How Does HR Outsourcing Reduce Costs?
Searching for options to streamline your HR processes while maximizing your budget? Discover all of the ways that HR outsourcing can reduce costs for your business.
The idea of hiring any kind of external firm for your small business, from accounting to legal to suppliers and beyond, always elicits the same question—what will it cost? Reducing costs and maximizing the operating budget is a challenge for any business and especially small businesses. So when the concept of outsourcing human resources functions comes up, many business leaders assume that it could be more expensive than keeping those functions in-house. However, outsourcing HR can almost always help businesses reduce their overhead, allowing them to invest those savings in other critical departments and areas.
Let’s take a look first at some of the most common HR expenses that nearly every business has to consider, and then find out how some of those costs (and associated ones) can be reduced through the outsourcing of HR functions.
What are Common HR Costs?
There is a long list of costs associated with human resources functions, many of which you can probably name off the top of your head. Going through all of the possible options, however, would take a few textbooks worth of material to cover. So to get us started, and to get you thinking about some of the more common HR costs that could benefit from outsourcing, here are just three of the top HR expenses that any growing business needs to keep in mind.
Training and Onboarding
Hiring new employees and “tossing them into the deep end” is a very old (and bad) method for bringing people into an organization. Nowadays the benefits of centralized, consistent onboarding and training efforts are obvious, especially in areas such as productivity and employee satisfaction.
Developing a unified onboarding program, however, can be extremely time-consuming, which in turn takes focus and energy away from the daily operations of your business (and from innovating, creating, and finding new efficiencies.). This is one area where working with a dedicated, external HR provider can offer huge time savings, as well as cost savings thanks to freed up hours and improved new-hire orientation.
HR outsourcing firms frequently have significant resources dedicated to training and onboarding, including programs and personnel specifically devoted to the task. Several HR organizations also collaborate with industry experts to develop and continually refine training and onboarding processes—yet another ongoing task that could very easily take up the full schedule of multiple staffers within your company.
There are several functions that could be considered “employee relations,” but here we’re focusing specifically on the kinds of recognition that reward your employees for the great work they do, and which establish the foundation of your company culture. Far from being optional, these types of HR functions are actually critical to an organization’s success and are often identified as one of the key factors that contribute to employee satisfaction with their workplace culture and environment.
Everything from clear communication with employees to service awards and recognition programs can be considered under the employee relations umbrella. Since there are a lot of tasks and options, however, this is another area where outsourcing to a dedicated HR firm can have benefits both for your employees and for your budget. Just as with the training and onboarding process we covered above, many HR companies have established programs for employee recognition and relations, as well as relationships with firms specializing in award and recognition programs, company events, and so on.
This may seem like the most obvious of the HR costs, but it is an essential one. Recruiting top talent is a difficult task even during the best of times, and it’s a function that can very easily chew up an entire organization’s time and resources. From posting the job information across multiple platforms to engaging with applicants and potential employees through text, phone, email, and social media, recruiting is a much different field than it used to be. That means it also requires different skills, knowledge, and tools to be successful at it.
Not surprisingly, HR outsourcing firms are at the leading edge of recruitment, and many of them have harnessed tools and technology way beyond LinkedIn to do their jobs effectively. Building an in-house HR department with the same capabilities would be costly for any company, and especially small and mid-size businesses. As a result, recruiting may be one of the biggest areas to lower costs in, as well as increased effectiveness and efficiency.
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What are Other Ways HR Outsourcing Reduces Costs?
Those are just three of the more direct ways in which outsourcing HR functions can help to reduce business expenses. There are also, however, indirect ways that HR outsourcing services can lead to lowering costs for your company or organization.
While you may expect employee turnover to be covered under the costs of recruitment and onboarding, it really is an expense category all its own. Gallup estimates that the average cost of replacing an employee who voluntarily leaves your organization could be as high as double that person’s salary—and that’s just the cost of backfilling that position.
In addition, your company has to deal with the lost productivity, leadership, and institutional memory that may head out the door when that employee leaves. There may also be a noticeable dip in employee morale among those who remain, whether due to uncertainty about their department or due to the loss of a leader or mentor.
Interestingly, but perhaps not surprisingly, more effective recruitment, training and onboarding, and employee relations can often help employees stay in an organization, thereby reducing this cost significantly.
Failing to Find the Right Candidates
Your HR staff knows what your organization is looking for, and does the best job they can in terms of seeking out the best possible candidates for any job opening. So when we say “failing to find the right candidates,” what we’re emphasizing here is the right part. Whether due to limited time or limited resources, your HR team may be limited in what they can accomplish in terms of screening, recruiting, etc.
This is not to say that your organization would hire a bad candidate, which would have its own significant costs (both directly and indirectly). Instead, the indirect costs with this part of the process can include a steeper learning curve for new hires, reduced productivity, or a longer time getting employees to buy into a new hire’s approach.
These are just a few of the human resources expenses that are common for nearly every type of organization, and they represent some of the ways that HR outsourcing can actually save a company time and money. Whether through a direct reduction of expenses or through indirect savings made possible by their expertise and capabilities, external HR firms are capable of helping you make the most of your budget.