Outsourcing HR: the pros, the cons, and everything you need to know

Every department in an organization has a finite amount of time and resources to spare. And, regardless of the size of the company or the budget available, there never seems to be enough of either. So instead of overwhelming and overloading their workforce, businesses look to third party organizations to alleviate some of the pressure.

But why outsource HR? Of all the areas of responsibility – with its sensitive data, continuous maintenance, and far-reaching effects – how is outsourcing HR the logical course of action?

Part of the answer lies in expertise and uniformity. Across the globe, HR departments serve myriad company types, but the work being performed in various roles is very similar. And employees, from new hires to veteran staff, have the same basic needs and requirements. Subsequently, once a company is able to ascertain the exact areas to be outsourced, they can draw up an outsourcing agreement and begin the transition process.

When it comes to specific functions, different kinds of services, and the demands of both large and small businesses, outsourcing HR can be a daunting process. So how does one go about taking a traditionally internalized model and seeking out external support? Thankfully, we’ve got the answers.

Considerations when exploring HR outsourcing

At its most basic level, HR outsourcing is when a business and an external third-party provider draw up an agreement to transfer the management of specific HR functions. But before we can reach that stage, we need to perform a few key steps – starting with looking inward. Most notably in order to identify how your company is currently delivering its HR obligations.

Internal analysis highlights the gaps and areas for improvement that will inform both the type of external specialist being sought out, and the level of disruption generated by the transition process.

Once it’s been made clear improvements can be made, a crucial question must be asked: is now the right time? From here, other questions sprout up. Are you in the process of hiring new recruits? Are individuals still being onboarded or going through a probation period? Are there any pressing or pending company-wide events that could sap resources and attention?

Understanding the wide-reaching impact of uprooting some or all of your HR functions can often dictate exactly when you decide to pull the trigger. Because, like all ventures, there is inherent risk and it’s simply a case of assessing whether the reward trumps those concerns.

What are the different types of HR outsourcing?

Software as a Service

Possibly the softest touch, utilizing Software as a Service (SaaS) applications allows companies to investigate the latest programs which cater to an organization’s HR needs. The adoption process requires familiarizing yourself with a new platform but with simple training, this can be accomplished with ease. SaaS’s primary functions focus on overall talent management and various payroll applications.

Business process outsourcing

If the idea of learning new programs and applications feels too daunting, business process outsourcing can be a welcome substitute. As with SaaS, you can take specific functions, for example payroll, and contract a third-party provider to not only provide the software, but operate it on your behalf as well.

Single source outsourcing

A more intense example of the previous model is single source outsourcing. Acting as a holistic start-to-end service, single source options encompass the employee life cycle within your company. Essentially using HR technology to track employee movements, training, development, benefits, and contractual obligations.

Shared services

One step further is the shared services option. This sees a third-party provider taking on the majority of day-to-day functions, as well as employee monitoring and development, allowing your core HR teams to focus primarily on strategic initiatives.

Professional employer organizations

And the largest HR outsourcing handover is by partnering with a professional employer organization. Predominantly specializing in companies with 50 or fewer employees, these organizations are brought on to fulfil almost every HR function. This means the employer regains the capacity and flexibility to continue daily operation unhindered.

Why should you consider outsourcing your HR function?

Outsourcing HR responsibilities and functions frees up time and resources for an organization to focus on big picture planning. And whether you provide a leading service, or manufacture a highly sought after product, realigning your attention to prioritize that principal operation should be paramount.

Naturally certain businesses might have concerns that these models could result in relinquishing control of an important aspect of your identity and culture. Contrarily, outsourcing HR is the opportunity for companies to lessen the undertaking of daily duties and necessities that ultimately distract and detract from delivering on your primary mission statement.

Pros of outsourcing HR

Specialist expertise

A key advantage of employing the services of external specialists is that seeking out evolving HR training is part of their job requirement. Giving you access to a constantly updating suite of skills and knowledge, without having to rely on monitoring micro and macro industry shifts.

Legislative compliance

When it comes to payroll, pensions, and salary sacrifice benefits, ensuring your company is legally compliant is of the utmost importance. Not only in the present but going forward with new hires and ongoing expansion.

Improved efficiency

By decreasing the amount of daily admin and monitoring, companies can direct their attention and efforts to maximizing efficiency in key areas. This counts doubly so when saving management and planning time, and reducing tasks generated by employees with unique or extenuating circumstances.

Reduced costs

The fiscal investment in outsourcing HR is undeniably a barrier. But, as with most services that are properly applied, the costs saved by side-stepping tribunal fallout, avoiding compliance fees, and incurring fewer training bills, are beneficial. Additionally, lower turnover due to inadequate HR services, means outsourcing almost pays for itself.

Enhanced employee engagement

Having the capacity to devote resources to improving the experience of your workforce can be a luxury for some. But it’s necessary if you want to source and retain the best talent. As such, outsourcing HR for small businesses is a marvelous means of boosting much needed satisfaction and engagement.

Cons of outsourcing HR

Subject to approval

Whenever you remove a function from within your company, you become reliant on an entirely separate business and, to a degree, subject to their schedules, commitments, and response times. Granted, you’re the customer and several of these concerns can be negated with pre-contract research, but there’s little guarantee that this quality of service will continue unabated, and transitioning to yet another third-party provider could cause unwanted disruption.

Shifting agreements

The deal you strike when first outsourcing HR responsibilities may suit your present needs but might not be as flexible as an internal HR department which you have more direct control over. And should your organization require a unique one-off service, or should new ongoing needs arise, additional support could require renegotiation, and a higher cost.

Impersonal experience

In organizations ranging from smaller independents to huge conglomerates operating on multiple sites, HR is a fundamentally person-based experience. And a lot of that is earned through an earned familiarity. But by relying on an external agent there is the risk of impersonality. This isn’t to imply third parties are in anyway cold or unwelcoming, it can take the form of something like uncontrollable staff turnover, leading to everchanging names at the bottom of emails.

Security risks

The information being regularly accessed and worked on is of the highest sensitivity. As such, data security must be all encompassing. We’re not saying that your security measures are lacking or that your third-party provider would have sub-par security either. But it’s a gap and that creates an opportunity for a breach.

But by taking the time to assess the different kinds of HR outsourcing, weigh up the pros and cons, and ascertain if the time is right to act, outsourcing HR could be the solution to regaining precious time and resources.

For details on the international festival of HR, check out the UNLEASH America 2023 agenda.