Organizations constantly seek creative ways to streamline their operations, such as HR outsourcing. External human resource functions help them cope with today’s fast-paced business environment. They also offer benefits such as cost reduction.
Like any business strategy, HR outsourcing has pros and cons. We’ll review these pros and cons and explain why it’s important to outsource human resources.
Why Is HR Outsourcing Important?
HR outsourcing involves assigning human resource duties to external service providers. By providing various HR tools, techs, and solutions, companies can focus on core objectives and visions.
Here’s why HR outsourcing is important:
- Getting Expert Personnel.
An outsourced HR provides specialized expertise. They can handle every function an effective human resource department requires. - Eliminates Legal Risks.
HR outsourcing companies are familiar with business laws and requirements, including the labor laws necessary for recruiting and managing employees. -
Cost Saving.
HR outsourcing frees you from the lengthy hiring process. When hiring an in-house HR personnel, you must post ads, interview candidates, and onboard the new employee. Meanwhile, an outsourced HR personnel is already a professional in the field, so you don’t have to spend on onboarding or training.
- Focus on Core Competencies.
HR processes like payroll management and employee onboarding can be time-consuming and resource-intensive. Outsourced companies take on these roles, allowing an organization to focus on delivering its duties and responsibilities to clients. - Performance Management.
Outsourced HR personnel are knowledgeable enough to assess employee performance. For instance, they can create templates/tools and conduct one-on-one assessments to identify workers’ weaknesses and strengths. - Improves Employee Relations.
An outsourced HR works remotely. This allows them to treat people without bias, especially when resolving internal disputes.
Find out how much a company can save by outsourcing here.
What Are the Types of HR Outsourcing?
Businesses may experience the pros and cons of HR outsourcing through its various types, which are customized to meet specific business needs. Understanding the types of human resource outsourcing is essential for making informed decisions.
These are the types of HR outsourcing:
1. Professional Employer Organization Outsourcing (PEO)
PEO outsourcing is a contractual agreement between a third-party firm and a business. It is ideal for mid-sized organizations with under 50 employees. The third party acts as the employer and manages several key responsibilities.
The functions of a PEO include paying wages or taxes, submitting necessary financial information to the government, and maintaining a positive relationship with employees.
However, the business is still responsible for documenting new employees, suggesting layoffs, or updating employee details.
A successful PEO framework helps an organization continue with its daily activities, making it easier for the business to cover the expenses incurred by those activities.
Learn more about professional employer organization outsourcing from the US Chamber of Commerce.
2. Administrative Services Organization Outsourcing (ASO)
ASO outsourcing provides businesses with a full human resource package. But unlike the PEO, ASO doesn’t act as a co-employer of an organization’s workforce. So, it doesn’t assume the legal responsibilities associated with co-employment.
Instead, ASO manages payroll management, benefits administration, and HR technology solutions, among other things. Considering these responsibilities, ASO fits small to medium-sized companies.
3. Human Resource Organization (HRO)
Like the ASO, an HRO is a flexible HR outsourcing model that ignores the co-employer model. It serves relatively large businesses with 1,000 or more employees. Their services include talent acquisition, employee development, and workforce planning.
HROs are also ideal for smaller organizations that need specialized HR support. These businesses can get HRO services in certain areas without committing to a full HR outsourcing arrangement.
Pros of HR Outsourcing
Businesses need to understand the pros and cons of HR outsourcing. This way, they’ll be aware of the benefits and the minor risks associated with it.
Here are the pros of HR outsourcing:
1. Cost Saving
HR outsourcing is cost-effective, and its functions significantly reduce labor expenses. According to the National Association of Professional Employer Organizations (NAPEO), businesses can save up to $450 per employee by outsourcing human resource services.
Outsourced human resource service providers help your business save by eliminating the need for HR-specific training, infrastructure, and equipment, as they’re already experts and have their equipment.
2. Access to Expertise
Human resource outsourcing companies deeply understand HR activities, compliance requirements, and market trends.
Partnering with these specialists helps businesses access knowledge and expertise. Therefore, they can find the best HR tools, hire capable employees, and perform other HR functions.
3. Maximizes Compliance with Laws
Accidentally going against business laws like employee-related policies poses expensive fines to companies. They can also damage your company’s reputation, which can cause potential business partners to back out from negotiating with you.
Outsourced HR companies ensure the legality of your business. For instance, your outsourced HR personnel can ensure that every employee receives the benefits the law requires. Additionally, they keep track of law or policy changes in your business’s industry.
4. Focus on Strategic Initiatives
HR outsourcing enables businesses to focus on more important business processes by handling payroll, hiring, and employee retention tasks. With the right HR team, you can cross HR responsibilities off your to-do list as a business leader.
By shifting your focus to your core responsibilities, you get close to achieving whatever goal you have for your business. This factor can improve your company’s performance and competitiveness in your respective market.
5. Improved Relationships with Employees
Businesses can find it challenging to maintain healthy relationships in the workplace. Acquiring HRO or PEO solutions helps companies maintain an ideal work environment by addressing employees’ complaints, needs, and ideas.
As you hire new employees, outsourced human resource staff introduces different engagement activities, such as training, to influence employee relationships.
Ready to outsource? Here are 15 of the best outsourcing companies that you can choose from.
Cons of HR Outsourcing
While HR outsourcing offers several advantages, you must consider the potential disadvantages.
Here are the cons associated with this practice:
1. Loss of Control
Companies give control over hiring employees to outsourced HR personnel. Therefore, some organizations fear losing their company culture, as their outsourced HR personnel may have different hiring methods.
HR outsourcing may also risk data security and confidentiality. Therefore, it is important to select a reputable outsourcing partner with a proven track record.
2. Communication Challenges
HR management depends on effective communication. However, since outsourced HR personnel usually work remotely, your employees may find communicating with them challenging instead of an in-house HR who’s only an office away.
These communication challenges harm employee satisfaction and engagement. So, your businesses should establish communication transparency and expectations with your outsourced partners.
3. Decreased Performance Quality
Though rarely, some outsourced providers can sometimes offer services that are not as good as others. As a growing business, this may negatively influence your business, profit, and general development.
For this reason, you need to consider outsourcing a human resource service provider. Hire someone with years of experience, as they already have the expertise a business needs.
Find out how to outsource the right HR service provider from LinkedIn.
Outsourcing the Right HR Can Benefit Your Business
Like any other part of business, HR outsourcing has pros and cons. As discussed in the article, the pros outweigh the cons. The latter have reliable solutions depending on your business approach. This is done by understanding why HR outsourcing is important and how to use the different types to your advantage.
The HR forms explained above have their dynamics and requirements for different organizations. To select and benefit from the right type, evaluate your HR needs, budget, and employee specifications.
