Simple Math: Why it Makes Sense to Outsource HR

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A gentleman who once sold his company for over $1 billion told me that if he had to give one bit of advice to business owners, it would be to outsource all non-core competencies.  With the proliferation of the following outsourced/fractionalized professional services, it clearly makes sense to focus on what you do best to drive your own company revenue.

  • HR
  • Legal
  • VP of Sales
  • CFO / COO
  • Bookkeeping
  • IT
  • Marketing

Having been an entrepreneur myself, the one consistent trait that I see that continues to plague business owners is the need to control every part of their business.  Why not spend your time and resources instead on perfecting your craft, and resist the need to spend time on things that don’t make you money.

Why Should you Outsource HR?

Let’s do the math on why it makes sense to outsource HR.

How much time and money are you spending?  According to SCORE, the average business owner spends approximately 30 percent of their time dealing with human resources-related matters.  Assuming the business owner has 20 employees and makes approximately $100,000 a year, these non-revenue producing tasks begin to cost that owner approximately $30,000 a year.

Attracting and retaining talent.  Statistics show that a top concern for up to 80 percent of employers is are attracting and retaining employees in a competitive talent marketplace.   Providing medical benefits to employees can be an effective tool in achieving that goal.  The annual average cost of medical benefits for a 20-employee firm can conservatively be estimated at $120,000.  However, if the business owner outsources their HR to a professional employer organization (PEO), they can save as much as 20 percent, or approximately $24,000 in annual premium savings).

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Compliance.  For many companies, it’s just a matter of time until the business owner gets sued.  A common source of lawsuits filed by employees against employers is Employment Discrimination and Wrongful Termination.  An average court settlement may cost the owner $40,000 or more.  However, when the company outsources HR to a Professional Employer Organization (PEO), they can typically mitigate that risk, because the PEO equips the company with HR policies and procedures to distribute to its employees.  In addition, the PEO will assign the client company an HR manager for certified HR guidance, and provide training on discrimination, discipline, documentation, termination, and more.

When you finally put pen to paper, it’s clear that most companies can outsource HR functions at a nominal cost, while reducing their risk and exposure.

Image: Gleb TV