What is outsourcing in HRM?

Outsourcing in human resource management, or HRM, is the act of hiring an external firm to handle part or all of your human resource needs instead of relying on a dedicated internal HR department or employee. But what is human resource outsourcing? Human resource outsourcing can include HRM tasks such as managing payroll and benefits, recruiting and onboarding, navigating labor regulations, and more. 

There are several different types of HR outsourcing models. Human Resources Organizations (HRO) typically serve organizations of more than 1,000 employees and have a range of services from which clients can choose. Professional Employer Organizations (PEO) enter a co-employment model with the company where the PEO is the employer of record and takes on responsibility for the employee’s taxes, workers’ compensation, and other liabilities. Third, an Administrative Services Organization (ASO) serves administrative services and advises on issues such as compliance, employee relations, and insurance and benefits. ASOs are often the best fit for small- to medium-sized businesses.

If you’re new to HRM outsourcing or are establishing HR in your business for the first time, here are some FAQs to help you evaluate the benefits of outsourcing and if it’s right for your company.

What are the advantages and disadvantages of outsourcing HR functions?

There are many reasons why a company might choose to outsource HR functions. One advantage of outsourcing is having expert advice and experience that a small or mid-sized company might not otherwise have from a small or solo HR department. Another advantage is that the business owners can rest easy knowing their HR is compliant. Employment regulation is vast and ever changing, hiring an outsourced accounting firm can mean the business owners have confidence they are in compliance as they hire and fire employees. Depending on the company and situation, outsourcing may result in cost savings over a full-time employee salary.

A disadvantage of outsourcing HR could be a disconnect from company culture with an offsite outsourcing company. However, the recent shift to remote work has shown that strong, collaborative relationships can still be built even when teams aren’t in the same room. Companies may also perceive a loss of control when outsourcing important and sometimes personal HR functions, such as succession planning. For this reason, it is important to choose an HR outsourcing company that is also a good cultural fit. 

Perhaps the greatest advantage to outsourcing HR, particularly for a small business, is the time savings for the business owner and other employees. By removing the more administrative tasks of human resource management, staff have the ability to focus on core competencies in their business such as serving customers, developing new product lines, and generating new business.

What is the significant impact of outsourcing on the organization of the HR department?

One significant impact of outsourcing HRM functions is that it can allow a company to stay lean and nimble. Outsourcing functions allow an HR department to stay small, reducing overhead, but also allow the company to scale rapidly. 

How does outsourcing affect human resource planning?

Human resource planning is defined as “the continuous process of systematic planning ahead to achieve optimum use of an organization’s most valuable asset—quality employees.” Bringing in external help through outsourcing can improve human resource planning through the specialty expertise provided by the outsourcing partner. Specialists trained in human resource planning can bring in templates, facilitate workshops, and convey best practices, in addition to bringing an outside perspective, to help a company define and hone its systematic planning process for human resources. An experienced outside perspective can be key in identifying problematic processes and suggesting benchmarks and solutions that are tried and true.

Why is outsourcing important to human resources management?

Even large companies with HR departments outsource some aspect of their HR functions, whether it’s relying on software to reduce HR staff time or recruiting for hard-to-fill or temporary roles. Outsourcing is a key tool for businesses because of the flexibility it offers. Most HR outsourcing companies offer a range of services. Once a business has a partnership in place with an outsourcing company, they can scale up or down the services utilized based on their business needs.

Outsourcing your HR doesn’t have to feel impersonal. We believe in true business partnerships and work to make your life easier, empower your teams, and help you build a more successful business. Experience the difference today with Milestone and discover our flexible, no-hassle, outsourced HR solutions.