Fractional HR vs Outsourced HR: Everything You Need to Know

If you’re a business owner, you can likely attest to the fact that there is no shortage of business priorities that need your attention each and every day. Every business owner has goals they want their organization to achieve, daily operations they need to attend to, and initiatives they want to implement. It’s true that running a business demands a lot of time and attention, but that doesn’t mean you always have to do everything yourself. In fact, businesses of any size often need some supplementary assistance to accomplish their business objectives. This is where Fractional HR and outsourced HR come in. But first…

Why Human Resources is Important for Every Business?

In the dynamic world of business, Human Resources (HR) holds a pivotal role in shaping the structure, culture, and overall functionality of an organization. HR goes beyond just hiring and firing – it involves strategic planning, employee engagement, conflict resolution, and benefits administration, all of which significantly contribute to a company’s success.

For most businesses, they can afford to hire a full-time HR staff to manage these important tasks. However, many smaller companies and start-ups that lack the resources in terms of time or budget may need to explore other options.

Alternative HR Solutions

Human Resources can be an especially formidable business function to tackle. But no worries. Fortunately, there are beneficial options out there that can fundamentally change the way you approach your organization’s Human Resources needs. In the words of John D. Rockefeller Jr., “The secret of success is to do the common thing uncommonly well.”

Fractional or Outsourced HR are alternative yet beneficial solutions to practically and sensibly outsource HR functions to a third party instead of having a full-fledged Human Resources department without sacrificing quality. These options range significantly from establishing HR policies and best practices to high-level business strategy. Whether temporarily or permanently, these tailored options are available so that you can focus on what matters most: running your business.

What is Fractional HR?

You may have heard these terms before or maybe even heard them be used interchangeably, but there is a slight difference between them. Fractional HR allows companies, especially small to medium-sized businesses, to have access to high-level HR expertise and services without the need for a full-time, in-house HR department. Without being a full-time employee, a Fractional HR partner is typically a readily available team member, perfect for small-mid size organizations that need the benefit of a full-time HR executive for a fraction of the cost, that is typically used to assist with Strategic Human Resources planning, improving or cultivating company culture, reaching business objectives, compliance, professional development, and workplace investigations. In short, they are characteristically seen as an additional set of hands for your organization. 

Here are some of its benefits:

1. Flexibility: It provides an adaptable solution for your HR needs. Businesses can dial up or down their HR support based on their requirements, offering a level of adaptability that a full-time HR staff may not provide.
2. Cost-Effectiveness: This model is particularly beneficial for small to mid-size businesses, allowing them to leverage professional HR services without the financial burden of maintaining a full-time HR department.
3. Expertise on Demand: Fractional HR ensures that expert advice is always at your fingertips. This can prove invaluable when navigating complex HR challenges or during periods of rapid growth.

Challenges of Fractional HR

However, it’s essential to note that the Fractional HR model may not suit every organization. Large teams might require a consistent, full-time HR presence to ensure seamless operations. Therefore, before adopting the Fractional HR model, businesses should:

1. Evaluate their HR Needs: Assess the level of HR support your business requires at the moment.
2. Consider Potential Growth: Factor in your business’s growth potential. As your team expands, your HR needs might increase, necessitating more robust HR support.
3. Assess HR Support Required: Determine if your business needs constant HR support or if an on-demand model would suffice.

What is Outsourced HR?

Outsourced HR, on the other hand, can be used for any size organization where some or all of your HR functions are passed to an outside service. These functions are usually more recurring operational or administrative tasks in nature, such as payroll, benefits administration, day-to-day company operations, PTO and time tracking, or recruiting and hiring.

Here are some advantages of outsourced HR:

1. Cost Savings: Outsourcing is often cost-effective, allowing businesses to access expertise without needing a full-time HR staff.
2. Scalability: It can scale with businesses as they grow, reducing the need for additional resources and costs.
3. Tailored Solutions: Customized services address each organization’s unique needs.

Challenges of Outsourced HR:

Despite the many benefits, outsourcing might not be suitable for every business. It requires a significant amount of trust between the company and their vendor. Before outsourcing, businesses should:

1. Research Vendors Thoroughly: Carefully investigate vendors to ensure that they are reliable and have the necessary expertise to fulfill your HR needs.
2. Consider Your Business Objectives: Research vendors who understand your business objectives and can carry out the services you require.
3. Monitor Service Delivery: Ensure that they are delivering services as promised, and periodically audit their performance to ensure that your HR operations remain compliant with relevant regulations.

Fractional HR vs Outsourced HR: A Comparative Analysis

Both options have similar benefits: they take things off your plate so you can focus on growing your business, they help reduce time spent on HR questions and issues, they save money, and they offer you a ready-to-go expert who is familiar with employment regulations, payroll compliance, HR best practices, and more. 

1. Size and Type of Business Best Suited for Each:

• Fractional HR: This model is ideal for small to mid-sized businesses that require flexible, cost-effective HR support without the need for a full-time HR department.
• Outsourced HR: Larger organizations with more complex HR requirements may benefit from this model. Here, an external agency handles all HR functions, freeing up internal resources.

2. Cost Implications:

• Fractional HR: With its pay-as-you-go nature, Fractional HR can be a more affordable option for businesses looking to control costs while accessing top-tier HR expertise.
• Outsourced HR: While this model can be costlier due to the comprehensive range of services provided, it can offer value by relieving businesses of the burden of managing extensive HR tasks in-house.

3. Scalability and Adaptability:

• Fractional HR: This model offers high scalability and adaptability, allowing businesses to adjust their HR support level based on current needs.
• Outsourced HR: While it offers less flexibility compared to Fractional HR, it provides robust support capable of handling large-scale HR operations.

4. Degree of Personalization and Cultural Integration:

• Fractional HR: Fractional HR offers a higher degree of personalization, with HR professionals working closely with the business to understand and integrate into its culture.
• Outsourced HR: While effective, this model may lack the same level of cultural integration and personal touch as the HR professionals are part of an external agency.

By understanding the strengths and limitations of each model, you can make an informed decision that best supports your HR function.

Adapting Alternative HR Solutions to Your Business Model

Either option can be tailored to meet your business model. HR services can flux up and down to keep up with your business needs, so business owners should regularly evaluate how their business can benefit from outsourcing HR functions and how Fractional or Outsourced HR integrates with their Strategic HR Plan.

If you’re interested in taking steps toward streamlining your HR functions, contact EnformHR today to learn more about how our experienced HR Business Partners can help maximize your business’ potential. EnformHR can provide consultation at any level of your organization.