6 Signs Your In-House HR Team Needs Outsourcing HR Support

When your computer is running smoothly, you may not pay attention to the background processes. But an overloaded system slows down everything or worse, causes the dreaded blue screen of death.

For many businesses, the internal human resources department is that background processor, quietly keeping the company running. However, when things start to break down, it’s often the HR functions that are overwhelmed. This is when outsourcing HR services can relieve pressure on your in-house HR team and improve overall efficiency.

A struggling HR department often shows signs before complaints arise. That’s the time to consider HR outsourcing functions to avoid greater disruptions. Instead of waiting for a crisis, look for signs that your HR team may need support through outsourcing HR services or a professional employer organization (PEO).

1. Your Expense-to-HR and Employee-to-HR Ratios May Signal the Need for Outsourcing HR Services

Most businesses with a healthy balance sheet keep a close eye on ratios like revenue per employee. But these aren’t the only important metrics. Certain HR functions can also significantly impact revenue, even if their effects aren’t immediately obvious.

One crucial figure is the HR-to-employee ratio, calculated by dividing the number of HR professionals by the total number of full-time employees (FTEs), then multiply that number by 100:

(HR / Total FTEs) x 100

For example, if your business has 135 FTEs and two on-site HR staff, your equation will look like this:

(2 / 135) x 100 = 1.48

Your HR ratio would be 1.48.

But what makes for a good HR-to-employee ratio? The answer to that isn’t always straightforward. According to the Society for Human Resource Management (SHRM), the average HR-to-FTE will vary notably based on the size of the business:

• Small businesses (1-250 employees):40 
• Midsize businesses (250-1000 employees):22
• Large businesses (1001+ employees):03

A lower-than-average HR-to-employee ratio may be an early indication that your HR managers are heading for burnout. Overworked employees tend to be less productive, less engaged and more likely to quit (among other issues) due to poor employee satisfaction.

Your HR managers are typically responsible for handling employee issues across your organization. But who handles it when these problems are within your HR department?

Consider what’s happening with your business to determine if your HR-to-employee ratio is placing undue strain on your in-house HR team. There are situations when a lower-than-normal average for your size is manageable.

During periods of rapid growth or scaling, outsourcing HR services or working with an HR outsourcing provider can bring much-needed support, by taking on HR administrative tasks and employee management or other key functions.

HR-Expense-to-FTE Ratio

How much are you allocating for HR needs, including personnel, advanced HR technology or outsourced HR services? On average, small businesses spend more per full-time equivalent (FTE)on HR functions compared to midsize businesses and large enterprises. According to SHRM, the HR-expense-to-FTE ratios (meaning the number of human resources dollars spent per FTE) are as follows:

• Small businesses (1-250 employees): $3,592
• Midsize businesses (250-1000 employees): $1,897
• Large businesses (1001+ employees): $1,427

While it may seem counterintuitive for smaller companies to have higher HR cost per employee, SHRM explains that early development HR functions often require higher infrastructure costs and outside HR consulting investments.

In contrast, larger businesses may have already established their HR infrastructure, reducing their reliance on HR outsourcing services. However, smaller businesses should invest in more resources like a HR outsourcing services and specialized HR expertise as they grow, helping to streamline HR functions and mitigate risk.

To calculate your HR-expense-to-FTE ratio, divide your total HR expenses by the number of FTEs. For example, a budget of $200,000 with 50 FTEs ($100,000 /75) would give an HR-expense-to-FTE ratio of $1,333. This is below average, and it could be a sign that your HR functions need assistance — especially if both this and your HR-to-FTE ratio are below average.

While this ratio provides valuable insight, it’s not the only factor to consider when evaluating your HR department. Check the pulse of your team on a regular basis. Look at the day-to-day administrative tasks, operations and strategic initiatives to find warning signs that your on-site HR department is struggling. Consider adding staff or an HR outsourcing firm for support or specialized HR expertise. Don’t wait until turnover creates a crisis for proactive HR administration, workplace safety and risk management.

2. Basic HR Tasks Are Taking Longer to Complete

Your in-house HR staff likely wears several hats. In fact, many such teams handle nearly a dozen or more mission-critical HR responsibilities, including (but not limited to):

• Recruitment
• Cost savings
• Talent management
• Payroll processing and payroll administration
• Employee benefits management
• Updating policies
• Risk management
• Managing employee records
• Executing disciplinary actions
• Researching and staying up to date with federal, state, and local employment laws
• Organizing employee engagement activities
• Handling interpersonal disputes and employee relations
• Creating and sending communications to employees

Larger corporations benefit from having departments dedicated to specific HR tasks, like payroll administration. But for smaller companies, those few on-site HR members may be responsible for almost everything. That could mean important tasks take longer to complete, potentially creating delays in overall HR responsibilities and realizing some of your business goals.

If you notice a slowdown for HR tasks, your HR managers may need additional support such as a HR outsourcing company. Outsourcing can provide relief by taking on HR administrative tasks and ensuring timely completion of responsibilities like employee management, HR technology implementation and compliance with employment laws.

3. HR Tasks Are Being Delegated to Non-HR Staff

On-site HR functions struggling to manage administrative tasks may begin delegating HR tasks to non-HR staff members. You might start by shifting HR responsibilities that don’t require access to confidential employee information such as employee benefits or payroll administration. These tasks include employee engagement activities, writing and sending business-wide communications, and some recruitment and hiring activities.

Having non-HR employees participate in a limited portion of HR responsibilities can be a feasible option. People often enjoy planning and carrying out employee events, for example. And when it comes to recruitment and hiring, experienced team members may have a better idea of whether a potential new hire is a good fit.

However, tapping into non-HR resources too often may pull them away from their core duties. That doesn’t solve the problem; it just moves the slow down to other areas. When this happens, it indicates a need for outsourced HR support, including outsourcing HR administrative tasks and other essential services.

4. Slow Hiring is Delaying Growth Plans

Start-up culture may be all about working 18-hour days, but that’s hardly a sustainable or healthy environment for anyone. Staffing at appropriate levels to handle your strategic growth plans should include staffing up your internal HR department or considering HR outsourcing cost.

Human resources tasks are often underestimated when it comes to the time required. As HR professionals take on more responsibilities, the increased workload can cause delays in key processes like hiring. This can lead to missed growth opportunities and hinder your plans.

Business owners with growth ambitions know that slow hiring can delay timelines. While hiring delays may not always stem from overwhelmed HR staff, your HR department’s ability to efficiently manage hiring is crucial. Overburdening them with administrative tasks like payroll processing or benefits administration without support, whether through additional staff or an HR outsourcing company, can slow down growth.

To keep your plans on track, consider HR outsourcing services to help manage recruitment and other essential HR responsibilities. Outsourcing HR functions like recruitment, HR administration and employee management can provide your HR team the relief they need to focus on meeting your business’s hiring goals. Don’t let overloaded HR tasks be the bottleneck to your success.

5. Your Employee Engagement Scores Are Either Low or Declining

Employee engagement measures overall employee satisfaction, how connected employees feel to their roles and their commitment to the company’s success. While there are various ways to measure engagement, surveys with a sliding scale from 1 (low) to 5 (high) are commonly used.

Regardless of your method, low or declining employee engagement scores are cause for concern. Though your in-house HR team may not directly cause low engagement, their ability to improve employee satisfaction and manage employee relations could be limited by their workload. If basic HR tasks like benefits administration or employee management are taking too long, it may impact engagement.

Outsourcing HR services or working with an HR outsourcing provider can free up your HR team, giving them more time to focus on strategies to boost engagement. As companies grow, using outsourced HR services for administrative tasks can ensure your HR professionals have the time and resources to address the root causes of low engagement.

6. Your Internal HR Team Is Begging for Help

It may seem obvious, but when your internal HR administration is expressing frustration about being overworked, it’s time to take action. Consider ways to delegate HR duties, such as partnering with an HR outsourcing company or a professional employer organization (PEO) to relieve some of the burden.

HR professionals are typically some of the most diligent workers on your team, managing tasks like risk management, payroll processing, and employee benefits under tight deadlines. However, even the most dedicated human resources teams have limits. When they begin to voice concerns, it’s a clear sign that your business may benefit from outsourcing HR services to handle HR administrative tasks and ensure HR needs are met.

How do I support my human resources department?

The answer is straightforward: the same way you’d support any team showing signs of strain. Regular check-ins and listening to their concerns are key. There are several ways to extend support, such as investing in HR software or advanced HR technology but consider alleviating pressure by bringing in additional help. This could involve:

• Outsourcing HR tasks to a HR consulting firm or service provider to address common challenges
• Hiring a full-time or part-time HR outsourcing company or HR provider
• Bringing in specialized HR expertise or an outsourced HR service for additional support

Each of these outsourced HR avenues has value, so consider your budget, growth plans and your team’s specific struggles when exploring them. And ensure your on-site HR staff is directly involved in the discussion and decision. After all, they’ll likely have the best understanding of how you can support them.

Ready to bring in the right support for your HR department? Contact a trusted HR outsourcing provider today to explore how outsourced HR services can meet your team’s unique needs and drive success.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.