How Much Does It Cost to Outsource HR?

As a business owner, your focus is on growing your company. As a result, you may be thinking about outsourcing HR to save yourself the time and effort of managing the responsibility yourself. The next thing you’re probably thinking is: just how much does it cost to hire an HR consultant?

Outsourced HR for startups is a great starting point to create a leaner organization. These services turn your HR department from a consistently high overhead cost to a pay-for-what-you-need model. This can lead to not only cost savings but also company-wide and employee benefits.

In this blog, we’ll break down the HR outsourcing costs—and the costs of not outsourcing HR. Let’s get to it!

How Much Does Outsourced HR Cost?

Human resources outsourcing services cost less than hiring full-time employees to fulfill the same functions. These savings, along with the fact that you don’t have to sacrifice quality, is the primary reason that startups consider partnering with a third-party provider.

In addition, HR outsourcing costs generally are for HR outsourcing services to cover all of your needs. Check out just some of the roles that a third-party provider can fill:

• Recruiting and retaining top talent
• Onboarding and offboarding employees
• Ensuring compliance with legal requirements and internal business practices
• Managing compensation and benefits packages
• Leading training and professional development initiatives 

To see some of these human resource outsourcing examples in action, check out the case studies on our website:

• Milestone’s HR function brings continuity to Base, allowing the company to grow quickly and globally
• Milestone Brings Back Office Synergy to Jackrabbit Learning Experience

To find out how you can leverage these benefits for your own startup, give us a call.

Is Outsourcing HR a Good Idea?

Outsourcing some or all of your HR needs isn’t just a good idea financially; doing so can also have the following benefits:

• Attracting best-in-industry talent
• Reducing employee turnover
• Improved team morale
• Complying with legal requirements

Are you searching for the best HR outsourcing for a small business? Start with Milestone. Our team is ready to benefit yours with:

• Specialized approach tailored to your business
• Transparent pricing
• No long-term contracts required

Give us a call to learn more!

Is It Cheaper to Outsource HR?

It is cheaper to outsource HR rather than trying to cover all of your needs in-house. Let’s take a look at how much money you could be leaving on the table. According to Glassdoor, the average salary of an HR professional is $78,604 per year, per employee (in 2023). That’s about $6,500 per month. Using our above estimate of outsourced HR services costing $500 to $2,500 a month, these outsourced services could save your business between $4,000 and $6,000 a month!

On average, outsourcing HR costs about half of what it would cost to keep a full time HR employee in-house. This means that companies can save 50% by outsourcing HR vs hiring an in-house staff member.

How could your startup reinvest these cost savings? 

How Does HR Outsourcing Reduce Costs?

One of the first questions asked when it comes to HR outsourcing is, “Is outsourcing HR cost effective?” The simple answer is: Yes! But knowing exactly how much it will cost really depends on what kind of help your company needs. The good news is that there’s a lot of flexibility when it comes to outsourcing so you can control your costs. Here are a few ways that HR outsourcing can reduce costs:

• Typically, there’s no long-term contract required. You can add or remove services as your needs and budget allow.
• It may be helpful to start with a larger one-time project like an overall compliance assessment then add a retainer when you understand the ongoing level of support you need. That way, you won’t be paying for services you don’t need.
• If you have some staff in-house handling HR activities, you can bring in outsourcing temporarily for some senior-level guidance to help strengthen your team’s capabilities.

How Much Does Outsourcing HR Cost Per Hour?

How much outsourced HR services cost per hour depends on both which provider you partner with and which services you need. That being said, most startups can expect to spend $750 a month on the lower end and $3,000 a month on the higher end for outsourced HR services.

If you have a tight budget, you can still benefit from specific services that target a high-impact area in your business. For example, hiring outside help to revamp your compensation and benefits packages can illuminate ways to attract top talent that will propel your startup forward.

If you’re looking to invest more in your business, it’s valuable to note that improving your HR systems positively affects the output of the rest of your teams. Level up your recruiting and training processes, and you’ll notice your sales team taking flight, for example. 

The way companies charge varies widely when it comes to HR outsourcing. Some different ways that companies will charge you include a flat fee by service, hourly, by pay period, monthly, annually, per employee per month, or a percentage of each employee’s income.

No matter how companies bill, your cost will vary based on several factors, such as:

• Services needed and whether they’re purchased individually or bundled
• The complexity of your HR needs
• Number of employees

Since there’s so much variation, let’s look at an HR services price list to see estimated costs for the most commonly-used HR outsourcing functions. 

What Factors Have Influenced the Cost of Outsourcing HR

Outsourcing HR functions can be a game-changer for businesses, especially for startups aiming for growth with optimized overheads. The decision to outsource HR begs a pivotal question: what will it cost? Understanding the factors influencing the cost of outsourcing HR is crucial for business owners to make informed decisions. This section delves into the key elements that affect the price of hiring an HR consultant or services, providing insights into how you can navigate these waters with clarity.

Services Required

The range of services you opt for has a significant impact on the overall cost. From recruiting, onboarding, compliance checks, to ongoing support—each service adds to the bill. Companies must evaluate their needs meticulously, whether they require a comprehensive package or selective services to address specific HR functions.

Complexity of HR Needs

The more complex your HR requirements, the higher the cost. Complexities can arise from various factors, including the nature of your business, industry-specific compliance requirements, and the intricacies involved in managing a diverse workforce. Specialized services tailored to navigate these complexities can escalate costs.

Number of Employees

The size of your workforce is directly proportional to the cost of outsourcing HR. More employees mean more work in terms of payroll processing, benefits administration, and handling employee relations. Providers often charge based on the number of employees, making scale an important consideration.

Billing Models

HR outsourcing companies adopt various billing models—hourly rates, flat fees, per employee per month, or a percentage of employee salaries. The choice of model affects the total cost significantly. Businesses should understand each model’s pros and cons and select the one that aligns with their financial and HR operational goals.

Bundling vs. A La Carte Services

Some providers offer cost-effective bundles that include a set of HR services at a discounted rate compared to purchasing each service separately. However, bundled services may include offerings that a business doesn’t need. On the other hand, a la carte services provide the flexibility to choose only what’s necessary but might end up being more expensive in total.

Experience and Expertise of the Provider

The expertise level of the HR outsourcing provider can also influence cost. High-caliber professionals or firms with a proven track record and specialized industry knowledge typically command higher fees. However, investing in quality services can result in long-term savings and benefits that outweigh the initial costs.

Geographical Location

The cost of outsourcing HR can also vary by location. Providers in high-cost areas may charge more due to their operational costs. Additionally, local regulations and market standards can influence pricing. Companies might consider providers from different regions to find cost-effective solutions without compromising on service quality.

Long-term Contracts vs. Flexibility

Some providers offer discounts for long-term contracts, which can be cost-effective for businesses with stable, ongoing HR needs. However, flexibility comes at a premium. Businesses opting for no long-term commitments might face higher monthly rates but benefit from the ability to scale services up or down as needed.

As you can see, numerous factors influence the cost of outsourcing HR. Businesses must assess their unique needs, workforce size, and the value of specialized expertise against the backdrop of these factors. By doing so, they can find a cost-effective HR outsourcing solution that not only fits their budget but also supports their strategic objectives and growth.

What Services Can HR Consultants Provide?

Employee Handbook Creation

An employee handbook contains crucial information about workplace policies and procedures and can be an important document in limiting your potential legal liability and costs. In fact, the average employment lawsuit award is about $200,000. 

With all the legal and regulatory changes impacting the workplace, it can be challenging to stay on top of regular—and necessary—updates to your guide. Instead, you may want to outsource the development of a handbook that fits your business. 

The general range for an HR consultant to create an employee handbook is $500 to $2,000. Some outsourced HR companies will include the handbook as a part of other general services.

Top Talent Recruiting

Hiring takes a lot of time. If you’re a small, growing business without dedicated HR staff, recruiting can detract from activities that generate income.

Recruiting can include everything from job descriptions and postings to sourcing and screening candidates. For these services, HR consultants may charge a flat fee based on the salary of the position you’re trying to fill, set up a monthly retainer, or bill hourly for the consultant’s time to manage the back-end posting and logistics. Each HR provider sets its own fees so these can vary widely, making it difficult to provide a range you could expect to pay. 

Oftentimes a recruiting or executive search company will charge a percentage of a new hire’s first year’s salary. With this approach, it can cost you between 20-40% of a worker’s salary.

Compensation Strategies

Making sure your compensation strategy is structured to properly incentivize employees and enhance retention is essential to achieving your organizational goals. 

There are really two approaches you can take to compensation. Your first option is to benchmark one position. That way, you’ll learn the value of the job in the geographical location and understand the salary for the 25th, 50th and 75th percentile.

Alternatively, you may want more in-depth support like a complete compensation plan that assesses all positions, their compensation ranges, whether they’re aligned with market rates, and if you should include incentive pay or offer base salaries only.  For that approach, you’ll likely pay a consultant an hourly fee, which generally ranges from $100 to $250 per hour. Some companies can also charge a flat fee based on the number of roles they are analyzing. Working with an outsourced HR consultant on compensation can also help you assess your benefits program and whether you are offering benefits that you employees value the most. 

Compliance Assessment

Because of the potential for steep fines and penalties, compliance is one of the biggest reasons companies outsource HR. When you bring in an outsourced HR vendor, they’ll review your policies and practices to see if you’re compliant with employment laws and regulations like those governing wages and hours, leave, and discrimination, among others.

The cost of a compliance assessment depends on the scope of the review but you can expect to pay between $1,000 and $5,000 for a one-time project plus potential additional fees  if there are follow up services required. 

Recurring HR Support 

HR Services firms can be contracted to fill in gaps in expertise and execution for HR services for small businesses that lack a defined hr structure. This type of recurring support can be a great fit for companies that want to give resources to their teams and employees but can’t yet hire full time HR in house. 

In this case, you will pay a fixed monthly fee or per employee per month cost for access to HR expertise that can run the gamut of all the services listed above including HR strategy and execution. 

What HR Functions Should Not Be Outsourced?

Some HR functions, like hiring and firing, should not be entirely outsourced. While you can outsource the bulk of onboarding and offboarding tasks, you should still have an internal stakeholder involved with important decisions, like who you decide to hire and when it’s time to fire an employee.

The good news is that by working with an external HR services provider, your internal team members will have more bandwidth to focus on those highly impactful decisions.

What Is the average cost of HR per employee?

According to Gartner, the average cost of HR per employee is between USD 1,350 and USD 3,800 for each employee. Many small business owners don’t factor in the cost of HR when hiring employees, but it is important to factor in these costs from day one. Having a dedicated outsourced team can help business owners save money while providing the best services for their employees.

Give Your Startup a Back Office Competitive Edge with Milestone’s HR Services

When looking for HR outsourcing providers, money talks. In the startup space, it also pays for your teams, marketing, research initiatives, IT infrastructure, and so much more. While money doesn’t grow on trees, you can find more of it in your budget by working with third-party HR outsourcing companies.

When you outsource HR services with Milestone, you can rest assured we have experience partnering with startups to provide impactful HR solutions that get the job done, save money, and benefit the rest of your business. Contact us to learn more about how our team can help you.