The Best HR Outsourcing Companies of 2022

The cost of HRO services varies widely. Most providers charge for their services based on two models: by the individual service provided or a subscription plan that comprises a bundle of features and/or services.

Consider your business's needs before purchasing a bundled subscription plan ‒ you don't want to pay for services you don't need.

For small to medium-size businesses, base costs typically range from $50 to $100 per employee per month.

Other "Add-on" Costs

If you need what many HRO providers consider "add-on services," plan on your costs increasing by $20 to $50 per employee per month. This cost is also influenced by the size of your business, if you have multiple locations and the complexity of your organization.  

Implementation Fees

Besides service-related costs, there are one-time implementation fees. These fees typically range from $1,000 to $3,000. Some HROs reduce or waive fees. Most HROs do not require you to sign an annual contract, but they will require 30 days' notice before you terminate service.

Some Perspective on the Costs of an HRO

As you consider the costs of an HRO, try not to panic. We recommend that you add up your total costs on what you presently spend on HR management, your HRIS (human resources information system) and payroll, benefits administration (including COBRA, flexible spending and health savings accounts, 401(k) management and tax preparation). These costs can all be absorbed under the HRO partner model. When you consider it from this angle, the financial comparison is more psychologically (and financially) manageable. For many small companies, switching to an HRO almost always results in cumulative savings, particularly when you factor in opportunity costs and overly worked and stressed HR team members.

Tip: The upfront cost of implementing an HRO is usually offset by the long-term savings you gain by not having to maintain an internal HR department.

When it comes to assessing, researching, and comparing features and costs from one HRO to the next, it can be overwhelming. Not only are there dozens of HROs to choose from, but when you add in the different services and products, your head can spin.

Below are three hypothetical yet representative examples of subscription plans you might find when investigating HRO providers. We recommend that you give careful thought and analysis to the exact features you need ‒ and which you can do without ‒ when determining which service level is appropriate for your business.

Service Level No. 1

Regardless of the size of your company, when you partner with a third-party HRO, these are some of the "core" services that may be offered:

• Payroll processing
• Tax preparation (including Form 990 and Form 5500 related reporting)
• 401(k) retirement planning (if your company offers that benefit)
• An HRIS platform, with some degree of employee self-service functionality

Service Level No. 2

Mid-range plans are likely to offer the services and features in the previous tier plus the following:

• Automated time and attendance and paid time off (PTO) tracking
• Unemployment insurance case management
• COBRA, flexible spending accounts (FSA), health savings accounts (HSA) and eligibility tracking
• Employee recordkeeping, retention and reporting
• Employee benefits administration, including open enrollment and insurance renewals
• HR compliance management, including postings, handbook updates and communications
• Job descriptions and employee performance evaluation templates, related supervisory training
• Recruitment and interviewing support and automated applicant tracking systems
• New employee orientations and onboarding/termination management

Service Level  No. 3

Top-tier plans generally include all of the services and features in the previous tiers plus the following:

• Insurance provider invoice reconciliation and payment processing
• Family Medical Leave Act (FMLA) and various state-related medical and family leave-related claims management
• Workers' compensation claims management (which varies from state to state)
• Legal guidance, coaching, and, at times, oversight on employee corrective actions

Different providers offer unique service levels. The above is intended only as a rough depiction of how a typical HRO service package might look. For specific pricing plans from HRO providers, read our reviews to learn more about the service plans they provide.

Tip: If you are a startup or very small business, consider starting with the basic service level or tier. That way, you'll be able to see if the HRO provider you've chosen really works for your business. You can always add more services as your company grows.

The advantages of a strong HRO partnership are many for small and medium-size businesses. An HRO tracks, reviews, and informs your business of changes to HR trends, laws, and best practices. An HRO also allows your team to focus on business operations instead of compliance.

A good HRO service provides the following benefits:

• Force multiplier. The first thing many businesses realize when they hire an HRO is the available time that their HR and management personnel get back. Although many business owners (and their staff) say that this attribute alone is worth the money paid each month, it is a "force multiplier," because the business has HR experts handling HR duties and staying up to date with laws and best practices while business owners can focus on long-neglected tasks and desires, like taking on new projects and planning.

• Fully baked HR program and services. That fact is that many new business owners (and their staff) are unfamiliar with employment laws and regulations, or they know very little about recruiting, hiring, and retaining top talent. The prospect of delegating many of your HR needs to an HRO can bring peace of mind, especially when it comes to issues involving compliance. 

• Tested expertise. Chances are, your HRO partner has customers in several different industries and around the country. Your HRO's knowledge and HR practices are shaped by expertise and are constantly under scrutiny from its customers; the best HROs are adaptable and are always on top of current and evolving HR trends.

• Diversity, equity, and inclusion (DEI) training and development. Employee development and diversity training is an area that has generally needed more attention than it may have traditionally received in small and medium-sized companies. DEI practices and policies are the newest and most requested feature that HRO providers offer. Likewise, training and development assistance can help a small company effectively compete in their industry while also retaining top talent. Companies with more engaged employees are more productive, and HR plays a major role in employee engagement. 

• Employee handbook updates. A big hassle for businesses is guessing whether their company employee handbook is up to date. By outsourcing this time-consuming and cumbersome task to an HRO, you no longer have to guess ‒ or hope ‒ that your handbook is up to date with current federal and state laws and regulations.

• Recruitment and onboarding guidance. Not only are recruitment and onboarding incredibly time-consuming, but they are easy to get wrong. Recruiting and hiring the wrong person can be a costly mistake. Well-equipped HROs can help with these processes or, at the very least, provide templates, policy samples and guidance to get these all-important tasks right.

Key takeaway: HROs free up your team's time so you can focus on your business's operations without neglecting any compliance issues or critical processes like payroll, employee development and internal policies.

Selecting the right HRO does not have to be an overwhelming task. Aside from getting to know what services it offers (which can be difficult if all you are doing is visiting provider websites), you must assess their reputation for customer service and product customization.

Most HROs want your contact information before they share any useful information about their services and their costs.

We recommend that you take the following steps during your search process:

1. Ask others (or sleuth) within your industry. We highly recommend talking to other companies within your industry to see which HROs are held in high regard and which ones you should avoid.
   
   
2. Check their background. Check references, credit ratings and industry reputation (customer reviews are a good place to start). Any HRO you partner with must be licensed, insured and bonded. 
   
   
3. Ask the HRO for a demonstration of its platform. Besides giving you a thorough demonstration of its platform, many HROs offer a ghost site or test login that allows your company admins to test the various features.
   
   
4. Get customer references. If you have selected an HRO provider that you are excited about, do not proceed further until they provide at least three customer references that you can then contact to learn about their experience with the HRO provider.

Customer references should be

• Within your industry
• Roughly the same size as your company in terms of employee headcount
• A customer of the HRO for at least two years

1. Confirm best practices. Ensure that the HRO provider has documented and up-to-date processes, policies and systems. Inquire about how they remain current on best practices regarding employment, payroll, leave laws and other regulatory issues.
   
   
2. Confirm the total "buffet" of service and products. Chances are, your HR needs will evolve. Your business wants an HRO partner that meets both your current and future strategic needs. Ask yourself: If your business doubles in size in the next two years, will the HRO you're considering still be a good partner?

Are HROs and PEOs the same thing?

Not at all. An HRO allows companies to maintain control over their employees, systems and access the administrative benefits through HR services third-party outsourcing. PEOs either directly manage or employ the client's employees. In other cases, PEOs require access to employee data to automate various processes, such as payroll, benefits and time off.

Can I ask my HRO provider to fire an employee?

No, but a good HRO provider will coach you and offer suggestions about how to best proceed with employment actions such as termination, including when legal counsel should be involved.

Can an HRO take care of my benefits management?

In many cases, yes. You will need to ask specific questions, though, relating to benefits management, such as overall service offerings and open enrollment.

Can my HRO provider handle workers' compensation claim management?

In some cases, HRO providers can partner with a customer to process and manage a workers' compensation claim. This service differs from one HRO provider to the next and from state to state, where the worker's compensation laws are set and governed.

Do HRO providers know all state employment laws within the U.S.? What about international laws?

Although the HRO providers we reviewed know all federal and state employment-related laws, not all HRO providers extend their expertise or services to international markets. Be sure you ask specific questions relating to your needs of any HRO provider.

Can I cancel my HRO provider relationship if I do not like their service?

Most HROs require 30 days' notice. However, the more services a business has assigned to their HRO provider, the longer the offboarding period should be. Winding down a partnership with an HRO should be a careful process.

The state of the workplace has significantly changed in recent years, and it will continue to evolve throughout 2022. We expect the HR outsourcing industry to meet employers' and employees' new needs and expectations. Keeping up to date with labor laws, regulations and workplace trends can be challenging for small business owners, so we believe there will be a greater reliance on experienced HR outsourcing services to remain competitive and compliant.

As many workers permanently settle into a remote or hybrid workplace, we anticipate HROs to enhance their features to allow employees to take charge of their HR needs via digital platforms. Expect to see an increase in cloud-based platforms, self-service functionalities and flexible benefits administration.

Speaking of employee benefits, employees are switching gears when it comes to which benefits mean the most. Gone are the days of office lunches and ping pong tables – employees are prioritizing affordable health insurance, health and wellness benefits, and opportunities for career development and advancement. HROs must enhance their employee benefits and administration process to keep up with new demands and stay competitive.

The advancement of technology is influencing HROs as well. AI and automated processes are becoming the norm for some HR functions, and HROs are adapting. HROs have become a great source of relief to small businesses when it comes to maintaining legal compliance. HROs can help implement HR policies and monitor compliance through data analytics.