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HR Outsourcing: Pros, Cons, and Alternatives

As your company grows, there may come a point when you have to ask yourself: Does it make more sense to meet all of your HR needs in-house, or should you outsource them to a third party? Even if you’re an established company, you may launch a new initiative or face new regulations that require a larger team or specialized expertise.

HR outsourcing has its advantages, such as improved scalability and HR compliance, but it can also present some challenges related to cost and company culture.

Here’s what HR professionals need to know about HR outsourcing services, including their pros and cons, and some alternative options to consider.

What Is HR Outsourcing?

Human resources outsourcing (HRO) is the practice of hiring a third party to perform some or all of your HR functions. For example, a small business owner without the resources to handle payroll processing in-house may hire a third party to do it.

HR outsourcing doesn’t have to replace your in-house team completely. Even large or midsize businesses with a full-time HR department may find it beneficial to outsource payroll services or other processes to an HR outsourcing company.

Businesses typically look for HR outsourcing solutions when they’re growing quickly and can’t keep up with administrative tasks, or when they need comprehensive HR support to move forward with a strategic initiative or reach organizational goals.

Benefits of HR Outsourcing

Outsourcing your HR needs to a third party can take some of the pressure off of your HR department. Here are three ways your entire organization might benefit:

Cost Savings

The best HR outsourcing services can save you time and money by using the latest software tools and industry know-how to streamline HR processes. HR outsourcing could be more cost-effective than performing the same HR tasks in-house.


Some areas of HR management are complex, and your team may not be prepared to handle all of the paperwork or compliance issues that come with growing your business or entering a new market. It may make sense to turn to HR professionals that specialize in health care, risk management, or navigating the ADA interactive process.


HR outsourcing can also help your company scale more quickly. Instead of having to expand your HR team so you can recruit and onboard new hires yourself, you can rely on an external service provider to streamline things like talent acquisition, employee benefits administration, and performance management.

HR Tasks That Can Be Outsourced

HR outsourcing: HR manager using a laptop

HR outsourcing options range from service providers that focus on specific business needs, like staffing or payroll, to full-service HR solutions that handle all of your HR processes so your team can focus on other things like employee relations.

Here are five areas of HR administration suitable for outsourcing:

Payroll and Accounting

Payroll administration is one of the most common HR functions to outsource for small and large businesses alike. Small companies may not have the resources to take care of payroll in-house, while large businesses may have to navigate payroll, taxes, and other accounting needs across multiple states or countries.

It may be more cost-effective to hire a payroll processing company to track employee attendance, handle payroll deductions, and send out end-of-year tax documents.

Employee Benefits Administration

As employee benefits packages get more complex, it’s important to have a system in place to administer benefits accurately. From health insurance to retirement plans, HR outsourcing services can help you streamline the benefits administration process and enable you to provide more desirable benefits to employees.

You can also use benefits administration software like Pulpstream so your employees can log into a self-service portal to view and access their benefits online.

Claims and Incident Management

Although you can’t outsource workplace safety entirely, you can outsource tasks like claims management and incident management to ensure that workplace issues are acted upon promptly, and that you comply with all relevant employment laws.

HR outsourcing services and software tools can also make it easier for employees to claim workers’ compensation or disability benefits following a workplace incident.

Talent Management

If your company is growing quickly, recruiting and onboarding new hires can take up a significant amount of your HR team’s energy. HR administrative services that focus on recruiting can take care of job descriptions and postings, applicant tracking, and other human resources functions throughout the hiring process.

Outsourcing or automating employee onboarding can also provide a better experience to new team members and improve employee satisfaction and retention.

Leave of Absence Management

As your company grows, you’ll need to be aware of state and federal leave laws that kick in once your company reaches a certain size. For example, employees may be entitled to 12 weeks of leave under the Family and Medical Leave Act (FMLA) if you have 50 or more employees, so you may want to consider FMLA outsourcing.

Outsourcing absence management services can help to ensure compliance, as can using leave of absence management software like Pulpstream.

Risks of HR Outsourcing

Although it can have its advantages, HR outsourcing isn’t always the right solution. Here three things to consider before choosing an HR outsourcing service:


The cost of HR outsourcing will depend on how many employees you have, which HR services you want to outsource, and other factors. You’ll need to weigh up the cost of outsourcing against the cost of having your own in-house team.


Choosing an HR service provider requires some shopping around, and it will take time to get them up to speed on the operations of your business. In some cases, it may be more efficient to expand your in-house team and take care of matters yourself.

Company Culture

Finally, outsourcing HR functions to a third-party involves giving up some control. While you’ll still be responsible for operational and strategic decisions, your employees will be dealing with an external service provider for many of their HR needs. This can have an impact on company culture and employee satisfaction.

Alternatives to HR Outsourcing

Not sure if HR outsourcing is right for you? Here are two alternatives to consider:

Use a Professional Employer Organization (PEO)

A professional employer organization is similar to an HRO service provider, but it works a little differently. In this case, the PEO is considered your “co-employer” and does the administrative work for you. They’ll take care of payroll, employee benefits, tax forms, and more — and will be the “employer of record” on paper.

PEO services may be a good fit for small to midsize companies, since you’ll have less complexity and a more predictable pricing model than HRO services.

Automate Tasks With HR Software

Upgrading your HR software can be a great way to streamline your HR operations while still retaining the benefits of an internal HR team. By automating repetitive and recurring HR tasks, you’ll be able to simplify complex processes like leave management and free up your team members to focus on other areas of the employee lifecycle.

Using a cloud-based system like Pulpstream can speed up your digital transformation and empower your employees to take charge of their own HR needs. From submitting time off requests to choosing their own employee benefits, a streamlined HR system can help your organization attract and retain top talent.

Empower Your HR Team With Pulpstream

Curly-haired entrepreneur using a laptop

HR outsourcing can save businesses time and money by delegating complex tasks to third-party HR specialists. HRO service providers can handle everything from payroll processing to talent management, reducing errors and ensuring compliance.

Although outsourcing has its place, you can also save time and money by empowering your in-house team with cloud-based automation. Pulpstream simplifies complex HR processes by allowing you to automate recurring tasks and streamline workflows.

From pre-filling FMLA forms digitizing the employee onboarding process, you can use Pulpstream to automate HR processes without any coding.

Request a demo today and learn how to empower your HR team in just 30 minutes!