The True Cost Of HR Outsourcing In 2020
As a business owner, your focus is on growing your company. As a result, you may be thinking about outsourcing HR to save yourself the time and effort of managing it yourself. The next thing you’re probably thinking is: just what it will cost you to get the extra support.
Complete Payroll Solutions is an outsourced HR provider. Our certified HR professionals help thousands of companies with a wide range of employee management issues, from one-time projects to on-going advice. And because we get asked about price every day, we know that it’s a factor that plays a big role in deciding whether to outsource HR.
Generally speaking, you’ll likely pay between $45 and $1,500 a month based on the services required. We know this is a very large range so we’ll help you understand where you may fall within it based on the services you need by sharing what you can expect to pay for common functions that companies outsource, including:
- An employee handbook
- Background checks
- Sexual harassment training
- Compensation strategies
- Compliance assessments
This list is by no means exhaustive but will give you an idea of how some of the HR services you could use are priced. After reading this, you should walk away with a better idea of what you could expect to pay for outsourced HR and be able to decide whether outsourcing is an approach you can afford.
How Do Vendors Charge for Outsourced HR?
When you start researching the cost of outsourcing HR, you’ll quickly realize that the way companies charge varies widely. Some different ways that companies will charge you might be:
- A flat fee by service (AKA pay-as-you-go)
- By pay period
- Per Employee Per Month
- A percentage of each employee’s income
No matter how companies bill, your cost will vary based on several factors, such as:
- Services needed and whether they’re purchased individually or bundled
- The complexity of your HR issue (e.g. it will be less to develop job descriptions than provide strategic guidance for an employee termination or defense of a sexual harassment lawsuit)
- Number of employees, for example, some HR vendors charge less for those with fewer than 100 workers
Since there’s so much variation, we thought it would be easiest to share the costs of some of the most commonly-used HR outsourcing functions.
Costs for Outsourced HR Services
The chief factor impacting the cost of HR outsourcing is the service or services you need. You can generally pick and choose these services at will. Sometimes, companies will bundle several services together into a package.
An Employee Handbook
An employee handbook contains crucial information about workplace policies and procedures and can be an important document in limiting your potential legal liability and costs. In fact, the average employment lawsuit award is about $500,000.
However, if you’re like some companies, you may not have a handbook at all. Or maybe you’ve modified a template that you found online. But with all the legal and regulatory changes impacting the workplace, it can be challenging to stay on top of regular – and necessary – updates to your guide. Instead, you may want to outsource the development of a custom handbook.
The general range for an HR consultant to create an employee handbook is $1,500 to $3,000. At Complete Payroll Solutions, we charge $2,000 to develop a handbook.
As you know, hiring takes a lot of time. If you’re a small, growing business without dedicated HR staff, recruiting can detract from activities that generate income. That’s why a lot of companies choose to outsource recruiting.
Recruiting can include everything from job descriptions and postings to sourcing and screening candidates. For these services, HR consultants may charge a flat fee based on the salary of the position you’re trying to fill. Each HR provider sets its own fees so these can vary widely, making it difficult to provide a range you could expect to pay.
Alternatively, an outsourced HR company may charge a percentage of a new hire’s first year’s salary. With this approach, it can cost you as much as 40% of a worker’s salary. At Complete Payroll Solutions, we charge 20% of an employee’s first year of compensation so if you want to bring someone on board at a salary of $60,000, you would spend $12,000 in recruitment fees.
It’s always a good idea to conduct background screenings before you hire, even if your industry doesn’t require them. That’s because a screening can help protect you from the potential risks of a bad hire. For example, if you’re hiring someone to be a truck driver, it may be important to learn that they’ve had three DUIs.
When it comes to screenings, vendors will typically offer you various levels, starting with a basic background search on employment history and up to a more comprehensive one that covers criminal history. Additional background checks are also available depending on what may be appropriate for your business, like a DMV report. Depending on what you need, you can expect to pay a vendor $25 to over $100 per hire.
At Complete Payroll Solutions, we always recommend what we term Level 3 screens for all new hires that includes a check of an applicant’s name, address and social security, national database search and federal criminal search. For these, we charge $40 per employee. While there are more basic, cheaper options out there, a Level 3 screen offers the most comprehensive data to allow you to make the right hiring decision to protect your company and the workplace.
Sexual Harassment Training
With federal and state anti-harassment laws, like those in New York, requiring stepped-up compliance efforts, many companies lack the expertise to run employee training on this topic in-house.
One way you can approach sexual harassment training is by purchasing an online class or a live class, that’s either led either on-site or remotely. For an online class, costs can be less than $50 per employee while on-site can run $1,500 to $5,000 total for all participants. Here at Complete Payroll Solutions, we charge $20 per employee for our online training and $850 for live sessions, which we’re currently running on Zoom during the pandemic.
Making sure your compensation strategy is structured to properly incentivize employees and enhance retention is essential to achieving your organizational goals. To develop a market-based pay structure, you can take a Do-it-Yourself approach. Wage data is free from the Bureau of Labor Statistics. You can also purchase a salary survey from various sources, including industry associations and HR consulting firms that can cost as little as a few hundred dollars.
There are really two approaches you can take to compensation. Your first option is to benchmark one position. That way, you’ll learn the value of the job in the geographical location and understand the salary for the 25th, 50th and 75th percentile. To benchmark the salary for a single role, Complete Payroll Solutions charges $375.
Alternatively, you may want more in-depth support like a complete compensation plan that assesses all positions, their compensation ranges, and whether they’re due an increase. For that approach, you’ll likely pay a consultant an hourly fee, which generally ranges from $100 to $150 per hour. Complete Payroll Solutions charges our clients an average of $150 an hour for this type of support.
Because of the potential for steep fines and penalties, compliance is one of the biggest reasons companies outsource HR. When you bring in an outsourced HR vendor, they’ll review your policies and practices to see if you’re compliant with employment laws and regulations like those governing wages and hours, leave, and discrimination, among others.
You can find some free compliance assessment checklists available online but these templates don’t always cover your particular state and local workforce laws or industry. That’s why some companies choose to outsource the effort.
The cost of a compliance assessment depends on the scope of the review but you can expect to pay between $1,000 and $2,000. At Complete Payroll Solutions, we charge $1,250 for an assessment. But this expense is almost always a lot less than defending just one lawsuit.
Are There Ways to Save on HR Outsourcing Costs?
As you can see, there’s no single answer to the question, “How much does HR outsourcing cost?” Instead, it really depends on what kind of help your company needs. The good news is that there’s a lot of flexibility when it comes to outsourcing so you can control your costs. Specifically:
- There’s typically no long-term contract required. You can add or delete services as your needs and budget allow.
- It may be helpful to start with a larger project like an overall compliance assessment then scale back the level of support you need based on the results. That way, you won’t be paying for services you don’t need.
- If you have some staff in-house handling HR activities, you can just bring in outsourcing temporarily for some senior-level guidance to help strengthen your team’s capabilities.
What To Do If You Need Outsourced HR
When you’re looking for HR outsourcing help, Complete Payroll Solutions can be a good fit for your business if you:
- Have less than 100 employees and can’t afford to have a senior-level HR professional in-house
- Distribute your HR tasks to people in-house who lack the knowledge to handle them, which can increase your risk
- Want to focus more strategically on growing your business
Outsourcing HR functions is the right choice for many businesses. Learn more about what to consider when outsourcing before choosing a provider. If you think that Complete Payroll Solutions is the best fit for your organization, learn more about the outsourced HR packages we offer.