This guide discusses what back office outsourcing is, its benefits for staffing companies, and the most commonly outsourced back office functions.
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Table of Contents
What is Back Office Outsourcing?
6 Benefits of Outsourcing Back Office for Staffing Companies
How to Outsource Back Office Support for Your Staffing Company
Top 6 Back Office Functions for Staffing Firms to Outsource
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To run a successful staffing agency, the two most important priorities are always finding clients and making placements. With the shortage of skilled labor, tightening capital markets, and increasing regulatory concerns, accomplishing these core goals while running an efficient back office has never been more difficult. The problem is that a poorly run back office can quickly lead to cash flow issues, potentially catastrophic legal or compliance issues, and at a minimum a lot of stress and administrative headaches.
Fortunately, you don't have to operate like a legacy staffing firm by handling your back office functions in-house while trying to find clients and make placements. Instead, outsourcing some or all of your staffing back office to a specialized partner can help you scale your business with less stress.
Here's your guide to back office outsourcing, including what it is, how it works, and how to get started.
What is Back Office Outsourcing?
Back office outsourcing is the process of hiring a third-party services provider to handle certain administrative and support functions for a company. These "back office" functions do not directly generate revenue for the company but are necessary for its smooth operations.
By outsourcing back office functions, staffing companies can focus on their core competencies and leave non-core tasks to specialized service providers with the needed expertise and technologies that the company may not have in-house.
6 Benefits of Outsourcing Back Office for Staffing Companies
Outsourcing staffing requirements for back office support enables your company to save money, improve its organizational productivity, expand globally, access advanced technology, and mitigate legal and business risks.
1. Lower costs
When you hire in-house staff, you must pay them various benefits on top of their salaries. These expenses can quickly stack costs for you as the employer.
By contrast, outsourcing your back office functions results in reduced overhead for your company and office space savings minus any risks to critical business systems.
2. Improved efficiency and productivity
Freeing your in-house employees from detail-oriented back office tasks allows you to allocate your workforce to revenue-generating responsibilities, resulting in improved productivity within the organization.
For example, a recruiter spending time helping to onboard a new candidate or answer HR questions or deal with contract questions is costing you money, but that same recruiter spending time to land a new placement is generating revenue.
3. Enhanced business scalability
If you are handling back office in-house, there is a high likelihood of real problems occurring if your back office employee quits their job or if your business grows too fast and the work becomes overwhelming. By leveraging a stable, specialized partner for back office, you can improve your scalability to ensure reliability and elasticity as you scale up.
4. Access to advanced technology
By outsourcing your back office, you will avoid spending money on expensive software and instead gain access to your partner’s tools for onboarding, timesheets, invoicing, and reporting. Working with an outsourcing firm allows you to access these specialized systems without investing substantial funds, making it a cost-efficient venture.
5. Payroll funding
Some specialized back office providers for the staffing industry offer payroll funding solutions in addition to their administrative offerings. If you want to leverage your end clients' credit to grow your business, a back office partner with funding is likely an easy way for you to achieve explosive growth and avoid major cash flow issues.
6. Legal and business risk mitigation
Staffing companies can mitigate legal and business liabilities by transferring applicable risks to a third-party service provider. Not only can third-party experts help avoid specific errors, but they can also assume some liability should any violations occur, which may help protect the staffing company from expensive penalties.
How to Outsource Back Office Support for Your Staffing Company
If your staffing company plans to outsource back-end work, there are a few steps you should keep in mind.
1. Determine your company's back office needs
The first step in any outsourcing venture is determining your company's back office needs. First, think through all the functions you currently handle in-house. Then, consider which ones are appropriate for outsourcing.
Factors such as legal risks, the extent of administrative work, the cost of insurance and other benefits, and your current payroll funding can help you identify which tasks to outsource.
2. Run the return on investment (ROI) and risk reduction analysis
After determining your company's back office needs, the next step is to run the ROI and risk reduction analysis. This process will help you find out if outsourcing is cost-effective and worthwhile for your company.
Here, it is crucial to consider the potential cost savings from reducing in-house staff and the risks of hiring a third-party services provider. An example of a potential threat is the increased data vulnerability when you allow a third party to handle your company's information.
3. Research potential providers
Ideally, your outsourcing services provider must possess a good reputation, proven expertise and track record, and flexibility in addressing your staffing business's needs and requirements. These considerations can help you receive quality services and get the most out of your outsourcing venture. In addition, look for a specialized provider who already works with clients similar to your staffing business.
4. Thoroughly understand the contract before you sign
Before signing the dotted line, review and understand the terms and conditions of the outsourcing agreement. Pay particular attention to the liability, confidentiality, and terms of service clauses. It's best to seek legal advice to help you parse the contract terms and protect your business interest. Note that there is a wide spectrum of terms across back office outsourcing providers.
Top 6 Back Office Functions for Staffing Firms to Outsource
Consider outsourcing these back office functions to help you better manage your staffing business.
1. Employment responsibilities
Employment responsibilities are among the most commonly outsourced functions in the staffing industry. Staffing firms often work with an employer of record (EOR) to handle the employment of their contract workers. This strategy is an excellent way to reduce legal and administrative burdens and risks.
2. Onboarding administration
The whole process of onboarding—integrating new hires into your organization and orienting your new employees to your company's structure, culture, values, vision, and mission—can be time-consuming and resource-intensive.
Outsourcing this function allows you to streamline the procedure for your staffing agency and reduce your internal HR team's workload, improving their efficiency and productivity.
3. Timesheets and payroll
Auditing and processing timesheets and payroll can be tedious. For example, you must review hourly employee schedules, record overtime work, calculate gross and net pay, and determine deductions.
You don't have to deal with these tedious tasks. By outsourcing these functions, your staffing firm can save time and reduce the risk of errors and compliance violations.
4. Payroll funding
Payroll funding or financing refers to acquiring funding from a third party like an EOR to cover salary expenses, similar to getting a loan. For example, a construction company might only receive full payment after completing a building, which can take an extended period. To ensure sufficient salary funds, the owner can apply for funding with an EOR to pay their staff until they finish construction.
Payroll funding services offer financing options, such as factoring, credit lines, and payroll funding loans. These arrangements are strategic, flexible, and cost-effective in handling the fluctuating demand for workers. As an additional benefit, many EORs can directly manage your salary and wage system.
5. Reporting
Some outsourcing providers in the staffing industry specialize in providing profitability reports. Here, outsourced reports can help identify inefficiencies in your organization, improve your processes and systems, and increase your organizational efficiency and profitability.
Meanwhile, if you intend to outsource some or all of the functions discussed above, your provider may be able to provide you with key reports to better run your staffing company.
6. Certificates of insurance and risk transfer
Staffing firms can transfer much of their legal and financial risks through the way they structure their contracts with their back office partner and end clients. If reducing risk and minimizing insurance costs is an objective, then outsourcing these items may be of value.
Outsourcing Your Way to a Better Business
Back office outsourcing offers multiple business benefits for staffing companies. From reducing overhead to mitigating legal risks, the advantages of working with an outsourcing provider far outweigh the costs.
If you're considering outsourcing your back office functions, reach out to us for a free consultation! Grow your staffing company fast with Agile Partnering's simplified back office staffing solutions.