Get expert advice on every topic you need as a small business owner, from the ideation stage to your eventual exit. Our articles, quick tips, infographics and how-to guides can offer entrepreneurs the most up-to-date information they need to flourish.

Subscribe to our blog


Managing HR In-house Versus Outsourcing It: How to Decide

Posted by Early Growth

June 9, 2015    |     6-minute read (1065 words)


This guest post was contributed by Justworks.

When you first start your business, your priority is to hire people who are integral to building the product and growing the company. If you are running a tech company, those people are engineers, product managers, marketers and maybe even sales people. If you're running a consulting firm, you're looking for the talented consultants that will service your clients. And so on. Every business has the departments that move the bottom line and grow the business.

At some point though, a business grows big enough that it needs people to take care of the "back office" operations of the company. At tech companies that person is famously the Office Manager, responsible for keeping the office humming, coordinating interviews, enrolling people in healthcare, sending offer letters and much more. The problem with that job is that it is incredibly multifaceted. It can be hard to find all those skills in one person and you might find yourself beefing up your "back office" with multiple people to get everything done.

The question today is do you need to? When is staffing up an HR department important and when should it be outsourced?

The reality is, a well-functioning human resources department can ensure that you are compliant, have payroll figured out, have onboarded everyone appropriately, and are hiring the correct people, while also ensuring that the current employees are comfortable, and that the culture continues to get better. It’s so easy to take an all-or-nothing approach to the outsourcing of human resources, but we suggest that you think of it based on what stage of growth your business is in.

0-10 Employees

If you’re running a new business—whether pre-investment or just after raising funding—it can be easy to believe you can do it yourself. There are only a few of you: what’s the worst that can happen? Between managing benefits, equity, salaries, time off, writing employee documents, hiring, firing, onboarding, and everything else that is going on, where will the time come to talk to investors, build the product, or do significant business development?

At this stage, we recommend outsourcing most of your human resources function. There are plenty of companies that will do it for you, and there is plenty of software around the web that can help you to manage the majority of the steps described above. Your focus should be on the people who are coming in and out, not whether they are getting their paycheck every two weeks. It should be a given that the money is flowing.

Companies at this stage should consider a professional employer organization, like Justworks that automates payroll and compliance, and makes it more affordable for small companies to offer healthcare to their employees, if they'd like.

10-50 Employees

Your business is humming along. Suddenly compliance is going to become more of an issue; there are a lot more people getting paid, and you have to hire them all too.

At this stage, you're big enough that you have an office or HR manager and you're considering whether you need number 2. Although hiring a second employee might sound tempting, at this stage it's still worth considering an outsourcing option.

If your HR manager is partnered with a PEO software that takes care of compliance, payroll and benefits management, then s/he can focus all of her or his energy on recruiting and culture. There's no reason to have your valuable employee spend time on things that could otherwise be automated.

50-500 Employees

You’ve raised a much larger round and you are going to be scaling your business much faster, maybe growing from 50 employees all the way up to 100-200 employees. Recruiting is probably a massive priority as you scale and you might be running into new issues when it comes to expansion and compliance.

At this point, you need a back office time. For starters, you need to have someone on board who is able to handle strategic HR projects that are meant to make the company better. These include initiatives to keep employees healthy, to ensure that they are acquiring new skills that make them more useful, and to work on that much needed employee handbook. These requirements are better filled in-house, since they are so specific to your company.

But there's still a role for outsourcing. While you might feel an itch to bring everything in-house, payroll experts are costly and normally unnecessary. There's also no need to bring basic compliance in-house. Your legal team (if you have one), should be focused on the business compliance side, not payroll taxes. Outsourcing this or getting software to do it will save you money and time that will allow your busy HR department to focus on hiring and strategic projects.

500+ Employees

These types of companies are not too dissimilar to medium stage companies. The difference is that many companies bring functions back in-house at this point as a way of making them areas of competitive advantage. Even for large companies, the monotonous tasks should remain outsourced. Keep your HR department focused on finding quality talent, doing strategic projects, and being the liaison to employees.

A Simple Rule to Follow

Human Resources is an important department. But many businesses sometimes forget this. Or they forget that the people doing it are qualified to do more than monotonous tasks. The way to determine whether or not you need to manage HR in-house or outsource it is ask to yourself if the following scenarios are true"

Does the work being done require face-to-face conversation or understanding of employees? Do you have HR do social activities and team building? Are you going to be hiring a lot of people every year?

If you answered yes, then the simple rule is very simple: you need an in-house HR person.

Justworks is a technology platform that helps entrepreneurs grow and manage their businesses by offering a comprehensive one-stop-shop approach for self-service payroll, compliance, and benefits (including health insurance, commuter benefits, and 401k).

What business functions have you considered outsourcing? Tell us in the comments section below or contact Early Growth Financial Services for accounting support.

Liked this post? Join our mailing list to get our posts on startups sent directly to your inbox.

Related Posts:

Learn how we can put more time back in your day.