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Should Your Startup Hire an HR Firm?

Tracy Collins Ortlieb

Contributor at StartupNation
Tracy Collins Ortlieb is a digital marketing writer, editor and former daily news journalist who loves the art of crafting a compelling story. She also writes about legal issues in everyday life on the Avvo Stories blog. Avvo is a legal marketplace that offers quick, personalized, and flat-rate services, such as filing for divorce online.

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Most small business owners understand the frustration of spending time on non-revenue generating activities. Be it recruiting and compensation or benefits and training, managers and directors can spend a significant proportion of their workweek engaged in necessary but time-consuming human resources tasks.

The answer may lie in outsourcing part or all of your human resource functions to third-party providers, allowing you to focus on your core business.

Why outsource HR?

Companies that opt to outsource HR functions do so for a variety of reasons, from juggling day-to-day tasks with high turnover to lacking the financial resources to employ a full-time HR staffer.

Overwhelmingly, the most important reason that businesses outsource HR functions is the need to comply with local, state and federal employment laws and regulations. A skilled HR person has a keen understanding of hiring rules, EEOC requirements, collective bargaining agreements, recruiting and training, and has to be able to find job candidates to fill your staffing needs.

Some HR managers oversee payroll, as well. The HR manager must understand potential liability in hiring or managing workers, and if he or she oversees payroll, any prospective run-ins with the IRS. By outsourcing HR, you give responsibility to someone who is specifically trained in the practical and legal aspects of HR.



How does HR outsourcing work?

Some small businesses use HR outsourcing as a long-term solution to meet all HR needs or to supplement existing HR staff. Others use HR outsourcing on an interim basis to cover for HR staffers out on leave or to stand in until HR positions have been filled by new hires.

In some cases, outsourcing provides an interim solution while HR systems and infrastructure are being implemented or updated. The outsourcing team fulfills the daily HR responsibilities while the business positions itself to bring a new, improved HR operation back in-house. With the new infrastructure in place, the company can hire a less-experienced (and lower salaried) HR professional to take over daily functions.

An HR outsourcing arrangement can involve performing work on-site at a client’s office, off-site at the provider’s office, or both. But frequently, an off-site model is preferable, because the hiring company stands to save costs on office rent as well as on in-office equipment. Contrary to popular wisdom, operations often go more smoothly when a consultant performs HR tasks off-site, as opposed to rigidly adhering to a fixed on-site schedule. No matter where the HR operation physically resides, a good HR outsourcing provider makes itself available at the client’s convenience.

What to look for

Whether your company hires a sole consultant or a firm, you should expect the candidate to get a solid understanding of your needs before quoting you a fee. To do so, the candidate typically reviews your current records, systems and processes and interviews staff members about their needs and wants from the engagement. Once this assessment is complete and gaps and redundancies have been identified, the candidate should provide a formal letter of engagement. At this point, you’ll want to have a business attorney review the letter and draft a consulting agreement.

Once formalized, the engagement involves various phases. Phase one outlines the services necessary to bring HR functions in line with best practices: a new or revised personnel policy manual, an effective performance system, a benefit review and so on. In phases two and three, monthly and annual (end-of-year) services can be defined and priced.

To determine what your business can afford from both a budgetary and a compliance standpoint, you and the consultant or outsourcing firm should estimate fees for each task. Although you can intentionally delay some issues, you should draft a schedule to ensure implementation over an established period of time.



Guaranteeing success

Small businesses no longer have to settle for in-house HR employees who lack expertise, nor should they forgo additional staff because they lack the resources for a full-time hire. With HR outsourcing arrangements, your company can gain the flexibility, staffing and skills you need to perform everyday functions as well as comply with vital regulations. By implementing best practices, an outsourcing arrangement may ultimately save your small business time and money. Moreover, it can ensure good management of your most valuable asset—your employees— and free you up to concentrate on your core business.

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