Amid workforce challenges, managed services can help businesses adapt

Middle market companies face mounting pressure to attract, retain and manage talent efficiently. In a shifting labor market, organizations are turning to managed services and outsourcing as strategic solutions to overcome workforce challenges, according to the RSM US Middle Market Business Index Special Report: Workforce 2026, based on a survey of 405 executives in the fourth quarter of 2025. These approaches can help address immediate staffing needs and enable businesses to adapt more easily to market changes.

The report found that, among executives who said outsourcing some functions or capabilities was one of their organization’s greatest challenges, the top functions they plan to outsource are:

Take the payroll function, for instance, which is often more regulated and intricate than many business leaders realize. If companies operate in multiple jurisdictions, that complexity only grows.

“States are starting to adopt their own payroll processes,” says Lorry Twisdale, a principal at RSM US LLP and national leader of the firm’s payroll services practice. “Companies are really struggling to find people that understand payroll and related systems.”

In-house payroll teams at middle market businesses might consist of just one or two people, meaning they can easily become a single point of failure. If even one person leaves, the business might become vulnerable to disruption.

That’s where managed services can help. Working with a managed services provider can cut down on the need for constant recruitment, training and dealing with turnover. It can also be a significant asset on an interim basis or in times of sudden need.

“A third-party provider can drop right in, stabilize operations and keep things moving until a future-state decision is made,” Twisdale says. An advisor already has a talent bench that understands various systems, so the business doesn’t have to worry about training new employees.

Harnessing technology and leading practices

Rapid changes in human resources technology, automation and AI are transforming the way businesses manage their workforce, says Marni Rozen, an RSM principal and leader of the firm’s human capital consulting practice. But middle market companies might not know where to start when it comes to implementing new systems and processes.

“It might be overwhelming for organizations that aren’t keeping an ear to the market to know what's changing in HR technology,” she says. Proactively engaging an advisor can help companies get up to speed, assess their needs and implement solutions.

Modernizing those systems is becoming more of a focus for middle market businesses, according to data from the RSM workforce special report:

• 44% of executives said they plan to somewhat or significantly increase their human capital management system spending over the next two years to enhance worker productivity.
• That figure was significantly higher for organizations with $50 million to $1 billion in revenue (58%) compared to those with $10 million to less than $50 million in revenue (27%).

Legacy systems developed to focus only on payroll and benefits often struggle to keep up with the pace of regulatory changes and automation trends that are transforming the employee experience. Platforms where employees can onboard themselves, organize documentation, use self-serve tools and review performance information have become the new standard.

“There's a need and demand in the market to be more all-inclusive,” says Deanna Balkcom, a director in RSM’s human capital management practice. “Organizations want to shrink their tech stack and have one source of truth.”

Balkcom is also seeing a trend of companies wanting to nearshore, rather than offshore, their third-party providers. That’s often because of the desire for resources in similar time zones and teams with country-specific knowledge, all of which can make a provider feel like more of an extension of an organization’s in-house team.