HR outsourcing companies guide: models, costs, RFP

When HR work starts crowding out growth, outsourcing can reduce risk, control costs, and speed up results. Human resources outsourcing companies provide HR managed services ranging from payroll outsourcing and benefits administration to recruiting, compliance, and global hiring. This guide demystifies the models (HRO/ASO/PEO/EOR), shows how pricing really works, and gives you a practical RFP and implementation playbook.

You’ll get vendor-neutral clarity on co-employment, compliance responsibilities, HRIS integrations, and SLAs—plus a 90-day rollout plan you can adapt. By the end, you’ll be able to shortlist with confidence and compare total cost of ownership against in-house HR.

Overview

This guide is for executive and HR leaders at 25–500 employee companies who need to lower admin load and risk without stalling hiring or benefits. We cover the major outsourcing models, the services you can offload, transparent cost frameworks, and a step-by-step RFP process.

HR outsourcing is the delegation of specific HR functions to a third party under a service agreement or co-employment model. The decision matters because accountability for payroll taxes, healthcare compliance, and leave laws shifts depending on the provider. Integration depth and change management drive time-to-value as much as headline price.

Types of human resources outsourcing companies (HRO, ASO, PEO, EOR)

Choosing the right model comes down to who employs whom, who files and remits payroll taxes, and who carries compliance risk. At a glance: HRO and ASO are service agreements where you remain the employer; PEO adds co-employment for U.S. workers; EOR becomes the legal employer (especially useful outside your home country).

As compliance context, the FMLA generally applies to covered employers with 50 or more employees within a 75‑mile radius, and COBRA generally applies to group health plans maintained by employers with 20 or more employees (U.S. Department of Labor: FMLA; COBRA). For industry context on PEOs, see NAPEO.

HRO (Human Resources Outsourcing): A la carte HR BPO for tasks like payroll, benefits administration, recruiting, or compliance support. You remain the employer of record and the liable entity.
ASO (Administrative Services Only): Similar to HRO but often bundles HR administration under your tax IDs. There is no co-employment. You handle tax filings while the ASO processes and supports.
PEO (Professional Employer Organization): Co-employment model where the PEO shares certain employer responsibilities (e.g., payroll tax remittance) and may offer access to large-group benefits. You manage day-to-day people leadership.
EOR (Employer of Record): The provider becomes the legal employer for designated workers (commonly in foreign countries). It handles contracts, payroll, taxes, and statutory benefits; you direct work.

In all models, you still manage culture, performance standards, and business outcomes. Many providers also offer HRIS platforms and HR managed services to centralize time, HR, and payroll. Your integration needs should influence model choice as much as risk transfer.

Sources: U.S. DOL FMLA (https://www.dol.gov/agencies/whd/fmla), U.S. DOL COBRA (https://www.dol.gov/general/topic/health-plans/cobra), NAPEO overview (https://www.napeo.org/)

How co-employment works in a PEO—and when it benefits SMBs

In a PEO, you and the provider both employ the worker for different purposes. You direct work and compensation decisions, while the PEO handles payroll tax filings under its FEIN, maintains certain HR policies, and may sponsor group benefits.

This structure can transfer administrative risk (e.g., payroll tax remittance) and unlock benefits purchasing power that smaller employers can’t access alone.

For example, a 75-employee, multi-state company might join a PEO to streamline 10 different state tax accounts, centralize EPLI/Workers’ Comp administration, and reduce medical premiums via a larger risk pool. The tradeoffs include standardized policies and benefit plan choices, but many SMBs accept that for compliance support and scale.

For broader industry data on PEO outcomes and definitions, see NAPEO (https://www.napeo.org/).

What services can you outsource?

You can outsource discrete HR outsourcing services or full-scope HR managed services across the employee lifecycle. The right mix depends on your internal strengths, compliance profile, and growth goals.

Payroll processing and tax filing
Benefits administration outsourcing (eligibility, enrollments, carrier interfaces)
Recruiting and talent acquisition, background checks, and onboarding
Time and attendance, scheduling, and leave management (including FMLA tracking; note EEO‑1 reporting generally applies to private employers with 100+ employees, per EEOC)
Performance management, engagement surveys, learning management, and compliance training
HR analytics and reporting (headcount, turnover, DE&I metrics)
I‑9 and E‑Verify administration (see USCIS E‑Verify), plus audits
ACA and COBRA administration and reporting
Offboarding, unemployment claims, and employee relations support

As you map scope, separate strategic responsibilities you’ll keep (culture, leadership, compensation philosophy) from transactional processes that scale better with a provider’s systems and controls.

Sources: EEOC EEO‑1 (https://www.eeoc.gov/employers/eeo-1-data-collection), USCIS E‑Verify (https://www.uscis.gov/e-verify)

Costs and pricing models (PEPM vs % of payroll) with scenario math

HR outsourcing companies typically price either per employee per month (PEPM) or as a percentage of gross payroll. PEPM is most common for HRO/ASO and many PEOs. Percent-of-payroll appears with some PEOs and legacy payroll contracts. EORs typically charge a PEPM platform fee plus statutory costs and a service margin.

Your actual rate flexes with headcount, multi-state complexity, benefits administration, and support tiers.

A practical benchmark: many HRO/ASO bundles land around $20–$80 PEPM depending on modules. PEOs often range from roughly $50–$150 PEPM or 2%–6% of payroll (benefits costs billed separately or through the PEO). EOR pricing for international employees commonly spans a few hundred dollars PEPM plus employer taxes/benefits in-country.

These are directional. Require apples-to-apples quotes with itemized inclusions and pass-throughs.

Key cost drivers to compare: headcount and seasonal variability; number of states/countries; benefits complexity (self-billed vs carrier-billed, COBRA/ACA); payroll frequency and off-cycles; integrations/API needs; support model (pooled vs dedicated); risk products (EPLI/Workers’ Comp).

Scenario math (50-employee example): imagine a 50-employee company at $65,000 average salary. A PEO proposal at $95 PEPM would be about $4,750/month for admin; adding medical/dental/vision depends on plan selection. A percent-of-payroll quote at 3.5% equals roughly $9,479/month on $270,833 monthly payroll—higher than the PEPM option, but it may bundle more support or risk coverages. An ASO/HRO bundle at $45 PEPM totals $2,250/month but might leave payroll tax remittance and certain compliance tasks to your team.

Normalize quotes by (1) listing included modules, (2) identifying who files/remits taxes, (3) isolating benefits premiums and broker commissions, and (4) flagging add-on fees (e.g., implementations, W‑2s, off-cycle payroll, COBRA events).

To avoid surprises, request a rate card for change orders, clarify renewal caps, and model a +/‑ 20% headcount swing to see pricing sensitivity over 12–24 months.

Compliance, risk, and who is responsible under each model

Compliance allocation changes with the model. In HRO/ASO, you remain the employer of record and own legal responsibility for payroll taxes, ACA/COBRA, wage-and-hour, and leave laws. The provider supplies tools and process, but liability generally stays with you.

In a PEO, co-employment means the PEO typically files and remits payroll taxes under its FEIN and may share responsibility for certain HR policies. You retain control over hiring, firing, compensation, scheduling, and safety practices.

Under EOR, the provider is the legal employer for designated workers and assumes responsibility for employment contracts, payroll, tax withholdings, and statutory benefits in that jurisdiction. You direct day-to-day work while the EOR manages labor law compliance locally.

Regardless of model, you’ll still own culture, anti-harassment enforcement, and operational safety. Outsourcing doesn’t absolve you from maintaining a lawful, non-discriminatory workplace.

Use regulatory thresholds to frame scope: the Family and Medical Leave Act (FMLA) generally applies at 50+ employees within a 75‑mile radius (U.S. DOL), COBRA generally applies at 20+ employees for group health continuation (U.S. DOL), and EEO‑1 reporting generally applies to private employers with 100+ employees (EEOC). Confirm in contracts who monitors thresholds, updates policies, files reports, and responds to audits—and what indemnities and limits apply.

Sources: DOL FMLA (https://www.dol.gov/agencies/whd/fmla), DOL COBRA (https://www.dol.gov/general/topic/health-plans/cobra), EEOC EEO‑1 (https://www.eeoc.gov/employers/eeo-1-data-collection)

Security, SLAs, and data governance to ask about

Security assurances and service levels protect your workforce data and your operations. Require third-party validation, clear uptime commitments, and transparent incident handling before you sign.

SOC 2 Type II attestation covering security, availability, confidentiality, and processing integrity (see AICPA overview)
Data encryption in transit and at rest; key management practices and data segregation for multi-tenant systems
Access controls and identity: SSO/SAML, role-based access, MFA enforcement, and audit logs
Incident response: detection/response times, breach notification windows, root-cause analysis and corrective action plans
Uptime SLAs (e.g., 99.9%+), maintenance windows, and performance monitoring; defined RTO/RPO for backups
Data retention/deletion timelines, customer export rights, and portability at termination
Subprocessor/vendor risk management, penetration testing cadence, and vulnerability remediation SLAs
Support tiers and response times by priority; named CSM vs pooled queue; escalation paths and executive access
Audit rights, compliance reports (e.g., SOC 2, penetration test summaries), and optional HIPAA BAA if handling PHI in benefits workflows

Close gaps by aligning SLAs to payroll calendars and open enrollment peaks. Reference these commitments in your scorecard to compare providers on more than features.

Source: AICPA SOC 2 overview (https://www.aicpa.org/resources/article/what-is-soc-2)

Integrations: HRIS, payroll, and ATS ecosystems

Integrations determine how quickly your team adopts the platform and how trustworthy your reports are. Prioritize native connectors to your HRIS, payroll, ATS, time, and general ledger. Verify how data maps, syncs, and is validated end to end.

A fast demo can mask complexity. Ask to see field-level mappings for job, comp, location, and benefits data. Confirm whether changes flow one way or bi-directionally. Test how errors are surfaced.

Migrations succeed when providers offer templates, staging environments, and parallel runs to catch mismatches before go-live.

Integration mini-checklist: current native connectors; API coverage and rate limits; webhooks/events; field-level mapping for people, comp, and tax data; sync cadence and latency; error handling and retries; SSO/SCIM for user provisioning; GL export formats and dimensions.

Confirm ownership: who builds and maintains connectors, what the SLA is for break-fix, and how version upgrades are handled when your HR tech stack evolves.

How to shortlist providers and run an effective RFP

A disciplined RFP compresses the timeline and reduces risk by forcing apples-to-apples comparisons. Start with your scope and constraints, then drive to demos and references that validate execution, not just promises.

Define scope and success metrics (e.g., reduce payroll errors by 80%, cut time-to-hire by 30%).
Document must-haves (multi-state payroll, COBRA, ACA, leave tracking), nice-to-haves, and excluded items.
Set data and security requirements (SOC 2 Type II, SSO/MFA, uptime 99.9%+, RTO/RPO).
Map integrations (HRIS, payroll, ATS, time, GL) and required field coverage.
Issue the RFP with timelines and a pricing template (PEPM vs % payroll, implementation fees, change-order rates).
Build a scorecard with weighted criteria.
Run scenario-based demos (hire in two states; off-cycle payroll; ACA measurement).
Validate 2–3 references matching your size/industry.
Negotiate SLAs, data ownership/portability, and renewal caps.

Question bank to include: Who files/remits payroll taxes? What’s your average implementation timeline by headcount? How are COBRA and ACA handled—who is the responsible entity? Which APIs and native connectors are production-supported?

What is your support model and response times by severity? How do you handle security incidents and notify clients? What are typical add-on/hidden fees? Can you share case metrics (error rates, time-to-hire) for companies like ours?

Decision criteria that predict long-term fit

Selecting on features alone risks churn; choose a partner you can scale with. The best predictors of success blend compliance maturity, implementation discipline, and integration depth with a service model that meets your team where it is.

Compliance posture and indemnities aligned to your model (HRO/ASO/PEO/EOR)
Implementation track record and resources (project plan, parallel runs, data validation)
Integration fit (native connectors, API depth, GL export flexibility)
Support model (named CSM vs pooled; SLAs; payroll-calendar alignment)
Scalability (multi-state/country support, seasonal headcount swings)
Total cost of ownership (PEPM/percent pricing, benefits, add-ons, change orders)
Cultural alignment and change-management approach
Proof of outcomes (benchmarks on error rates, time-to-hire, benefits adoption)

Ask finalists to map these criteria explicitly to your 12–18 month roadmap. Strong providers will show how their model flexes as you grow.

Implementation timeline and change management

Most implementations succeed or struggle based on data quality and stakeholder bandwidth, not software alone. A pragmatic 30/60/90-day plan aligns HR, finance, and IT on milestones and risks so your first payroll runs clean.

Days 0–30 (Discovery and data prep): assemble a cross-functional team, inventory current processes, and extract clean employee, comp, and tax data. Build the integration plan and GL mapping, stand up SSO, and schedule vendor-led training.

Risks here include incomplete historical tax data and unclear leave balances. Mitigate with a single source of truth and template-driven data validation.

Days 31–60 (Configuration and parallel): configure payroll, benefits, time, and security roles. Connect carriers and tax jurisdictions. Run at least one parallel payroll and reconcile variances to the penny.

Confirm ACA/COBRA settings, test onboarding and offboarding, and dry-run open enrollment workflows. The critical path to a clean go-live is parallel payroll plus carrier and tax account confirmations.

Days 61–90 (Go-live and stabilization): execute first live payroll with contingency for off-cycle corrections. Monitor support tickets and error trends. Finalize documentation and transition to your steady-state CSM.

A light change-management plan—FAQs, quick guides, and manager training—reduces noise. In one 110-employee case, parallel runs cut first-month payroll errors by 78% and slashed HR ticket volume by half within six weeks.

Use cases by size, industry, and geography

Model fit changes with complexity. Map your scenario to the option that best balances risk transfer, speed, and integration control.

Startup (25–75 employees, 1–2 states): ASO/HRO for payroll + benefits admin; consider PEO if benefits buying power and payroll tax remittance are priorities.
Mid-market (75–250, multi-state): PEO for co-employment simplicity and compliance scale; HRO/ASO if you want tighter HRIS ownership and in-house compliance expertise.
Seasonal/variable workforces: HRO/ASO with flexible PEPM and time/attendance depth; or PEO if payroll tax complexity spikes across states.
Healthcare and nonprofit sensitivities: providers with strong ACA/COBRA, leave tracking, and audit support; require SOC 2 and data governance due to PHI adjacency.
Unionized or manufacturing: HRO/ASO or PEO with robust timekeeping, shift differentials, and CBA-aware payroll; confirm multi-jurisdiction overtime rules.
Early global expansion: EOR for fast, compliant hiring without entity setup; migrate to a local entity or PEO-equivalent later as headcount grows.

As you scale, revisit model assumptions annually. Many companies start with a PEO for speed, then graduate to HRO/ASO once their HRIS, processes, and broker relationships mature.

FAQs

What’s the difference between HRO, ASO, PEO, and EOR? HRO/ASO are service agreements where you remain the employer; PEO adds co-employment in the U.S.; EOR becomes the legal employer (often for international hiring).
How do providers price—PEPM or percent of payroll? Most HRO/ASO and many PEOs use PEPM; some PEOs use percent of payroll; EORs charge PEPM plus in-country statutory costs; PEPM is generally more predictable.
Who holds compliance liability for payroll taxes, ACA/COBRA, and FMLA? HRO/ASO: you do; PEO: provider typically files/remits payroll taxes and shares some responsibilities; EOR: provider is the legal employer; confirm specifics in the MSA.
What SLAs and security certifications should we require? Ask for SOC 2 Type II, 99.9%+ uptime, defined incident response times, RTO/RPO targets, and support response times by severity.
How long does implementation take? Typical 6–12 weeks for SMBs; critical path is data quality, integrations, carrier connections, and at least one clean parallel payroll.
Which integrations matter most? HRIS, payroll, ATS, time, and GL; evaluate native connectors, API coverage, field mappings, sync cadence, and error handling.
When is EOR better than PEO? When hiring in new countries without entities or where local employment law complexity makes entity setup slow or risky.
What hidden fees should we watch for? Implementation, off-cycle payrolls, W‑2/1095 processing, COBRA events, extra tax accounts, integration build fees, and premium support.
How do we measure ROI? Track payroll error rate, time-to-hire, turnover, benefits adoption and cost trends, compliance findings, and HR ticket volume/time saved.