The Pros and Cons of HR Outsourcing

Getting bogged down in the details can stymie big-picture thinking in any part of an organization. HR departments, especially, can be particularly heavily hit. Payroll and taxes alone take up a significant amount of time.

As a result, many businesses employ outsourcing services and software to handle everything from payroll and resume screening to benefits enrollment and compliance issues, which is a terrific way to save resources (in the end, time and money) while also utilizing specialist skills and experience.


Why is HR Outsourcing Important?

One of the main goals of outsourcing is to achieve the multiplier effect – generating better results for the same investment. And according to a Hackett Group report, it really does work. The report reveals that businesses who subcontract HR functions employ 32% less staff and spend 26% less overall. 

Onboarding and talent acquisition tasks were delegated, while the remaining employees focused on strategic planning.

Similar findings from other reports show the value of HR outsourcing.

  • Corban One: Outsourcing HR functions results in savings between 24% and 32%
  • Deloitte: According to 72% of businesses, the main benefit of outsourcing HR functions is the ability to focus on other tasks
  • Only 19% of respondents had issues with their outsourcing provider – of those, 46% said the reason for their issues was receiving reactive rather than proactive service
  • Brandon Gaille: Since the Great Recession, 57% of US businesses have expanded their usage of outsourcing. Meanwhile, only 9% of outsourcing agreements were canceled, indicating that most businesses found it to be a very cost-effective alternative.


Pros and Cons of HR Outsourcing

Before making a final decision, you should have a solid understanding of the pros and cons.


Pros of HR Outsourcing

Some of the advantages of outsourcing HR tasks are obvious, such as cost savings or increased efficiency; nevertheless, people often neglect certain significant advantages. 


Reduce Costs

Small businesses and start-ups typically cannot justify the expense of hiring a full-time human resources professional. Large corporations often make use of outsourced experts to supplement their employees. Outsourcing somewhat repetitive operations that demand a lot of time but don’t necessarily require a lot of training, supervision, or personalized knowledge yields the greatest benefits. Large-volume recruiting, payroll, independent contractor compliance, and background checks are all good examples.


Allow Employees to be More Strategic

HR personnel are now involved in recruiting, hiring, training, morale-building, policy-making, risk management, and other activities. That’s a lot for a single department, let alone a single person, to handle. Outsourcing some of these responsibilities frees up the internal HR team to be more strategic rather than tactical. Through succession planning, coaching, and counseling, they can have a greater impact on the firm.


Compliance with Legal Obligations

Compliance in the workplace can be difficult. There are several laws, many of which change or are revised every year, so you never know if you’re doing the correct thing. A single mistake might have enormous ramifications. An outside supplier might assist you in staying current and in meeting your duties.


Vertical Expertise

When you don’t have the necessary skills in-house, outsourcing can be a smart solution. As a firm grows, jobs like legal compliance become increasingly complex.

Regulations governing the Affordable Care Act and the Family Medical Leave Act, for example, take effect at the 50-employee milestone. Smaller businesses will very certainly have had someone operating HR who is not a healthcare or tax expert, because that talent is rarely available in-house at that time. This puts the corporation and its employees in legal jeopardy. At this stage, outsourcing this job to an HR specialist who is familiar with the legal industry can be extremely advantageous.


Cons of HR Outsourcing

But let’s not be so naïve. Of course, there are drawbacks to outsourcing HR. The most crucial ones to be aware of are:


Reduced Human Touch

HR is responsible for some of the most significant, difficult, and emotional situations in the workplace. HR works with employees and their families on very sensitive issues like health and life insurance. As a result, the risk of excessive outsourcing is a breakdown in communication between firm management and its employees. It can feel a little distant when someone in charge of HR or HR tasks is off-site and not part of the daily team. Good outsourcers understand how to overcome this.


Loss of In-House Expertise

Companies that outsource HR functions must nonetheless have a toe in the HR seas. You should still designate someone on staff as a point of contact for those outsourced responsibilities; otherwise, you risk your company and HR team being on completely separate wavelengths. Furthermore, given their close relationship with employees, HR should be aware of the company’s culture.


Reduced Availability

There’s a good likelihood that an external company won’t respond as quickly as an in-house HR employee. It’s also a good idea to insert a performance clause into contracts for outsourced human resources functions. Examine contracts periodically to determine whether outsourcing benefits the organization and its employees. If not, don’t extend them.


Who Would Benefit from HR Outsourcing?

In theory, HR outsourcing is available to any company that needs it. If you suffer the following issues when conducting HR tasks in-house, your organization may benefit from HR outsourcing:

  • Disproportionate time spent on HR responsibilities in comparison to other business needs
  • Previous or anticipated lawsuits or liability exposure
  • Due to a lack of funds to acquire new employees or pay and cover benefits for in-house HR staff, HR duties are distributed among employees from other departments.
  • There aren’t enough in-house HR professionals to adequately balance hiring and employee management.

Even if none of these apply to your firm, you should consider outsourcing HR if it is too expensive to maintain an in-house HR team. As long as your firm isn’t so enormous – say, as large as a household-name department store – that its network of employee contacts, variances in compensation rates, and number of locations are difficult to explain to a company outsider, you could benefit from outsourcing your HR.

Although HR outsourcing saves time and money, your employees may find interactions with third-party HR specialists impersonal and slow, and HR outsourcing providers may have a faulty knowledge of your company culture. Despite this, there are many benefits, and it’s important to weigh the pros and cons and decide if HR outsourcing is right for your company.