HR Firm vs In-House HR Professional – What’s Right for My Business?

HR Firm vs Hiring an In-House Professional

Picture this: You’re a company of 30 employees and growing. You need to have someone with HR expertise because those needs are getting more and more complex. What should you do?

  1. Hire an experienced HR professional on your payroll
  2. Hire an HR outsourcing firm
  3. Take a hybrid approach
  4. Collect more information

Until we have more information the answer is “d” “Collect more information.” Read on to learn why and how:

Today’s HR is no longer just an administrative function.

It used to be that HR, formerly known as Personnel, was a “back-office” department that facilitated benefits, recruiting, hiring, and firing. It was a purely administrative function that did nothing to strategically or proactively contribute to the bottom line. This is no longer the case. Today, the responsibility for employers has become quite onerous. So, what are some of the differences?

  • Ever changing employment laws
  • A challenging labor market
  • The need to attract and retain “A Players” (especially in NH)
  • Keeping employees trained and motivated
  • Employees who expect career pathing to remain engaged

Experienced HR professionals are key, whether hired in-house or from an outsourced HR firm.

Many small businesses address these needs by having someone in accounting or an office manager handle the HR function.
Typically, these folks have no desire for this role and more than that, have no experience in HR, and often no time to proactively address this critical function. Not a formula for success, is it? Especially when you consider that your biggest expense is likely payroll, not to mention that engaged employees drive a company’s solvency. Given this, why wouldn’t you have an experienced HR professional facilitate this role?

Assuming that you agree, and want to take next steps, you may be wondering: where do I go from here? How do I select whether I hire someone as an employee or whether I outsource this function to an experienced consulting firm?

Let’s walk through several key factors ranging from your financial position, number of employees, growth projections, benefit programs, company locations and more.

10 Questions to help determine whether an HR firm is right for your business.

You’ll need to gather company intel to determine the best solution for your business, so begin by asking yourself the following 10 questions:

  1. How many employees do I have?
    1. The conventional wisdom through the years has been a ratio of 1 (HR):100 (employees). Some businesses even show that ratio to be higher, meaning 1:200. Much of this depends on things like the influence of automation, how quickly the business is growing and if there are multi-state locations. As we’ll discuss below, it also depends on how responsive you would like HR to be to the needs of management and employees, which leads us into core values.
  2. What are my business’ core values?
    1. You may be wondering what your company’s core values have to do with whether or not you hire or outsource your HR needs. When making certain business decisions, we recommend referring to your core values. Core values are defined by as those “principles that guides an organization’s internal conduct as well as its relationship with the external world.” For example, if your core values include a focus on internal (and external) customer service the 1:200 ratio won’t be the best match for your business. In this situation, depending on the number of employees you have, both hiring an HR firm that provides a regular physical onsite presence and hiring an internal employee will work. The clients we support typically have 20-90 employees and we are onsite at least weekly.
  3. What are the business goals for my organization?
    1. Is the business growing? Are you about to receive funding? Are you positioning your business for acquisition? How you answer these questions should influence the way your HR needs are addressed. For example, if you have 75 employees and you anticipate getting to 100 employees in a year, hiring someone on your payroll could make sense.
  4. What level of HR expertise/skills do I need?
    1. Your answer to this question depends a lot on how you answer question #5. When hiring a W2 HR person you are getting only the skill set they bring. When using an HR firm with multiple consultants, you have access to all of the skill sets employed at the firm. Do you need someone to develop and deliver employee training? To research HR technology solutions? To aid with thorny performance matters? Each of those needs require skills that can rarely be found with one individual.
  5. What is my budget?
    1. This is a key question. If you determine that you would like to hire a W2 Manager/Director level HR professional with years of experience, you will pay an estimated base salary of $100,000. Add roughly 30% for benefits, worker’s compensation, etc. and you’re quickly at $130,000. This is where the cost of outsourcing to an HR firm makes more sense because the cost will be a fraction of hiring an internal HR Director.
  6. What are the employee-related goals for my business?
    1. Do you want to become an “employer of choice” with a goal of attracting top talent? Do you want to create career paths for employees? Focus on employee retention? Using an outsourced HR firm with the experience of doing this type of work regularly, can help you achieve these goals more quickly. Additionally, it will provide you with some ideas you may not have thought about due to the consultants varied experiences.
  7. What volume of employee performance issues do you have?
    1. If your business is a high turnover environment and feels like a revolving door at times, having someone in-house makes sense.
    2. Our clients typically have less frequent employee performance issues and appreciate the outside support. This is due to the objectivity we bring in addition to the experience of handling these types of situations many times over. We coach supervisors on messaging, draft documents such as written warnings and participate in person during an employee performance meeting.
  8. Do I need my HR person onsite every day?
    1. With 100 plus employees, having HR onsite every day makes sense.
    2. When working with an HR firm like ours we typically have a weekly/bi-weekly onsite presence for our clients. This works well for a company with say 20-90 employees. It allows us to establish rapport with employees and management and address all of our client’s HR needs and understand our client’s workplace culture. Additionally, we do come onsite as-needed if an urgent matter arises and respond same-day to any questions or needs.
  9. How much time do I have to supervise an HR person?
    1. Entrepreneurs rarely have time to effectively supervise. And supervising a skill set like HR, that they often know nothing about, makes it even more difficult. Working with an outside HR firm gives Leadership peace of mind knowing that skilled professionals are in place who will work proactively, advise and collaborate, versus look for frequent direction. With an outside HR firm true supervision is minimal.
  10. Do you want an HR professional who can provide objective advice and guidance?
    1. When hiring someone in-house, they may not be as forthcoming with feedback that does not agree with “the boss”. The internal HR person wants to remain employed and because of this may be reluctant to share feedback that could be perceived as “not being a team-player.”
    2. An experienced HR consultant understands that one of the roles they play is to be a trusted advisor and look at situations objectively while sharing ideas and feedback that will improve the client’s workplace, support their goals and culture while also mitigating risk.

You may be thinking, ‘Of course the principal of an outsourcing firm is promoting the outsourcing model!’ But know this: yes, I am the principal of an outsourcing firm – who has also hired dedicated consultants to manage aspects of my own business. You see, outsourcing continues to represent a viable growing opportunity to operate my own business more effectively and efficiently. I no longer need to hire and extensively train my staff to wear every hat or manage every function. Instead, my team spends their time on the areas of their expertise – and that ensures our clients’ success. I hope this article will inspire you to investigate what works best for you, your organization and most importantly, your employees – because they are your business’ most important resources.

We are always interested in learning what functions you’d prefer to outsource, so please let us know.

1 thought on “HR Firm vs In-House HR Professional – What’s Right for My Business?

  1. Warren Daniel Reply

    Excellent article! I passed this on to NH SBDC advisors throughout the state.

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