HRAD4Y - HR Outsourcing Pricing Models

According to HR Outsourcing Trends a survey conducted by The Conference Board involving 165 companies, the two most commonly outsourced activities were transactional and administrative HR functions.

Human Resource Outsourcing Pricing Models

In companies without a HR department, the activities are usually handled by the President or Chief Financial Officer which distracts the focus on the essential contributions for the growth of the organization. It is suggested to hire a full-time human resources employee or designate someone in house to handle these functions or to take advantage of outsourcing.

Percentage vs. Fixed Fee Pricing Models:
It's difficult to pinpoint specific costs for human resources services as the outsourcing offerings vary dramatically. However, the pricing model has been fairly consistent over the years. In general there are two structures either a fixed dollar amount per employee per month, or a percentage of individual monthly salaries.

Fixed Fee Models usually charge $20-$200 per employee per month. The specific pricing varies depending on the size of your organization and the HR programs you wish to outsource. Some outsourcing companies offer a volume discount on a per employee rate. Billing typically occurs each month but is not uncommon if billed on a quarterly basis.

Percentage Based Models usually charge a percentage of each individual employee's annual salary this cost can range from 2% -10%. It is recommended to reach an agreement with the outsourcing firm on a fixed percentage for current salaries because future salary adjustments may increase your costs.

A La Carte Models offer services based on the organizations individual needs, these may include:

Placing recruiting advertisements – typical costs vary between $1,000 - $3000
Auditing your current HR policies – typically costs between $200-$500
Performing background checks, drug screenings, and psychological evaluations for new hires - typically costs $150-$300 per person

* A recent report in the U.S. Small Business Administration (SBA) estimates that small-business owners spend up to 25 percent of their time handling employee-related paperwork. The figure jumps to 45 percent when factoring in the owner’s time spent on all other HR tasks!