businesses do not employ all the necessary data security software and procedures to ensure data security.  The HRIS and payroll software may be very reputable, but unless the company augments the software with sufficient protection for their servers and network, including firewalls and penetration detection systems, then confidential employee information (e.g., address, personal e-mail, bank account numbers, medical information) can be easily compromised by hackers – which increases the liability risk for the company. Outsourced HR providers typically employ the latest security and software protections, precisely because they are responsible for protecting many different clients’ confidential employee information.


Outsourced HR providers, like C2 Essentials, employ professionals who specialize in the complexities of HR regulations, payroll procedures, government compliances, taxes, employee benefits, and government contracting.  Your company’s HR function is responsible for the ergonomics of your business, establishing its efficiency and efficacy from the beginning of your employees’ employment all the way throughout their career with your company. Your company’s success is just as dependent upon HR as it is upon your sales, compliance, and accounting departments — which is why outsourcing the HR function makes a lot of sense if you can’t afford to hire a full complement of in-house HR professionals.  Small businesses are finding it increasingly harder to argue with better compliance, lesser cost, and greater time to focus on their core business.

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.