What’s HR outsourcing, and is it right for your organization?

Growth doesn’t always happen in sync with operational capacity, especially for small and mid-sized organizations. As the business scales, your team needs to keep pace with the greater administrative burden of an expanding workforce and escalating compliance demands. These needs take an increasingly big bite out of resources that may already be strained.

Outsourcing HR is one potential solution, but there’s a catch: Can you offload enough work to ease the burden without sacrificing too much control and visibility over your core HR processes? 

For many companies, the tension between breathing room and running things their way is enough to make them hesitate. According to a 2024 survey from Deloitte, 70% of companies have started bringing their outsourcing efforts back in-house to lower costs and regain control over their workflows.*

This guide explores the benefits and drawbacks of HR outsourcing not just in financial terms, but in its broader impact on company culture, performance management, and employee engagement. HR and finance leaders will get the details they need to decide whether outsourcing HR makes sense for their current situation and suits where the company might be in a few years.

* Deloitte, 2024 Global Outsourcing Survey

What’s HR outsourcing?

HR outsourcing hands off core HR functions (like payroll, talent acquisition, or even strategic HR planning) to a dedicated third party. These companies include employers of record (EORs) and professional employer organizations (PEOs). EORs take over as the legal employer and open more channels for international workers, while PEOs are more like partners, but both EORs and PEOs provide organizational support. Many employers feel they need it: Technavio reported more than 75% of mid-sized businesses used outsourcing services in 2024 to reduce administrative overhead.

HR outsourcing doesn’t have to be an all-or-nothing proposition. Teams can choose to offload one or two processes, or outsource just about the entire department. What you might outsource depends on your team’s needs — and how they change over time, too.

When human resources outsourcing makes sense (and when it probably doesn’t)

Outsourced HR isn’t uniformly the best option for every situation. Outsourcing HR tasks is a strategic decision that impacts not only operational efficiency, but also performance management, talent development, and the company culture at large. Before assuming a hand-off is the best next move, consider how it may impact everything down the road.

When HR outsourcing makes sense

Here are some moments when it makes the most sense to outsource your HR efforts:

• Your team spends most of its time on basic tasks: At their best, HR departments are strategic partners that shape culture and nurture talent. When HR is drowning in monotonous or paperwork-heavy tasks like payroll and compliance, strategic initiatives fall by the wayside.

• You need a temporary lifeline during rapid growth: Sometimes you need a helping hand during a hiring glut or expansion into a new market. Temporarily outsourcing core HR functions can help stem the tide until you have time to catch up.

• You lack specific in-house expertise: Outsourcing complex payroll and legal compliance efforts to a third party that knows the ropes may make more financial and operational sense than finding new team members with the requisite knowledge or conducting days of specialized training.

When HR outsourcing starts to break down

The process of HR outsourcing isn’t right for everyone in every situation. In some cases, it makes more sense to keep your work in-house:

• Other teams need extensive hands-on support: By definition, taking on outside HR support disconnects the outsourced functions from your in-house team. If you need flexible decision-making informed by HR’s context at all times, keeping certain processes (especially hiring) in-house might be the smartest move.

• Your data is fragmented: When HR data lives with an external vendor, leaders lose sight of performance, engagement, and retention trends. This makes it harder to connect people insights to business decisions. To avoid fragmenting data while still taking work off your team’s plate, you can centralize all employee data in an HR platform like Leapsome. This way, every decision stays informed by the most up-to-date metrics.

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What can I outsource? The most common human resources outsourcing services available

While you may not be able to delegate every last detail of your workflow, you can get pretty close. Here are the main HR functions that can be outsourced:

• Payroll processing: Calculating wages, cutting checks, and filing taxes.
  
  
• Recruitment and hiring: Talent management, from sourcing to onboarding and offboarding.
  
  
• Employee benefits administration: Managing health insurance, retirement plans, and other common benefits.
  
  
• HR compliance: Keeping the company compliant with the latest labor regulations.

The hidden impact of outsourcing on culture and engagement

HR outsourcing cost–benefit analyses that only consider pricing fall short of the truth. Not factoring in hidden costs to company culture, employee engagement, and performance management means underestimating the true cost of outsourcing and overestimating its long-term value.

Shaping culture effectively takes comprehensive context that third-party HR services just don’t have. They live outside your systems and daily operations, and that’s by design. Services like EORs and PEOs can make your processes more efficient, but streamlining can come at the cost of quirks that set your company apart.

These considerations are especially relevant for small and mid-sized companies where culture is still solidifying. Missteps at this critical juncture can erode the existing foundation and make it harder to regroup.

Outsourcing vs. in-house vs. HR platforms

The following table breaks down the three main ways of managing human resources to help you make the best choice for your needs.

These three options aren’t mutually exclusive. You probably won’t outsource the entire department, keep all your details in-house, or try to upload every last HR process onto an HR platform. According to Technavio, 56% of companies that outsourced part or all of their HR functions in 2024 reported feeling dissatisfied, citing problems communicating with providers and struggles with the lack of control.

The trick to successful HR outsourcing is finding a balance. You want to reduce administrative overhead, but it’s also important to retain enough visibility into and ownership of your organization’s people strategy that HR doesn’t become just an interface between the company and the HR provider or software solution. If you find someone else is making most of your strategic decisions or employee engagement is souring, you may want to bring more of your HR process in-house. On the other hand, regularly scrambling to finish payroll and starting to miss important documents is a sign you may need a little extra help.

Four top HR outsourcing services

Each of the four services we’ll address below cover core HR functions, such as payroll processing, compliance management, and benefits administration. Consider how they might fit inside your broader HR strategy.

1. ADP

This platform is a solid option for data-forward teams. ADP offers sophisticated workforce reports and analytics tools to strengthen workforce planning with a clearer picture of payroll, compliance, and employee performance data. Plus, it directly integrates with Leapsome for extended HR and people-management coverage.

2. ExtensisHR

ExtensisHR excels in talent acquisition, offering dedicated talent specialists for every stage of the recruitment cycle through its PEO product.

3. AlignHR

AlignHR is a strong choice for organizations experiencing rapid growth. It uses a service-based model with project-based support to lighten the HR load without taking all the control.

4. Namely

Namely is ideal for small businesses with just a few HR team members or even no HR department at all. It covers the basics, like letting employees enroll in benefits programs and request time off while managers oversee approvals and access reports.

Tips for finding the best HR software solution

“On the C-level, I learned to doubt people data because it arrived late and conflicted across files. Then, sitting in HR, I felt the pain from the inside and saw how much time went into rebuilding the same reports. Centralizing restores trust and your calendar.”
— Florian Klages, Managing Partner, torq. Partners

Even the best solutions only work as well as their users. Following these best practices will help you get the most out of the option you choose:

• Prioritize usability: Look for a product that’s intuitive for your managers and other employees who’ll interface with it, not just for HR. This reduces friction and eases adoption.

• Vet first: For each potential provider, research their target audience and which types of organizations they work best for. A program that lays the necessary groundwork for a small startup might not be robust enough for a rapidly expanding mid-size organization.

• Don’t overlook customer support: Outsourcing HR is always a leap of faith because you’re putting critical company processes in the hands of a third party. Investigate candidate providers’ track records for responsive communication and support using references like the BBB and current users’ reviews before making a commitment.

• Do your due diligence: Create an itemized checklist of what you need now and what you might need in the future, then ensure your chosen outsourced HR solution ticks all the boxes. Discovering a critical feature is missing at a pivotal moment and having to start from scratch is a frustrating waste of time and resources.

Scale HR without taking your hands off the wheel

Overworked HR teams want to lighten their administrative burden without taking on all the expenses that come with hiring. At first, HR outsourcing might look like a solution. It can lower administrative overhead, but fragmented systems, reduced visibility, and weakened influence over the employee experience pop up in its place.

Leapsome offers an alternative approach that helps small and mid-sized companies save time and resources without sacrificing control. HR teams get the features they need — including Payroll Prep, automated workflows for onboarding, and integrated learning modules — right alongside the employee data that makes it run.

By staying in sync with the business, Leapsome helps HR teams make their operations manageable again without compromising their ability to make data-driven decisions with real impact.

"The administrative work for HR is reduced by about 90%. It makes all our lives that much easier and the entire review process more transparent, efficient and valuable." — Amanda Heeg, Senior HR Manager | Junique

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💪 Don’t outsource HR — optimize it
Leapsome’s full-on people management platform centralizes people data, automates simple tasks, and slashes administrative overhead without handing over the keys to your company culture.
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FAQ

How does human resources outsourcing work?

HR outsourcing transfers some or all of your HR functions to a third-party provider. Covered areas typically include payroll and benefits administration, recruitment, and compliance management.