What is the Cost of HR Outsourcing?

The world of Human Resource Management is shifting towards outsourcing as it offers a cost-effective solution for companies to manage their employees, benefits, and payroll processes. 

But one question remains prominent, “What is the cost of HR outsourcing?” 

There isn’t a one-size-fits-all answer to this, as costs can vary depending on several factors such as the company size, the level of service required, and the provider selected.

HR outsourcing services are priced in two primary ways: a flat rate per employee per month or a percentage of each employee’s pre-tax payroll per pay period. Applying the fixed monthly fee, businesses can expect to pay anywhere from $20 to $200 per employee per month. However, these prices can vary significantly, making it essential to thoroughly assess your specific needs and compare different providers.

Choosing the right HR outsourcing provider requires a thorough understanding of the company’s needs and how different providers structure their pricing. 

The best way to ensure a cost-effective decision is to solicit multiple quotes and consider the specific services each package includes. Be aware that while some providers might seem cheaper upfront, they may not include all the services you require, leading to additional costs down the line.

How HR Outsourcing Services Work

HR outsourcing involves delegating some or all of the HR functions of an organization to an external provider. This typically includes activities such as recruitment, payroll administration, benefits administration, and compliance with laws and regulations.

The process usually begins with a company identifying the areas of HR it wishes to outsource. Once these areas are determined, the company will select an outsourcing service that suits its needs. The selected provider will then take over the designated tasks, either partially or wholly, allowing the business to focus more on its core operations.

Communication between the outsourcing provider and the business is crucial for success. Regular reports, updates, and reviews help ensure that the provider is meeting the company’s expectations and goals.

Factors Affecting the Cost of HR Outsourcing

Listed below are some of the most significant factors that affect the cost of HR outsourcing.

Size of Your Business: The number of employees you have often directly impacts the cost of HR outsourcing, as most providers charge per employee.

Scope of Services: The more comprehensive the services you require, the higher the cost. A full-service HR package would cost more than, say, just outsourcing payroll or recruitment.

Industry: Your industry may also impact costs. Businesses in industries with more regulations may require more extensive HR services, thus incurring higher costs.

Geographical Location: The cost of living and wages in your area could also affect HR outsourcing costs.

Expertise Required: More specialized services, like those requiring legal expertise or advanced HR technologies, could cost more.

Length of Contract: Longer contracts may offer discounts and thus cost less per month than short-term contracts.

On-site vs. Off-site: If you require on-site HR services, that may increase the costs due to travel or the need for a physical presence.

Customization: Customized services tailored to your specific needs could increase costs.

Software and Technology: The cost of implementing and maintaining the HR technologies used by the provider could also affect pricing.

Provider Reputation and Experience: More established providers with a solid reputation may command higher prices for their services.

Pricing Models for HR Outsourcing

Per Employee Per Month (PEPM): This is a common pricing model where you pay a set fee for each employee every month. The fee typically covers a predetermined set of services.

Percentage of Payroll: Some providers charge a percentage of your total payroll. This model is often used when the provider is handling payroll services.

Flat Fee: For some services, providers may charge a flat fee. This could be per service, per project, or per month, depending on the agreement.

Custom Pricing: Some providers may offer custom pricing based on your specific needs. This is typically negotiated and set during the contract phase.

A La Carte: In this model, you pay for each service individually. This gives you more flexibility to choose only the services you need.

7 HR Outsourcing Service Providers

Some of the best HR outsourcing service providers include:

1. Bambee HR Outsourcing

Topping the list as a premier provider, Bambee offers an affordable and comprehensive solution for small to mid-sized businesses. Their services range from onboarding, termination processes, and compliance assistance. Bambee distinguishes itself through its transparent pricing and robust online platform, making HR management easier and more streamlined than ever.

2. ADP HR Outsourcing

ADP is a well-known name in the HR world, offering comprehensive HR outsourcing solutions to businesses of all sizes. Their services include payroll, benefits administration, and talent management. While ADP can be pricier than some other providers, their robust suite of services and excellent customer support make them a strong contender.

3. Paychex HR Outsourcing

Paychex is another leading HR outsourcing provider that caters to a variety of businesses. Their services extend to payroll management, HR administration, and risk management, to name a few. Paychex excels in offering a blend of digital and human assistance, providing personalized support in addition to their robust online platform.

4. TriNet HR Outsourcing

TriNet offers a comprehensive HR outsourcing solution, with a particular focus on benefits administration. Their services are designed to take the complexity out of HR, providing businesses with a single, streamlined platform. This includes payroll, employee benefits, and compliance, all backed by expert customer support.

5. Insperity HR Outsourcing

Insperity provides a full-service HR solution that caters to businesses of all sizes. Their outsourcing services include employee benefits, payroll processing, and workforce optimization. Insperity stands out for its detailed focus on employee performance and organizational development, making it a great option for businesses looking to improve their HR efficiency.

6. Bamboo HR Outsourcing

Bamboo HR Outsourcing offers a cloud-based HR system that helps small and medium-sized businesses automate their HR processes. Their services include applicant tracking, onboarding tools, e-signatures, and performance management. Bamboo HR is known for its user-friendly interface and focus on simplicity, making it a great choice for smaller businesses.

7. Zenefits HR Outsourcing

Zenefits provides an all-in-one HR solution for small and medium-sized businesses. Their platform offers tools for hiring, onboarding, employee benefits, and payroll. Zenefits stands out for its flexible pricing and customizable plans, making it a flexible solution that can grow with your business.

How To Choose The Best HR Outsourcing Service

When outsourcing for HR services, below are some of the factors to take into consideration so as to hire the best HR Outsourcing Services 

  1. Assess Your Needs: Start by identifying the HR functions that your business needs help with. This could be everything from recruitment to payroll administration or compliance management.
  2. Budget Considerations: Determine how much you are willing to spend on HR outsourcing services. This will help narrow down your options.
  3. Reputation and Reviews: Check the reputation of potential providers. Online reviews and references can provide valuable insight into their performance and customer service.
  4. Expertise in Your Industry: Look for a provider that specializes in your industry. They will have a better understanding of the specific challenges and legal requirements you face.
  5. Technology: Assess the technology the provider uses. Is it up-to-date, secure, and user-friendly? Does it integrate with your existing systems?
  6. Scalability: Make sure the provider can scale their services to match the growth of your company.
  7. Compliance Assistance: The provider should have a solid understanding of the legal landscape in your area and be able to help your business remain compliant.
  8. Cultural Fit: The provider’s approach and company culture should align with your own. A good cultural fit can lead to a more productive and harmonious working relationship.


As we wrap up this discussion, let’s resolve some common queries about human resources outsourcing.

1. Is it advantageous for small businesses to outsource HR?

Indeed, outsource HR services can be a substantial boon for small business owners. This allows them to draw upon the skills of HR professionals without bearing the expense of a full-fledged in-house HR department.

2. What could be a potential downside of outsourcing core HR functions?

A possible downside could be less control over certain processes or decisions. Therefore, it’s essential to choose a reliable outsourced HR provider where a good rapport can be established.

3. Can an HR outsourcing company manage employee benefits?

Absolutely. Benefits administration is typically included in the suite of services provided by HR outsourcing providers.

4. Does an HR outsourcing firm include payroll services?

Yes, many HR outsourcing providers incorporate payroll services in their offering. This can encompass everything from basic payroll computations to more complex tasks such as tax filing and ensuring compliance.

5. Can outsourced HR services assist with legal compliance?

Definitely, HR outsourcing companies often offer support to help businesses adhere to a wide range of local, state, and federal labor laws.

6. How do HR outsourcing pricing models work in a professional employer organization (PEO)?

The cost of HR outsourcing in a professional employer organization (PEO) can greatly vary depending on the services needed and the specific provider. Some charge a fixed rate per employee per month, while others might charge a percentage of each employee’s pre-tax payroll. To make HR outsourcing cost-effective, it’s advisable to obtain quotations from multiple providers for comparison, this way HR outsourcing can effectively reduce costs.

Josh Fechter
Josh Fechter is the founder of HR.University. He's a certified HR professional and has managed global teams across 5 different continents including their benefits and payroll. You can connect with him on LinkedIn here.