How Much Do Outsourced HR Services Cost in 2024?
Originally published on July 23, 2024
Updated on August 26th, 2024
A well-oiled HR engine is crucial to every company. But for many growing companies, figuring out how to establish a high-quality HR function is easier said than done.
Outsourced HR services grant companies access to industry-leading HR expertise and much-needed HR support without the expenses of recruitment or managing full-time employees.
But how much will it actually cost your business?
The truth is, there’s no simple answer. Pricing depends on a multitude of factors unique to your organization. Until an experienced HR consultant truly understands your situation, pinpointing an accurate figure is extremely difficult.
But one thing is certain: When it comes to HR, you get what you pay for.
HR is core to your business’s health and success. You wouldn’t entrust your personal wellbeing to a cut-rate doctor or dentist. So why compromise on the quality of your HR partner based solely on cost?
This article will explore how pricing is determined for outsourced HR services, so you can make the best decision possible for your business.
Which Outsourced HR Models Are Available?
When outsourcing HR, you have several options to consider, each with its own considerations and pricing structure:
Professional employer organizations (PEOs): PEOs hire a company’s employees, making the PEO the employer of record for tax and insurance purposes. While some PEOs offer bundled options, pricing is typically based on the number of employees and the services you’re using — meaning the more you grow, the more expensive it will become.
HR technology solutions: For a full-service platform with dedicated support, pricing is usually subscription based, charged either per user or per employee. The amount can vary significantly depending on the amount of tools and personalized services required.
HR consulting firms: Firms like James Moore provide comprehensive, tailored HR outsourcing solutions and strategic guidance. Pricing is typically customized based on the specific services and support required. While technology and per-employee pricing models offer simplicity, the bespoke approach from an HR consulting firm ensures you receive the right level of support optimized for your organization’s needs. In essence, you’re paying for everything you need — and nothing you don’t.
A few more narrowly tailored options exist. For example, some companies may choose to outsource their hiring to a recruitment process outsourcing (RPO) company or payroll to a third-party provider. While these may seem more inexpensive at first, once you add more service providers, it can add up quickly. Plus, you’ll have to navigate the complexity of managing several vendors instead of just one trusted partner.
What Factors Drive the Price of Outsourced HR Services?
Pricing for outsourced HR engagements is not a one-size-fits-all formula. Experienced HR consultants construct tailored cost estimates based on a comprehensive evaluation of each client’s organizational needs, goals and circumstances.
By holistically understanding the specific factors influencing a company’s HR requirements, outsourced HR partners like James Moore can build a right-sized, cost-effective solution.
For example, a 50-person professional services firm with a small internal HR team may only need supplemental support for compliance issues and strategic HR initiatives. Meanwhile, a 300-employee manufacturing company with no HR infrastructure at all would likely require a much broader scope of outsourced services spanning the full employee life cycle. A simple, plug-and-play pricing model would not adequately serve both scenarios.
Below, we’ll explore six factors often considered when pricing outsourced HR services.
Engagement Model
One of the biggest contributors to pricing is the work that needs to be done. In other words, is this a finite project with a clear goal and an endpoint? Or is it an ongoing engagement?
Project-based engagements provide cost predictability but are generally more limited in scope. By contrast, ongoing, subscription-style support offers more flexibility to scale up or down as needs evolve.
For an extended, open-ended HR outsourcing partnership, it’s often best to settle on a monthly retainer fee. This is often driven by the services your business requires, as well as the number of employees it has. For defined, finite initiatives like compensation benchmarking or employer branding, a one-time project fee is more typical. And the fee varies based on the scope and complexity of the project.
By carefully evaluating each of these factors, an experienced HR consultant can build a tailored, cost-effective solution optimized for your organization’s needs.
Scope of Services
While the section above touches on the format of the engagement, the scope of services hinges on depth. In other words, which HR services do you need to outsource?
A company looking to outsource only a few simple tasks will have significantly lower costs than one seeking a full-suite, end-to-end HR solution. The more services required — spanning benefits, compliance, talent management, employee training, HR strategy and more — the higher the overall investment is likely to be.
Complex situations like lawsuits, investigations or high turnover can also increase scope.
Employee Headcount
The size of your workforce directly correlates to the scope and complexity of HR needs.
For example, a small 10-person company may only require basic payroll, benefits and compliance support. A 200-employee organization, on the other hand, would likely need much more comprehensive HR services.
In short, the larger the employee population, the higher the investment required for robust HR infrastructure and support.
Existing HR Capacity
If your company already has an experienced in-house HR manager or team, you might only need supplemental outsourced assistance for specific areas like compliance, recruiting or special projects. However, a company with no internal HR resources would need a provider to fully handle core HR functions, therefore increasing the scope of the engagement.
Or perhaps a business has HR staff in place but lacks the seasoned leadership or deep expertise to direct them effectively. Growing companies often hire HR coordinators or generalists, but don’t have an experienced HR director providing strategic guidance. In this case, an outsourced HR director or fractional leader can be valuable.
Industry and Location
Certain industries like healthcare, finance and government contracting face more stringent compliance regulations and certification requirements for their HR practices, adding complexity to the engagement. Companies in highly regulated sectors need an outsourced HR partner with specialized expertise and resources, resulting in higher fees.
Additionally, employees’ geographic location can impact pricing, particularly if they are spread out across different states or countries (each with unique regulatory requirements.)
In-House HR Teams vs. Outsourced HR: Which is More Cost Effective?
There’s a common misconception that having an in-house HR professional is essential for robust HR. But if that individual is new to an HR role or wears many hats, you may be missing an opportunity to have a robust and strategic HR function. Worse, you might not find out about that critical skill gap until a problem rears its ugly head.
Recruiting and retaining a top-tier HR leader can also be incredibly expensive, especially for smaller businesses.
Outsourcing HR not only provides numerous benefits but also often proves to be the more cost-effective solution.
Here are a few common reasons why:
- You access the outsourced HR provider’s time and deep expertise on a fractional, as-needed basis, which reduces your overall expenses.
- Reputable outsourced HR firms offer a broader knowledge base and more extensive experience than a single in-house employee could provide.
- Specialized expertise and leadership can help even larger organizations with sizable HR teams create more impactful strategy and optimize their operations.
Get a Quote from James Moore’s Outsourced HR Experts Today
Ultimately, there is no one-size-fits-all HR department. Every industry, organization and team is unique, bringing its own challenges and goals. Determining the true cost of those HR services (outsourced or otherwise) requires an in-depth evaluation of your organization’s unique goals and pain points.
While it may be tempting to simply choose the most inexpensive option right away, cheaper in this case is not always better. A more thoughtful approach is to work with an experienced partner to evaluate your needs and craft a package aligned with your organizational needs.
James Moore can work with you to craft a right-size solution perfect for your business, whether you need fractional leadership to guide your HR team forward, full-service outsourcing or something more tailored.
Don’t settle for subpar HR support that could jeopardize your business’s success.
Contact James Moore HR Solutions to discuss your requirements and get a customized quote.
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.
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