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7 Ways to Know It's Time to Outsource to a PEO

7 Ways to Know It's Time to Outsource to a PEO

Human Resources (HR) plays a pivotal role in the growth and sustainability of any organization. It encompasses a broad range of functions, from recruitment and payroll to compliance and employee development. Sometimes, it makes sense to handle most or all HR functions internally, but often there are times in a company’s lifecycle where it makes sense to outsource.

Outsourcing can offer numerous advantages, including cost savings, access to expertise, and enhanced efficiency. However, identifying the right moment to make this transition is crucial for leveraging these benefits fully. How can you know when it’s time to outsource some or all of your HR work to a Professional Employer Organization (PEO) or other HR vendor? Here are seven signals that your organization could benefit from outsourcing.

7 Signs Your Business Should Consider Outsourcing

  1. Your organization has reached the "sweet spot" size
  2. You lack needed capacity in-house
  3. You're not meeting HR-related goals 
  4. You need a HR strategy
  5. Your business is expanding
  6. You want better results
  7. You want to out-compete competitors

1. Your Organization Has Reached the "Sweet Spot" Size

Enterprise-sized organizations often don’t need to outsource; they are able to build fully functional in-house HR operations (although even these are often supplemented with purpose-specific HR consulting or services, like payroll). At the opposite end of the spectrum, a new startup or small business might lack the funds to outsource, necessitating a do-it-yourself approach to managing HR, at least until they get some cash flow or investment capital.

Between those two extremes lies the sweet spot: small to midsize businesses often enjoy the best “bang for their buck” when it comes to outsourcing. At this size, it doesn’t make sense to invest in building extensive HR teams, but company leaders will generate more growth and revenue if they focus fully on core work rather than HR.

This is also the kind of business most likely to outsource to a PEO: "Almost two-thirds of all PEO clients have between 10 and 49 employees,” reports the National Association of PEOs (NAPEO).

2. You Lack Needed Capacity In-house

In the early stages of a business, it's common for leaders to juggle multiple roles, including HR management. This might be manageable with a smaller team and fewer clients, but as the company grows, so too do the demands on leaders' time. Eventually, HR tasks can fall by the wayside, leading to neglect of this critical area, or they can consume time that could be better spent on strategic growth activities.

In other words, either the HR work suffers, or the revenue-producing work does. That is an untenable—and entirely avoidable—situation. When you reach this point, stop doing it all. It's time to outsource.

This also applies even if you have internal HR staff, but the volume of HR work outstrips their capacity or capabilities. This is a common problem: according to the Society for Human Resource Management (SHRM), nearly 75% of HR professionals report being overstretched, indicating a widespread need for external support. Nearly half (42%) believe that limited time and personnel present the “biggest barrier to achieving organizational priorities.” Again, in this situation, it’s time to outsource.

3. You're Not Meeting HR-Related Goals

If your organization is struggling with talent acquisition, employee performance, or specific HR-related issues such as high employee turnover, compliance mishaps, or payroll errors, it may be time to consider outsourcing. Often, internal teams, even with the best intentions, lack the time or expertise to tackle these challenges effectively—and often they don't possess HR-specific expertise in the first place!

So, if your organization is struggling with specific HR processes or falling short of performance expectations, outsourcing to HR specialists can provide the focus and expertise needed to address these issues head-on, improving overall HR performance in the long term.

4. You Need a HR Strategy

As organizations mature, the role of HR evolves from focusing primarily on administrative, transactional tasks to playing a strategic role in achieving business objectives. In other words, in early days, HR’s main (or entire) focus is on executing payroll promptly and accurately, as well as managing benefits packages and retirement plans. Eventually, however, HR becomes more integral to overall business performance. PEOs excel here because they can offer the expertise necessary and the big-picture vision to craft a tailored HR and workforce strategy.

Organizations can take this evolution of their HR operation in one or both of a couple of different directions. One is to outsource the administrative labor, freeing internal staff to focus on strategic, high-value initiatives.

Another is to hire HR consultants who specialize in strategy, to equip your organization with a strategic approach to engaging, managing, and building its workforce and aligning HR with larger business goals. Either way, if you want to turn HR into a true value-driver, it will likely help to find an outside HR partner.

5. Your Business is Expanding

Expansion, whether through geographic growth, launching new products or services, acquiring other businesses, or developing new brands, brings with it complex HR challenges. No matter the form of expansion, there will inevitably be an HR dimension.

Navigating employment laws in new jurisdictions, integrating workforces, and aligning HR practices with new business strategies all necessitate a level of expertise and flexibility that outsourcing can provide, smoothing the path of expansion projects. In short, as your organization evolves, your HR needs grow with it, and this is often a smart point at which to get outside help to facilitate and ease growth.

6. You Just Plain Want Better Results

The benefits of outsourcing HR are quantifiable and significant. Using a PEO is often particularly impactful because clients can leverage not just their subject matter expertise but also the economy-of-scale pricing advantages they can generate. On average:

  • PEO users grow 9% faster than comparable businesses that don’t use a PEO.
  • PEO users are 50% less likely to fail than non-PEO users.
  • PEO use results in administrative costs about $450 lower per employee on average.
  • The cost savings from using a PEO is $1,775 per year per employee.
  • PEO users have been found to have turnover rates 10 to 14 points lower than non-PEO users.

Simply stated, outsourcing HR can have a transformative impact on a business's bottom line and overall health.

7. You Want to Find a Way to Out-Compete Competitors

HR can itself be a source of competitive advantage. A strong HR program can be instrumental in attracting and retaining top talent, engaging employees effectively, and thus driving superior performance. In some cases, outsourcing may even be necessary just to keep up with what competitors are achieving.

HR Dive's Identity of HR Survey found that use of outsourced payroll services jumped 15% year over year, staffing services increased 11%, and benefits 4%. More and more companies are leveraging outsourcing to their advantage; don't get left behind. The increasing use of outsourced services across various HR functions underscores the importance of staying ahead in the HR domain to maintain or gain a competitive edge.

Ready to optimize your HR operations and boost business productivity? Consider partnering with CoAdvantage, a nationwide Professional Employer Organization (PEO). With our comprehensive and cost-effective HR solutions, including but not limited to: HR administration, HR technology, workers' compensation management, and tailored health insurance packages. From payroll to compliance and risk management, we've got you covered. 

Let us handle the complexities of HR management so you can focus in growing your business. Fill out the form below to discover how CoAdvantage can support your company's success!