Outsourcing and its HR implications

Making a profit and staying competitive are the main objectives of any business. Some organizations choose HR outsourcing in order to aid in their success. In fact, 24% of small businesses outsource at least some of their HR functions to increase efficiency. Does it work? Yes—on average outsourcing helps companies reduce costs by about 15%. This practice has positive implications, especially when done correctly. But like any good business idea, executed poorly it can come with disadvantages. Companies considering HR outsourcing should carefully understand these implications before making a decision, and know how to choose the right HR company so outsourcing their HR functions can be a big value add. So, what are the HR implications of outsourcing?  Let’s take a look at the pros and cons of outsourcing HR functions and how to get the best out of the experience.

What are the advantages and disadvantages of outsourcing HR functions?

Let’s explore both below.

Advantages of human resource outsourcing

There are many pros to outsourcing HR functions, including cost, efficiency, access to a larger talent pool, compliance, and further skills and knowledge. Let’s take a closer look at these HR outsourcing benefits. 

Cost

Perhaps the most attractive advantage of HR outsourcing involves cost reduction. By outsourcing certain functions, such as payroll or recruitment, organizations do not need to spend money hiring and training internal employees for those particular roles. Hiring an outsourced HR firm on a  flat rate to contract is almost always less expensive than hiring an internal team. 

Efficiency

Outsourcing HR functions give business owners the ability to allocate time and resources to other endeavors. Outsourcing frees the business owners and company employees from having to work through HR processes, manage compliance, and recruit and exit employees. Once outsourced, the organization can take the time and money otherwise spent on these functions and redirect it to new projects, allowing it to stay competitive and speed up productivity.

Access to a larger talent pool

When looking for the ideal candidate to work for your company, you often have to compromise because you only have access to a smaller, local talent pool in your networks. Outsourcing recruiting can allow small businesses to reach more potential candidates from places that they wouldn’t regularly have direct access to. Outsourced HR firms have access to applicant tracking systems, talent recruitment tools, and HR networks that can assist in finding the highest quality candidates.

Skills and knowledge

An HR outsourcing firm will have fully-trained experts with in-depth knowledge and experience in how to handle even complex employee relations situations.  An understanding of employment laws and regulations, even those that update frequently, such as taxes, safety requirements, payroll, and healthcare. HR specialists will stay up to date on the changes, understand more about legal compliance, and ensure the company is in compliance.  In-house personnel who aren’t trained in HR may not have as good an understanding of the law and regulations that are subject to change and struggle to keep the company up to date and compliant.

Disadvantages of human resource outsourcing

Although there are many pros to outsourcing your HR functions, let’s face it, as with anything great, there are likely to be some cons too. Many of these cons can be avoided if you choose the right company to partner with and understand how to leverage your outsourced firm effectively. Now let’s look at some disadvantages of HR outsourcing and how they can be avoided when you choose a provider. 

Less control

When a company outsources their HR, they give up some control they would have if they kept their HR internal. When partnering with an outsourcing firm that doesn’t understand the values and functions of a business, many business owners find it difficult to keep track of what’s going on in that department. In order to combat this,  when choosing an outsourced HR firm make sure they have a deep understanding of your industry and business values – they should be a cultural fit. Also, make sure you’re able to communicate with them effectively. An HR firm should be partners, not just a company that is off in the distances that you talk to every few weeks. 

Distance

Choosing offsite HR professionals to manage everything HR related in your company could make it hard for employees to communicate with them. Some outsourcing companies offshore their services to other countries, making it almost impossible to connect with the people who are actually working with your business. Depending on the time-difference, they might be late in replying to emails and if there are sensitive matters to talk about, they might prefer not to do it on the phone. A strong outsourced HR company never offshores their services and is always there when you need them, even if it’s an email, phone call, video call, or in-person meeting. 

So, HR outsourcing has a lot of benefits but can have some drawbacks if you choose the wrong partner. To keep your HR outsourcing experiences at its best, there are a few best practices to follow. Review our blog on HR outsourcing best practices and examples, here. 

Be HR Pros, Outsource your HR with Milestone 

HR outsourcing should make your life easier and improve your business. Milestone is an outsourced HR firm that provides you with transparent access to information with the ultimate goal of  making your business the best it can be.  We truly see ourselves as an extension of your team and work accordingly. We are Indianapolis-based with a national footprint, and we never offshore our services. 

Every business, no matter their size, deserves access to top-tier expertise and compassionate, detail-oriented HR support. That is why we have developed flexible monthly HR outsourcing packages, with no long-term contracts, only long-term connections. Your single point-of-contact is dedicated to handling the details and letting you focus on growing your business.

We are committed to serving as a resource of expertise for your entrepreneurial journey.  Contact us today to share your story. Let’s explore together how our support can give you and your employees the HR experience you all deserve.