HR Outsourcing: Statistics, Trends, and Information for Business Owners and Brokers

May 07, 2019
| The Extensis Team
HR Outsourcing Trends and Stats

A common trend impacting both large and small employers over the last few decades has been the growing complexity and difficulty of modern HR. However, that’s where the similarities end.

The majority of large organizations have in-house resources to properly manage all aspects of HR administration – a luxury small businesses don’t share in common. In fact, in many cases HR management tasks fall on business owners who must properly execute these tasks while juggling all the other responsibilities of running a company.

Because of this, many small business owners have turned to a solution that has been growing in popularity, especially over the last 10 plus years – HR outsourcing.

For the 4th consecutive year, PrismHR conducted their Human Resources Outsourcing (HRO) Trends Report to uncover data about HRO companies, their clients, and the industry.
 

HR Outsourcing Industry Trends

The survey was taken by over 450 participants from 182 different organizations that operate within the HRO industry.

The first piece of data explored worksite employee (WSE) numbers in the industry. 69% of HR outsourcing organizations service less than 5,000 WSEs. Meanwhile, the average WSE count per HRO is 10,165.

According to the survey, only 10% of HR outsourcing companies have more than 20,000 worksite employees.

The survey also revealed that the majority of HRO’s (60%) have less than 30 full-time employees. Further data shows that HR outsourcing firms are growing in size and recruiting more staff, an indicator that the industry is poised for continued success in the future.

Next, the survey showed the top 5 services offered by most HR Outsourcing organizations (PEOs, ASOs, and Payroll Only):
 
  • HR consulting – 45%
  • Benefits administration – 36%
  • Time tracking – 24%
  • Insurance services – 19%
  • Performance management – 10%

These results closely match lists from previous years.
 

Benefit Trends and SMB Challenges

Employee benefits play a critical role today in recruiting and retaining talent and are also one of the top services offered by HROs and PEOs. HR outsourcing companies routinely explore new products and services to add to their packages to keep up with worker expectations and demands.

PrismHR sought to find which new benefits SMBs are requesting:
 
  • Paid maternity leave – 25%
  • Financial wellness programs – 24%
  • Gym membership stipends – 20%
  • Unlimited PTO – 19%
  • Pet insurance – 17%
  • Student loan debt reimbursement – 16%
  • No official work hours – 9%
  • Volunteer hours – 6%
  • Death benefits – 5%

While not all of these benefits and perks can be gained through an HRO, most can which puts smaller employers in a better place to compete for talent.

And with recruiting being one of the top issues for businesses today, the survey sought to find out exactly which HR challenges present the most troubles for small and medium-sized employers. Here are the top 10:
 
  • Recruiting – 51%
  • Finding quality health insurance at an affordable price – 48%
  • Offering competitive benefits – 38%
  • Offering retirement plans at an affordable price – 32%
  • Maintaining compliance with local, state, and federal regulations – 29%
  • Ensuring consistent onboarding/managing health benefits – 27%
  • Tax administration – 25%
  • Retaining employees – 24%
  • Managing business insurance/legal regulatory risk – 23%
  • Managing workers’ compensation – 22%

Next, the PrismHR report took a look at HRO operational efficiencies. The results show that 64% of HR outsourcing companies are now using a single software platform, up from 43% last year.

Additionally, 67% said they expect to see their profit margins increasing in the next 2 to 3 years.
 

HRO Industry Growth Trends

The last section of the PrismHR report dove deeper into industry growth trends. 22% of HR outsourcing companies grew their number of WSEs by at least 26% last year. That’s a 38% increase from 2017. And only 8% of HROs said they didn’t increase their WSE count.

When it comes to revenue, 21% said they grew by 26% or more in 2018, a 40% increase from 2017. Looking at future growth, 46% of HROs project their growth rate in WSEs to be 11% or higher in 2019.

The report also revealed the top three challenges HR challenges as told by employers and HROs:
 
  • SMBs – recruiting, healthcare, and employee benefits
  • HROs – recruiting, employee benefits, and employee retention

This shows that HROs and SMBs are on the same page when it comes to expected HR challenges heading into the future.

Last, the survey revealed the reasons HR outsourcing companies believe they win business:
 
  • More HR tasks handles/eliminated – 29%
  • Cost savings – 21%
  • Breadth of products/services – 21%
  • Cheaper health insurance costs – 10%
  • Retained liability – 3%
  • Better benefits – 3%
 

Human Resource Outsourcing Continues to Grow in Demand by Employers

Much like last year, the 2019 PrismHR report shows the continued growth and success HROs are seeing today. This trend isn’t expected to slow down anytime soon, especially as HR becomes even more complicated and time-consuming for smaller employers.

Business owners who are struggling with HR and are looking for potential solutions could benefit from working with an HRO company such as a PEO!

Want to learn more about PEOs? Check out our eBook, How Well Do You Know PEO? This eBook provides an overview of the PEO industry as well as helpful information for brokers and employers!

How well do you know PEO
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