How Much Does Human Resource Outsourcing Cost?

Most corporate organizations outsourced their human resource department for higher productivity and improved employer-employee relationship. There are established HR outsourcing companies that are catering to thousands of employees today. Services provided by HR companies include maintaining an employee handbook, recruitment and training of employees and ensure smooth sailing for the business.

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Types of HR Outsourcing

Professional Employer Organization (PEO)

· Complete management of the HR processes for the company

· Full management of legal issues regarding the employees

· Are in a co-employment contract with the business owner

General HR outsourcing firms

· Deal with a wide range of services

· Payroll, administration and HR services

Specialist HR outsourcing firms

· Caters to specific areas of the HR processes

Reasons to Outsource Human Resources

· Average cost of internal HR management for a mid-size company with 250 employees is about $1,469 per employee annually

· 2000 times higher employee litigation

· 60% to 80% of work time for any employee is spent on administrative issues that are non-work related

· To settle lawsuits, harassment cases requires $95,000 per trial in terms of attorney and legal counseling charges

HR Outsourcing Cost

Services Provided By HR Outsourcing Companies

· Benefits Administration

· Risk Management

· 1099 Management

· Policy Compliance

· OSHA Administration

· Recruiting, Resourcing and Staffing

· Temporary Staffing

· Development

· Labor Relations

· Employee Communications

· Payroll Administration

· Vacation, Expense Reimbursement, Sick Time

· Employee Records Management

· Performance Management

· Employee Relations

Average Cost of Outsourcing HR for Different Business Sizes

Small businesses

· A non-profit organization in Philadelphia ~ $3,500 (services: policy compliance, HR management, and payroll)

· An IT company in Colorado ~ $100 per employee per month (Service: payroll and administration)

· Financial services in New York ~ $200 per month (services: payroll, HR technology, and risk management)

Mid-size to large businesses:

· A manufacturer in Minnesota ~ $600 per employee annually

· A web design agency in Arizona ~ $60 per employee per month

· A health care institute in St. Louis ~ $80,000

Sample Costs of HR Outsourcing Companies


· Caters to small businesses with 300 employees

· Customized service packages to suit the clients' needs- payroll, background checks, attendance and drug screenings


· Caters to companies with 10-2000 employees

· Co-employment contracts

· The service has over 100,000 customers all over the country benefiting from the same health care plans

· Employees get a better deal with the top insurers

· Average Cost is about 2-4% of the total payroll


· Caters to companies of all sizes

· Specializes in performance reviews

· Allows the managers of the companies to get regular feedback

· Recruitment and hiring

· Average Cost is about $99 per manager per month


· Caters to small companies with less than 100 employees

· Suitable for companies that are starting out from scratch

· Develop hiring strategy, make contracts with the health care services

· Average Cost for HR manager (in-house) is $3,000 per month

Average Cost of HR Outsourcing

Fixed Price

· The cost for this type of pricing is a fixed percentage of every employee's monthly salary. On an average, the HR services charge $20 to about $200 per employee every month.

Flat Fee

· In this method of payment for HR services, about 2% to over 10% of the employee's annual salary is charged. For exclusive services, manual auditing services range from $250 to about $500 per employee and employee screening charges range from $25 to $50 per person.