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Why should my company outsource HR?

Monday, November 17, 2014

Streamlining HR outsourcing for improved business strategy

Managing human resources (HR) functions and other tasks within an HR department can be timely, costly, and require a great amount of detail for a business to invest in. Moreover, HR teams that exist in-house are typically responsible for an array of services, including recruiting, employee relations, benefits administration, ensuring compliance of employment laws, onboarding of new employees, performance management, training, and payroll processing.

The bottom line is that HR is highly complex and could benefit from being a service that businesses contract out so that experts can manage the various HR services and processes. HR professionals can be game-changers for many business types, especially small businesses, and so this article will explore some of the potential benefits (and drawbacks) of utilizing HR professionals outside of your business for completion of HR management services.

What is outsourced HR?

HR outsourcing can be defined as the process of contracting with a third-party provider to take the lead on all aspects of HR management. The HR functions can range from a few key functions to every job duty that an HR staff might typically handle. For example, a professional employer organization (PEO) can take on everything from organizing benefits packages for employees, providing employee handbooks, enrollment in health insurance plans, payroll tax filing, training and development, and monitoring workers' compensation. Small to medium-sized enterprises (SME) will often utilize a PEO because it is a cost-effective option to ensure that all HR needs are taken care of. A step down from a PEO might be using an outsourcing provider that focuses on one aspect of HR (for example, using a payroll processing provider to receive additional support on payroll). In this example, the business may still have an internal HR department while at the same time seeking support in a specific area that requires more expertise or support.

It may be time for your small business to consider outsourcing HR when your time and energy is being used up on complex HR tasks, you are concerned about the liability risk for your company, you are working from a budget, or if your organization doesn't have clear delineation of HR tasks within the company structure. To outsource your HR needs, small businesses and business owners can research and connect with various options for an outsourcing provider to determine the right fit in terms of tasks, finances, and overall alignment.

What are the pros of outsourcing HR?

One of the biggest advantages of outsourcing HR is the fact that your company can work directly with HR experts who are trained in all aspects of HR management and duties. Some of the other primary benefits include saving money and the ability to be more strategic with business structures and responsibilities. Let’s look at these in greater detail.

  • Expertise. As mentioned, delegating HR tasks with experts can free up your time as a small business owner to focus on business strategy and operations. Moreover, by trusting HR experts to handle your business's HR needs, you can feel more confident that errors will be reduced so your records and compliance are as accurate as possible. This becomes especially important if your company is audited. HR outsourcing companies have access to the best HR technology as well, ensuring that they can leverage their skills and knowledge with the best tools the industry has to offer.
  • Saves money/company resources. When outsourcing HR, your company can save costs by spending less money on salaries, and the training that is required for an in-house HR department. Additionally, when negotiating benefits through a PEO, these larger groups can work out better benefits packages for larger groups of people. This will ultimately save your company money as well as the employees who pay in for their health and benefits plans. Lastly, with outsourcing, you can be assured that you will avoid penalties for noncompliance with employee or labor laws. This will save your company money and time, and your business will maintain a good reputation for doing business right.
  • Allows teams to be more strategic. Research has shown that business owners will only spend about 30% of their time on business functions. The rest of their time is taken up with administrative needs or tasks that don't directly generate revenue for the organization. With outsourcing, business leaders will spend less time on HR-related tasks and can focus their attention on other critical aspects of delivering their business model. Moreover, outsourcing HR can help business owners focus more on developing company culture to support staffing and ongoing retention. For example, if a problem or conflict takes place, employees can rely on an HR firm for support instead of trying to navigate the conflict internally where conflicts of interest could take place. This builds a culture where employees have a clear process for how to seek support when they need it.

What are the cons of outsourcing HR?

Inevitably, outsourcing HR does have its drawbacks. They are important to consider; however, the drawbacks don't necessarily take away from the value-add the outsourcing HR can bring to your company.

  • Reduced facetime and regular availability. One drawback of outsourcing your HR duties is having everything related to HR processes exist outside of your organization. In many respects, this is helpful for business operations. However, it can be difficult to not have easy access to HR representatives or quick answers to questions when a PEO or outsourcing provider is managing multiple contracts with various clients. Still, many companies, in light of the COVID-19 pandemic, have continued to shift to remote operations, so for many companies the loss of facetime won't necessarily have a huge impact on the day-to-day experience within the company.
  • Loss of internal SMEs. As more SMEs rely on outsourcing as a business solution, the industry may see a decrease in HR knowledge for SME growth and development. One possible opportunity here is for SMEs to consider outsourcing parts – but not all – of their HR functions so that they can get the best of both worlds – internal knowledge and expert reliability.
  • Less understanding of HR functions. The benefits of outsourcing HR is that someone else can take on the complex functions of HR administration, recruiting, onboarding, background checks, employee performance, payroll, legal compliance, employee training, and more. A drawback from this is that you may have less of a sense of how these processes work and therefore will need to rely on an outsourcing provider or HR outsourcing service more long-term.

Moving forward with outsourcing

Taken together, the pros and cons of outsourcing showcase the reality that every business has to consider the needs they have, how they can support these needs, and the feasibility of integrating support. For the majority of businesses, outsourcing HR frees up valuable time, saves money, and ensures accuracy. For new businesses in particular, it is fundamental that they launch their model with a solid foundation of HR support so that the employees can focus on the scaling of the business.

Over time, your HR needs may shift or change, and that is why outsourcing can exist on a spectrum for many different company types. HR management can fluctuate, so taking a real-time assessment of strengths and gaps in your HR system can be an excellent starting point in determining if outsourcing HR is the right step for your business. If you are spending time-consuming days on HR functions or have concerns about the risk management practices at your business, it may be time to think about outsourcing HR for the benefit of your overall business operations.

Next steps

Are you ready to integrate the advantages of HR outsourcing at your place of business? Are you ready to have peace of mind with complex HR tasks and functions?

Heartland is ready to help.

Heartland helps nearly 1,000,000 entrepreneurs make and move money, manage employees and engage customers with human-centered technology solutions that allow them to rise above the daily grind and lead their businesses into a brighter future. Learn more at heartland.us.