HR Outsourcing: The Complete Guide for Small Businesses

Remember when running your business didn’t feel like you're buried in HR paperwork? What starts as simple new-hire forms somehow snowballs into an endless stream of compliance requirements, payroll processing, benefits administration, and employee relations issues.

In this guide to small business HR outsourcing, we'll show you exactly how it works, what it costs, and how to choose the right solution for your needs. Whether you need help with basic HR functions or comprehensive support, you'll find practical, straightforward answers to all your questions.

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What is HR outsourcing for small businesses?

Small business HR outsourcing is when a business partners with external providers to handle some or all of their human resources tasks. Unlike enterprise HR outsourcing—with its complex contracts and dedicated teams—small business HR outsourcing is designed to be more flexible and cost-effective for companies with fewer than 50 employees.

For small businesses, HR outsourcing means partnering with providers who understand the unique challenges of managing a smaller workforce. These providers offer scalable solutions that can grow with your small business.

What HR functions can small businesses outsource?

Most small businesses start considering HR outsourcing when certain tasks get too time-consuming or complex to handle in-house. Here are the core HR functions that small businesses typically outsource:

Payroll and benefits

Everything related to compensating and providing benefits to your employees can be handled by HR outsourcing services. Many small businesses first consider outsourcing when payroll takes more than 5 hours per week or when they start offering benefits beyond basic compensation:

• Payroll processing and tax calculations
• Employee benefits administration
• Workers' compensation
• Health insurance management
• 401(k) and retirement plans

Compliance and documentation

Small businesses can stay on top of complex regulations and all the required paperwork with the help of outsourced compliance management. The tipping point often comes when keeping up with changing regulations becomes overwhelming, typically around 15-20 employees:

• Employee handbook creation and updates
• Labor law compliance
• Safety regulations and OSHA requirements
• Personnel file maintenance
• Required workplace postings

Employee management

As your team grows, managing day-to-day employee logistics can get hard to manage. Most small businesses find they need help with these tasks once they're spending more than a quarter of their week coordinating schedules, tracking attendance, and handling employee requests:

• Time tracking and scheduling
• Attendance management
• PTO and leave administration
• Performance management
• Employee relations issues

Hiring and onboarding

Recruiting and onboarding new employees involve dozens of very important steps that you need to do right every time. When your business starts hiring regularly or you notice inconsistencies in the onboarding process, it's time to consider outsourcing these tasks:

• Job posting and recruitment
• Background checks
• New hire paperwork
• Employee onboarding
• Training coordination

Risk management

Many small businesses don't think about risk management until they face their first workplace incident or employee complaint—whether it's a slip-and-fall accident, a harassment allegation, or a wage dispute. By then, it's often too late. Here's what professional HR risk management can handle:

• Workplace safety programs
• Employment practices liability
• Unemployment claims management
• Workers' comp claim administration

For small businesses, HR outsourcing isn't about completely handing over control. It's about getting expert help with time-consuming tasks so you can focus on what matters. Whether you need help with just payroll or want comprehensive HR support, there are flexible options designed specifically for small businesses like yours. The key is finding the right level of support that matches your needs and budget.

Benefits of HR outsourcing for a small business

Let's talk about what actually changes when you outsource HR to the professionals. Here's what other small business owners discovered:

Time savings and focus on growth

The most immediate benefit of HR outsourcing is reclaiming productive hours in your week. Small business owners spend significant amounts of time managing payroll, benefits, and employee documentation. These are difficult tasks that prevent them from working on the strategy and growth of the business.

Mike Falahee, President of Marygrove Awnings, was spending a quarter of his week buried in HR tasks instead of running his business. After outsourcing HR, he got back to what he does best: growing his company and taking care of customers. The result? His business expanded into new markets.

Reduced compliance risks

Professional HR support protects your business from expensive mistakes and compliance issues. Instead of trying to keep track of changing labor laws and regulations yourself, you get experts watching your back and keeping everything by the book. No more worrying about payroll taxes, employee classification, or whether you're following all the rules correctly.

Ali Zane, CEO of Imax Credit Repair, discovered this firsthand when an HR compliance issue nearly cost him his business. After switching to professional HR services, his company kept up with perfect compliance records while reducing the time he spent on regulatory paperwork.

Improved employee experience

Professional HR support makes your employees' work lives easier and more organized. They get clear answers about their benefits, know exactly what to expect on their first day, and have someone to talk to when they have questions or concerns. You’ll get happier employees who stick around longer.

Kraig Kleeman, Founder of The New Workforce, reported that outsourcing HR resulted in an immediate improvement in employee happiness. His team got better benefits, clearer policies, and professional HR support for workplace concerns, resulting in higher retention rates.

Cost-effective expertise

Outsourced HR support costs much less than hiring your own HR person. Instead of paying a full salary and benefits for one person, you get an entire team of HR experts helping your business for a fraction of the cost. This means access to specialized knowledge and support whenever you need it.

Scalability and flexibility

HR outsourcing eases the growing pains that come with expanding your business. Whether you're adding locations or increasing headcount, professional HR services scale with your business without requiring new hires or systems.

Tom Jauncey, CEO of Nautilus Marketing, found that HR outsourcing supported his company's growth from a small team to a global operation. The flexible HR infrastructure adapted to his changing needs without disrupting the operations of the business.

The bottom line: HR outsourcing helps you run a better business. You get back valuable time, reduce risks, keep employees happier, and save money in the long run. Most importantly, you get peace of mind knowing experts are handling these critical tasks while you focus on growing your business.

How much does HR outsourcing cost for a small business?

The cost of HR outsourcing varies depending on what your business needs. Let's break down your options, starting with the most basic and working up to full-service solutions.

HR software solutions: The most accessible entry point

HR software is the simplest way to start outsourcing HR tasks. It's usually as easy as creating an account and adding your employee information. Most platforms offer free trials and setup guidance, so you can get started without much technical knowledge.

These tools typically cost between $20-50 per month for basic features like scheduling, time tracking, and storing employee documents. Many offer different pricing tiers, so you can start with basic features and add more as needed. Most charge based on how many employees you have.

Popular HR software options include:

• Homebase: Perfect for retail stores and restaurants with 5-40 employees. Starts free for basic scheduling and time tracking at one location, with paid plans from $20/month per location. Especially good if you need scheduling help; employees can swap shifts and request time off through the app. No long-term contract required, and they offer live phone support even on basic plans.
• Gusto: Best for businesses needing mainly payroll help with some HR features. Starts at $40/month plus $6 per employee. Great choice if you want to offer benefits because they make it easy to set up health insurance and 401(k)s. However, their support is mainly online, which can be frustrating if you prefer phone calls.
• BambooHR: Designed for growing businesses that need more HR features. Pricing starts around $100/month for 10 employees. Good if you're hiring often since they have great tools for tracking applications and onboarding. But might be more complex than needed if you just want basic HR help.

Payroll services: The next level

Payroll services focus specifically on handling your payroll, tax calculations, and basic HR documentation. Setup involves sharing your payroll information and employee details, and the service handles the rest. It's a good first step if payroll is your biggest headache.

These services usually charge a base fee of $50-100 monthly plus $4-10 per employee. This covers payroll processing, tax calculations, direct deposits, and basic HR support. Most require a monthly commitment but no long-term contract.

Common payroll service providers include:

• Homebase Payroll: Great for small businesses, especially those with hourly employees. Homebase helps you stay accurate and compliant with every payroll run by handling all your documents, forms, filings, and payments. As an all-in-one employee scheduling, payroll, and time-clock software, Homebase is great for growing small businesses. Starts free for basic scheduling and time tracking at one location, with a payroll add-on option.
• Paychex Flex: Good for businesses with varied pay rates or tip reporting. Base price starts at $59/month plus $4 per employee. They're especially helpful if you have both hourly and salaried employees. Includes a dedicated payroll specialist for support. However, you might face pressure to upgrade to their more expensive services.
• QuickBooks Payroll: Best if you already use QuickBooks for accounting. Starting at $45/month plus $4 per employee. Integration with QuickBooks makes tax time easier, and their interface is fairly simple to use. But their support can be hit-or-miss, and you might need an accountant's help with setup.

HR support services: Expert help on demand

HR support services provide ongoing access to HR professionals who can answer questions and help with policies. Getting started involves an initial consultation to understand your needs, then they'll help set up your HR processes and documents. This is ideal if you want expert guidance without hiring a full-time HR person.

Monthly costs typically range from $100-200 plus $10-20 per employee. This includes help with compliance, employee handbooks, and HR guidance. Many offer month-to-month services, so you're not locked into long contracts.

Popular HR support services include:

• Bambee: Designed specifically for small businesses with 2-500 employees. Starts at $99/month for your first 20 employees. You get a dedicated HR manager who helps with everything from creating an employee handbook to handling workplace issues. Great for businesses that need ongoing HR help but can't afford full-time staff. The main drawback is they don't handle payroll, so you'll need a separate service for that.
• TriNet Zenefits: Best for businesses ready to offer better benefits packages. Base platform costs $8 per employee per month. They're particularly good if you want to offer health insurance and other benefits to compete with larger employers. However, their platform can be complicated to learn, and you'll pay extra for advisory services.
• Mineral (formerly ThinkHR): Excellent for businesses worried about compliance. Pricing varies but typically starts around $120/month. Their main strength is keeping you legally compliant—they update all your policies automatically when laws change. Includes a library of HR documents and training resources. The downside is they're more focused on compliance than day-to-day HR tasks.

Full-service HR outsourcing: Complete HR department replacement

Full-service HR outsourcing handles all your HR needs, from hiring to retirement. Setup takes some time—they'll need to learn about your business, policies, and employees. But once everything's in place, they manage your entire HR function. This option works well if you want to completely hand off HR responsibilities.

These services typically cost $150-250 monthly plus $25-50 per employee. While this is a bigger investment, you get comprehensive HR coverage including benefits administration, compliance, training, and employee relations support. Most require at least a one-year commitment.

Leading full-service HR providers include:

• Insperity: Best for businesses wanting high-touch service. Pricing starts around $150 per employee per month. You get a dedicated team handling everything from hiring to termination. They're particularly good at helping businesses scale up, with strong training and development programs. The downside is you'll need at least five employees to use their service, and costs can add up quickly.
• G&A Partners: Good for businesses with unique HR challenges. Costs typically run $150-200 per employee monthly. They're flexible about customizing their service to your needs and industry requirements. Strong focus on workplace safety and compliance. However, their technology platform isn't as user-friendly as some competitors.
• Paychex PEO: Works well for businesses that want to start small and scale up services. Base costs around $150 per employee monthly. You can start with basic HR services and add more complex ones as needed. They have good self-service options for employees. The main complaint is that service quality can vary depending on your assigned team.

Professional Employer Organization (PEO): Enterprise-level HR benefits

A Professional Employer Organization (PEO) is the most comprehensive HR solution available. They actually become a co-employer of your workers, which means they take on significant HR responsibilities and liability. This arrangement allows them to offer their employees the same level of benefits that large corporations provide. Setting up a PEO relationship requires the most paperwork and time, but they handle everything HR-related once you're up and running.

PEOs typically cost $900-1500 per employee annually (about $75-125 per employee per month). This is the most expensive option, but it includes complete HR management, better insurance rates, and access to benefits packages that small businesses usually can't get on their own. Most require a one-year commitment minimum.

Major PEO providers include:

• ADP TotalSource: Best for businesses wanting Fortune 500-level benefits. Costs around $1000-1400 per employee annually. You get access to premium healthcare plans, 401(k) options, and training programs typically only available to large corporations. Their size means better rates on insurance and benefits. However, you might feel like a small fish in a big pond—service can feel impersonal.
• TriNet: Good for businesses in specialized industries. Annual costs range from $900-1500 per employee. They have industry-specific expertise in retail, restaurants, and professional services. Offers excellent benefits packages and strong compliance support. The drawback is the minimum requirement of at least five employees and must meet certain payroll thresholds.
• Justworks: Most modern and tech-friendly PEO option. Pricing starts at $49 per employee per month plus benefits costs. Their platform is easier to use than traditional PEOs, and their pricing is more transparent. Great for businesses that want a more current approach to HR. The main limitation is they're not available in all states, and they're a newer company compared to others.

With so many options and price points available, choosing the right HR solution might feel overwhelming. But don't worry, you don't have to figure it all out at once. Most small businesses start with basic services and add more support as they grow. Let's look at how to evaluate these options and find the right fit for your business.

How Homebase can help with HR outsourcing for small businesses

If you’re considering HR outsourcing to save time and reduce stress, Homebase offers a straightforward, affordable solution tailored to small businesses. Here’s how it tackles the challenges we discussed:

• Affordable tools for core HR tasks: Homebase provides free scheduling, time tracking, and team communication tools, making it accessible even for businesses with tight budgets.
• Streamlined time management: With features like automated timesheets, shift swapping, and PTO requests all handled in one app, you’ll spend less time juggling schedules and more time growing your business.
• Easy compliance: Avoid fines and legal headaches with Homebase’s paid plans, which include labor law compliance tools, onboarding assistance, and document storage.
• Cost-effective pricing: Instead of charging per employee, Homebase charges per location, making it ideal for businesses with changing team sizes or seasonal staff.
• On-demand support: Need help? Even the free plan offers live phone support to ensure you’re never left struggling with a problem.

With Homebase, you don’t need to outsource HR to an expensive agency to see big results. It’s a user-friendly solution that puts powerful tools in your hands, saving you time and simplifying your workflow. Get started now with Homebase.

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