Why You Should Consider Outsourcing Essential HR

Table of Contents

• The Role of Essential HR in Today’s Workplace
• Moving Beyond the “DIY” HR Phase
• Essential vs. Strategic: How Outsourcing Essential HR Unlocks Growth
• Enhance Cost Efficiency with a PEO Partner
• Your Best Option for Outsourcing Essential HR
• FullStack PEO: More Than Just a Service Provider
• Frequently Asked Questions (FAQ)

Key Takeaways:

• Outsourcing essential HR frees up organizational time to focus on strategic HR and the initiatives that help retain people
• Working with a PEO helps manage HR compliance and ensures that you’re covering all of your compliance bases
• Working with a PEO to handle essential HR takes administrative and compliance burdens off your team’s plates so you can focus on what’s most important

As the office evolves into its modern state—emphasizing community and focusing on the people side of the business—it’s only natural that HR’s focus shifts as well. If you have an internal HR department, they need time and space to foster cultural and strategic initiatives for the organization’s employees, not just to support the administrative side of HR. 

HR is no longer solely a resource for payroll support or employee benefits, and arguably it never was. According to High5 Test, 88% of job seekers say company culture matters when choosing an employer, and 86% would avoid companies with a bad reputation. Culture doesn’t just impact your team’s job satisfaction—it goes much deeper than that. It influences employee retention, productivity levels, and overall business outcomes. Culture matters now more than ever, and when it is lacking, your organizational success follows. Studies show that organizations with healthy cultures see an 18% increase in productivity and up to an 85% increase in revenue.

While culture is undoubtedly the “soul” of a company, it cannot thrive if the foundation is broken. Beyond culture and strategic HR initiatives, your organization’s core is essential HR. While strategic HR is working to cultivate your company’s soul—uplifting your mission, vision, and culture—essential HR is ensuring your company can function day-to-day, filing paperwork and managing compliance.

For your organization to reach its full potential, don’t think of the two functions as essential vs. tactical HR. Thriving organizations require essential and tactical HR, not one over the other. Your team can’t foster a healthy work culture if essential HR isn’t addressed first. After all, if employees are having issues with consistent pay or benefits, it’s unlikely for a positive culture to exist in the first place. Ensure your essential HR functions are managed effectively. Let’s review the key benefits of outsourcing essential HR for your organization.

The Role of Essential HR in Today’s Workplace

The role of essential HR isn’t just paperwork. It is the risk management and stability that allows a CEO to focus on their team and the organization’s success. Essential HR ensures all the I’s are dotted, and the T’s are crossed, so your organization can function at its highest level every day. Without an internal HR department, these tasks often fall on the founder, who, with about a million other priorities, now has to add essential HR to the list. 

Here’s where the benefits of outsourcing essential HR come into play. Meticulous tasks such as payroll and compliance, background checks, onboarding new employees, and handbook updates are handled with expertise when leaders use essential HR outsourcing services. Outsourcing payroll and compliance ensures that these time-consuming but essential tasks are handled with care. Just as importantly, it also allows your leadership team to focus on supporting your people and on developing the company culture as a whole. 

Companies with the highest retention rates have dedicated HR initiatives that shape and sustain their company’s work culture. By investing in your culture, you’re reinvesting in your business. A study by Glassdoor found that “companies with strong cultures had a turnover rate of just 13.9% compared to 48.4% for companies with weak cultures.” Every time you experience turnover, you must invest time, money, and resources to onboard and train new employees. In short, it pays to retain staff. Whether you’re delegating or handling this first-hand, it’s up to the business leader to establish company culture. If time and space aren’t designated for these initiatives, they fall to the wayside, creating a disconnect between your team, core values, and ultimately your culture. Don’t get bogged down with compensation paperwork or compliance management processes only to see your company suffer as a result.

Moving Beyond the “DIY” HR Phase

Do-it-yourself trends are popular for their customization and money-saving advantages. This route is a compelling one for certain projects, but with HR, you’re likely not saving the money you think you are. Also known as the “founder’s trap,” leadership often attempts to handle payroll support and compliance management in-house. According to studies, 81% of small business owners mainly manage essential HR functions themselves. At first glance, this might seem like a straightforward way to cut costs, but that’s not the reality. Modern workplace culture and HR are very nuanced. Essential HR alone will have you juggling multiple priorities constantly. From ensuring your organization is up to date with HR compliance to meticulous paperwork, you’re likely to find yourself neglecting strategic HR initiatives or even business objectives. 

The benefits of outsourcing essential HR aren’t simply that paperwork is taken off your hands or that time is freed up for other projects. It’s peace of mind that it’s being handled successfully. Outsourcing essential HR from a professional employer organization (PEO) provides assurance that essential tasks, such as compliance management, are handled correctly and legally. Clients of PEO services “grow 7 to 9 percent faster, have 10 to 14 percent lower employee turnover rates, and are 50 percent less likely to go out of business compared to other small businesses.” Without hours of essential HR work on your hands, focus on business growth and objectives becomes much clearer. 

Prioritize Scalable Growth 

HR support for growing businesses is essential to their success. High employee turnover often stems from the lack of career development opportunities, poor compensation and benefits, a toxic company culture, and limited work-life balance. By neglecting these initiatives, organizational success inevitably suffers. According to the NAPEO 2024 White Paper, businesses that use a PEO reported annual employee turnover rates 12 percent lower than those that do not.

As a business leader or internal HR personnel, if you’re asking yourself how to streamline tactical HR for growth, here’s your answer. For organizations with an internal HR department, PEO benefits enable them to focus on strategic HR practices, such as fostering company culture. However, oftentimes, HR for small to mid-sized companies rests with leadership. Essential HR support for 25-250 employees is a substantial undertaking and should be handled as a full-time role. According to PEO Consulting Partners, small businesses can save $122,000 annually by partnering with a PEO, and mid-sized companies can save up to $422,500 annually. Outsourcing HR for companies without a dedicated team can save significant funds, freeing up resources to allocate elsewhere and continue promoting growth.

Essential vs. Strategic: How Outsourcing Essential HR Unlocks Growth

Before we further expand on the benefits of outsourcing essential HR functions, let’s unpack the nuances and specific functions of HR, both essential and strategic. Essential, also referred to as tactical HR, has completely different functions than strategic HR, although both of them have one major similarity—that they’re critical to organizational success. Here’s an overview of strategic vs. tactical HR and what functions each encompasses. 

Support Retention and Recruitment

We’ve referred to essential HR as the foundation, but what sits atop it is equally important. The benefits of outsourcing essential HR functions include compliance management and day-to-day HR operations, allowing you to shift your focus to strategic HR initiatives. Here’s where your company culture and talent strategy can really prosper, supporting retention and company growth along the way. 

Culture has a direct impact on your organizational success. In unhealthy cultures, 54% of employees cite poor managers or unfair treatment, and 47% point to lack of empathetic leadership as reasons for leaving. A healthy culture also boosts employee retention. 62% of U.S. companies report that retaining employees is now more challenging than hiring, underscoring the role of culture in turnover. This is important because replacing a team member is costly. According to Paycor, replacing an employee could cost up to 200% of their salary. Constant turnover is not typically accounted for in the annual budget and is an expensive setback that can significantly disrupt your journey to success. Modern workplace culture and HR need room for strategic HR initiatives to achieve the most effective results and organizational success.

Enhance Cost Efficiency with a PEO Partner

HR outsourcing with PEO services offers several advantages, both immediate and long-term, for your organization. Here are some of the major benefits of outsourcing essential functions from a PEO.

Access Better Benefits at a Lower Cost

PEO services unlock comprehensive, affordable benefits while minimizing expenses. This can be revolutionary for small businesses. PEOs deliver enterprise-level HR support and benefits at a lower cost. A PEO partnership combines payroll support, benefits administration, and compliance management into a single, fully managed service. With a PEO, small- to mid-sized organizations gain access to competitive benefits typically allotted for much larger organizations, such as Fortune-500 companies. This includes high-quality health insurance plans, retirement options, and employee perks that improve recruitment, retention, and overall satisfaction.

Compliance and Risk Management Support

PEO specialists have expertise in compliance management. It is their job to proactively monitor regulations and policies that might impact your business. As they monitor changes, they make adjustments to ensure consistent compliance with the law. PEOs ensure your business remains compliant without requiring leadership or internal HR to track every update. Critical compliance tasks, such as payroll administration, tax filings, employee handback development, and onboarding, are handled with expertise behind each function. PEOs navigate these requirements on your behalf, reducing the risk of non-compliance consequences, such as fines, reputational damage, or legal action. Along those same lines, they provide guidance and support during high-risk situations—such as employee terminations, workplace investigations, or regulatory inquiries—so decisions are made correctly and legally. 

Reduced HR Administrative Costs

Outsourcing essential HR functions reduces the number of staff and time required to complete these tasks in-house. Functions such as payroll support, benefits administration, and onboarding are handled by PEO specialists, taking this off your or your internal HR team’s plate. With this time-consuming essential HR work handled, your organization can focus on strategic HR initiatives. Your internal HR team, previously at capacity, now has the time and focus to foster a positive company culture aligned with your organization’s mission and values. If essential HR previously fell on leadership, you now have undivided attention and time for strategic HR and business success. 

Reduced Technology Expenses

Even if you’re handling essential HR internally, you’re still paying for the software and platforms to handle it yourself. HR technology platforms for functions like payroll, benefits administration, time tracking, and employee data management aren’t free. These platforms represent a significant expense for organizations that handle their own HR functions. They have fees and implementation costs that add up over time. Not to mention handling updates and troubleshooting this software, which can consume additional time and resources from your internal team. HR support for growing teams often means increased HR costs, and outsourcing HR removes this growth barrier. 

Generally, PEOs include this software and HR technology platforms bundled into their services. This means that when you’re outsourcing essential HR, you’re also outsourcing these platforms, removing the need to buy, implement, or maintain them internally within your organization. Reduce technology and software costs while remaining compliant by outsourcing essential HR with a PEO. The result is a more streamlined, cost-effective HR infrastructure that supports both operational needs and long-term growth—without the burden of managing complex HR technology in-house.

Financial Predictability

Working with a PEO provides a level of financial predictability not achievable by relying solely on an internal HR department. Instead of managing a wide range of fluctuating and often unexpected HR-related expenses, PEOs offer a consistent, transparent pricing structure. Don’t go over budget with payroll errors, compliance penalties, benefit cost increases, or unexpected software upgrades. Let your PEO handle that. This set expense allows organizations to allocate HR budgets accurately and plan expenses with confidence, avoiding surprise costs that might have to be taken from other departments or cause significant setbacks.

Professional Understanding and Assurance

PEO services handle essential HR functions, so leadership doesn’t have to question compliance status or take on PTO or benefits issues. A PEO is a team made up of dedicated experts who specialize in HR. This means they understand the nuances of payroll, benefits, compliance, and risk management and ensure that complex HR matters are handled accurately, consistently, and in alignment with current laws and best practices. 

When you partner with a PEO, you’re also partnering with a new sense of assurance. No more double-checking if payroll is processed correctly, benefits are administered properly, or compliance regulations are met on time. This expertise invites peace of mind for business owners and leadership teams. Instead of second-guessing essential HR decisions or worrying about potential gaps, organizations can operate with greater confidence and stability. The assurance provided by a PEO allows leaders to focus on strategic priorities, knowing their workforce is supported by experienced professionals and a compliant, well-managed HR foundation.

Your Best Option for Outsourcing Essential HR

Put your essential HR functions in the right hands. If you’re looking to create more time and space for your team (no matter how big or small), one of the best ways to do so is by hiring a Professional Employer Organization (PEO). A white-glove PEO for a small or large business provides tailored, personalized support. A PEO allows you to focus on what’s most important—growing your revenue and investing in your team. Businesses that partner with PEOs experience faster growth, retain employees at higher rates, and are less likely to go out of business. Research by NAPEO estimates the expected ROI for PEO clients based on cost savings alone is 27.2% per year.

A PEO handles a variety of operations relating to benefits, payroll, HR, and administrative tasks. Most companies find significant relief by working with a PEO, especially with onboarding and employee relations. From helping update handbook policies to handling difficult HR conversations, there are a wide variety of ways a PEO can support HR, so your team can focus on business outcomes. Here are just a few of the tasks PEOs can support:

• Payroll administration + tax filings
• Employee handbook development + updates
• Employee relations + termination support
• Template PTO establishment + tracking
• Employee onboarding
• Ancillary benefits insurance administration (dental, vision, disability, life)
• ACA compliance tracking + report
• Workers compensation administration
• Background checks
• Employee Practices Liability Insurance (EPLI)
• Health insurance administration
• Benefits consultation

Regardless of the task, a PEO should operate as both a trusted advisor and a tactical support provider. Every company is different, so it’s important to discuss your needs and create a plan that makes the most sense for you. 

Retain Your Employees + Increase Your ROI

Outsourcing your essential HR can do a world of wonders for your business, especially as it relates to employee retention. Research shows that 42% of employee turnover is preventable. It’s never too late to build a positive, impactful culture that enables your employees to thrive in their roles. On the same note, your work with strategic HR initiatives is never complete. Fostering a positive work culture is an ongoing process that requires consistent adjustment and reinforcement. Culture works from the top down. As leadership or internal HR prioritizes culture and leads by example, it sets a tone in your workplace. By investing in your team and your culture, you’re investing in employee retention and overall business success.

Similarly, Gallup data shows pay and benefits are the most common single reason employees left their jobs in 2024. Outsourcing essential HR with a PEO partnership increases access to better benefits that small to mid-sized companies otherwise wouldn’t be able to utilize. Not only will a PEO help you shift focus to culture and strategic initiatives, but it will also elevate your essential HR functions, too. If you want to keep your people and increase your ROI, then company culture needs to be a priority. By outsourcing essential HR functions, you can shift your focus to your culture and your people.

FullStack PEO: More Than Just a Service Provider

Interested in exploring a fractional HR provider? Download our PEO Buying Guide to learn more, or reach out to us to begin the conversation about your organization’s HR needs. We’d love to chat about FullStack PEO services packages and how we can help you support your people so you can focus on business outcomes.

Frequently Asked Questions (FAQ)

What is considered “Essential HR” for a small business?

For a small business, essential HR functions include those that are mandatory for compliance and ensure the company runs smoothly on a daily basis. Essential HR prevents compliance issues and ensures satisfaction with payroll, benefits, and PTO. 

Why should a company without an HR department use a PEO?

A company without an HR department should partner with a PEO because it provides essential HR infrastructure that would otherwise fall onto leadership, as well as expertise and compliance protection. Ultimately, essential HR tasks must be completed correctly for a business to operate. A PEO streamlines this process while saving time and costs.

Does outsourcing HR affect company culture?

Outsourcing HR positively affects company culture. By outsourcing essential, time-consuming tasks such as compliance management and benefit support, your leadership team or internal HR department can focus on initiatives to foster company culture, supporting business success and employee retention.

How does a “white-glove” PEO differ from standard HR software?

A “white-glove” PEO is a premium professional employer organization that goes beyond standard HR outsourcing practices. A white-glove PEO provides tailored, personalized, and proactive support to its clients that aligns with your company’s needs and values. Typically, they’re known for streamlined processes and fast customer support.

What is the most cost-effective way to manage HR for 50+ employees?

The most cost-effective way to manage HR for 50+ employees is to partner with a PEO. PEOs are effective for this-sized organization because they provide high-quality benefits at an affordable cost while minimizing compliance risks. Hiring a PEO is less expensive and offers more predictable costs, making it the more cost-effective option compared to hiring an in-house HR team.