Reference
What are the HR outsourcing options?
The short answer
Five models. Keep it in-house and hire. Buy administration from an ASO while remaining sole employer of record. Enter co-employment with a PEO for pooled purchasing and shared statutory obligation. Outsource discrete processes to a BPO. Or buy senior judgment part-time through fractional HR. They solve different problems, and most mid-market employers end up combining two — usually administration outsourced and judgment hired.
Start by separating the two problems
Almost every HR outsourcing decision goes wrong at the same point: treating transactional load and judgment load as one problem. They are not, and no single model solves both well.
Transactional load is filings, enrolment, data entry, the same question answered forty times. It transfers cleanly. Judgment load is an employee relations matter nobody is qualified to handle, managers who have never been trained, a compensation structure that has drifted. It does not transfer at all.
The five models
In-house means hiring. Right when the load is judgment-heavy, and wrong when it is transactional — you will hire a capable person, spend their week on work a system should absorb, and lose them within eighteen months because the job they accepted is not the job they got.
An ASO buys administration as a service while you remain sole employer of record. Right when the pain is administrative and your benefits position is already sound.
A PEO adds co-employment, pooled purchasing and a defined share of statutory obligation. Right when your benefits position is weak or your compliance floor needs raising, and unavailable where contracts or agreements constrain the employing entity.
A BPO takes a discrete process end to end — payroll, or benefits administration alone. Right when one function is the problem and the rest is fine.
Fractional HR buys senior judgment part-time. Right when you need the capability of a head of HR and not the hours, which describes a great many employers between 100 and 300 people.
The sequence that works
Absorb the transactional load first, then hire for judgment. Doing it in that order means the person you hire arrives into a role worth holding. Doing it in the other order is how good HR hires get burned out administering the systems they were brought in to move beyond.
What none of them fix
Managers who cannot manage. A compensation structure nobody has looked at in five years. A culture problem. Every model on this list will process those situations efficiently and none will resolve them, and an employer who outsources expecting otherwise has bought a faster version of the same difficulty.
| Model | Solves | Employer of record | Poor fit when |
|---|---|---|---|
| In-house hire | Judgment | You | The load is transactional |
| ASO | Administration | You | You need pooled purchasing |
| PEO | Administration + purchasing | Co-employment | Contracts constrain the entity |
| BPO | One discrete process | You | The problem is systemic |
| Fractional HR | Senior judgment, part-time | You | You need daily presence |
Common questions
At what size do we need a dedicated HR person?
Can we combine models?
Which is cheapest?
Where this sits
This page supports Human Resource Administration — the practice that does this work.
