The Pros and Cons of Outsourcing Human Resources

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Perhaps we only have two hands because we’re only meant to do so much at once.

Companies are made up of a finite number of people, and people have limitations. That means you should carefully consider what your company can manage in its current form. Many small and medium businesses find their resources stretched thin, so they choose to double down on their strengths and outsource other tasks to outside firms. One area that companies frequently need to outsource is human resources due to the breadth of its responsibilities. If you’re debating outsourcing human resources for your business, go ahead and look at the pros and cons we’ve assembled below.

The Pros

  • Outsourcing HR saves money. This is the biggest reason companies choose to outsource HR responsibilities. Recruiting, hiring, and training your own HR staff takes time and money that can cut into a new company’s revenue. Even after an internal HR department is developed, though, the costs of salaries and operations often adds up to more than what a company would pay for an outside firm to handle the same duties.
  • Outside firms allow for an adaptable approach. Sometimes businesses go through periods of time when there is little hiring to be done. During these times, the recruiters and hiring managers of an internal department will be a sunk cost for the company, since the company has to payout salaries and benefits even though productivity is reduced. If you choose to outsource HR, you can adapt to these times by scaling up outside help when the need is high and scaling it down when need is low.
  • Outsourcing allows you to use specialists. HR covers such a broad array of responsibilities that many HR employees at small or medium businesses must be generalists and perform several types of duties at once. This is a jack-of-all-trades, master of none trap. Chances are good that at some point your company will have an HR issue in which the expertise of a specialist is required. By outsourcing HR, you can seek out specialists and utilize them without making them a permanent part of your company.
  • Outside firms know current laws. Or at least a good firm does. Laws on hiring practices, compensation, safety, and more are constantly changing, so it’s difficult for HR departments of all but the biggest businesses to stay knowledgeable on current laws. For outside HR firms, though, this is a must since their entire business revolves around these matters. You’ll reduce your risk of lawsuits by going with an outside firm.
  • Outsourcing promotes focus. If a company outsources HR duties such as payroll, hiring, or benefit management, they usually find that the company is less bogged down in paperwork and internal teams can better focus on their own goals. HR tasks that would otherwise distract can be more efficiently handled elsewhere.
  • Outside firms use more up-to-date technology. Outside HR firms need to be aware and skilled with current HR software in order to compete with other firms. Meanwhile, companies with their own HR departments are often slow to update old systems since new technology means money out of the budget and time spent training. Payroll software that came out ten years ago might work, sure, but chances are there’s another software developed since then that would be better for you.
  • Outside firms excel at training. If you want to train your workforce on matters of inclusion, harassment, safety, or countless other issues, your best bet is usually to find an outside firm that has expertise with these matters. Internal HR departments often are stretched too thin to be fully specialized on a specific issue, so they might not be able to train as effectively.

Free white paper to guide business owners on when the time is right to outsource HR.

The Cons . . . And What You Can Do About Them

  • Outsourcing means fewer HR professionals on-site. Sometimes it’s nice to be able to walk into a colleague’s office and speak with them face-to-face. With outsourcing, you might find that more HR business is conducted over the phone or via computer. If this is a concern for you, make sure you find HR consultants who are willing to meet on-site occasionally. That way you and others at your company will have opportunities to speak with them in person.

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  • Outside consultants might not be as considerate of company culture. You might find that consultants make decisions that don’t align with company values. This can be both frustrating and disastrous. In order to keep things aligned with your company’s culture and values, make sure to ask every firm you meet with what steps they take to familiarize themselves with a new company. Avoid outsourcing to firms who don’t care properly research their clients.
  • Outsourcing can delay future internal development. None of us can see the future, but there may come a time when your company grows enough that you decide an internal HR department makes more sense. Outsourcing before then might mean depriving your company of developing the talent and skills it will need later. This doesn’t mean that you should take the risk and forego outsourcing, though: instead, try and partner with HR firms that are prepared for your company to grow and evolve—and will help train or otherwise prepare your company for potential transitions.
  • Your confidentiality could be at risk. HR professionals deal with a lot of sensitive information, from employee medical history to bank account numbers for direct deposit. While HR firms are obligated to keep this information confidential, you should still never partner with a firm that doesn’t seem to take confidentiality seriously. Be sure to ask the firms you meet with about their methods for ensuring confidentiality.

Axcet HR Solutions is, of course, a great resource. If you’re interested in what HR outsourcing can achieve for your business, contact us for more information.

5 steps to transition your business' HR to an Outsourced HR Company

 

Gerald Diddle

Written by Gerald Diddle