A company’s human resource (HR) department is responsible for recruitment, administration, employee relations, benefits, training and development, performance management, and many other tasks.
If your HR team is struggling to keep up with tasks, an internal employee lacks the knowledge to perform a specific task, or hiring an in-house HR department isn’t a financially viable option, you may consider HR outsourcing.
Outsourced HR is a contract under which a company hires an external third party to manage some or all of its HR tasks, including payroll processing, recruitment, and benefits administration.
80% of companies use outsourced HR for at least one function. It is an option for every business, regardless of size or industry, but it has pros and cons. Let’s take a look:
Pros of Outsourcing HR
Lower costs
Outsourcing HR functions can positively impact your company’s budget by reducing HR-related expenses such as salaries, benefits, and overhead costs.
Outsourcing HR can eliminate the need for in-house staff and reduce administrative expenses. In fact, statistics from recruitment agency WifiTalents show outsourcing can lower hiring costs by up to 15% and reduce administrative costs by about 20-30%
Saves time
Repetitive and manual tasks, such as employment contracts, are the day-to-day reality for an employee in the HR department.
Outsourcing your HR will enable your employees to free up more time to focus on the more critical tasks that directly affect company performance and efficiency.
Compliance assurance
Remaining compliant with legal regulations is essential for protecting your business. However, keeping up with ever-evolving laws and requirements can be challenging for HR employees. That’s where outsourced HR can make a significant difference.
HR outsourcing service providers stay updated on the latest legal regulations. So, choosing to outsource your HR will give you peace of mind that your organisation complies with all the necessary laws and regulations.
Access to advanced HR technology
Outsourcing providers often use advanced software and systems to streamline HR processes and improve company efficiency.
Outsourcing HR will allow your company to leverage these advanced technologies without investing in each software or system. These systems manage various HR functions, such as training, onboarding, timekeeping, payroll, and data storage.
Skills and knowledge
Your outsourced HR consultant is likely to have a broader knowledge base and direct access to a network of support from colleagues. This gives companies confidence that the solutions and advice they provide will be right.
It also means you can skip the lengthy process of hiring an in-house HR employee who may not live up to expectations.
In addition, you must consider that training your in-house HR team to have the same skills as an outsourced consultant will cost your company.
Cons of Outsourcing HR
Lack of control
Removing the in-house HR department can sometimes make business owners feel like they lack control over their company’s procedures.
Effects on company culture
Employees want to feel heard as HR departments address employee-facing issues such as benefits, payroll, complaints, and training and development.
Transferring these duties to an off-site third party can cause employees to feel ignored by their employers, which leads to a negative company culture.
Less flexibility
HR managers are often able to help loyal employees by letting them use next year’s annual leave early or take time off during an emergency.
However, these flexibilities are less likely to be made when HR is outsourced. This is because outsourced HR consultants follow the rules more strictly and don’t know the employees or their circumstances personally.
Things take longer
When errors are made with payroll, annual leave, or anything else, an outsourced HR service may take longer to fix them, leaving the employee angry or frustrated.
In addition, when the company uses a third-party recruiter, the hiring and training process will take longer than it would with an in-house HR team. While an in-house team can be proactive about hiring and training employees before job roles even become available.
Privacy and security concerns
Outsourced HR can leave employee data vulnerable to security threats if the service provider’s software isn’t secure. This is because they use web-hosted software to handle HR functions.
Having your employees’ personal banking or medical information released to the public will break HIPAA laws.
Conclusion
Outsourced HR has become a popular solution for businesses seeking highly-skilled employee management. While we have explored some cons, outsourcing HR ensures significant cost savings, compliance assurance, and access to advanced HR technologies.
There are many excellent HR outsourcing service providers on the market, but they won’t all be a perfect fit for your company. Some providers want to handle all your HR functions, while others allow you to decide which you’d like to keep in-house and which can be outsourced.
The level of service you need for your HR functions depends on your company’s size, type and culture.
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