The Key Benefits of Outsourcing HR Functions
Start-ups aren’t the only ones looking outside for HR help. Even large, well-established companies are finding it more efficient and effective to call upon expert firms in human resources to take on some or all of the necessary HR functions for their organization.
It’s common knowledge among most business leaders that there are numerous firms available for outsourcing company functions. From accounting to analytics, marketing, and more, it can often be beneficial and cost-effective to call on external firms that offer exactly the services a business or organization may need. One commonly overlooked opportunity for streamlining and outsourcing, however, is human resources.
While outsourcing and subcontracting is common practice in so many areas, there are still a number of leaders and executives who assume that HR functions must be kept in-house and managed by personnel within the company. Borrowing a page from entrepreneurs and startups, however, even established organizations are finding it more efficient and effective to call upon expert firms in human resources to take on some or all of the necessary HR functions for their organization.
Here we’ll look not only at what kinds of HR functions can be outsourced, but also the key benefits of outsourcing HR duties and tasks, and what types of companies exist to provide HR outsourcing services.
What HR Functions Can Be Outsourced?
There are a variety of HR functions that a department or organization may handle on a weekly basis, and many of them can be handled competently and expertly by dedicated HR firms. Some are more obvious, while others may seem surprising. Here are just three examples of outsourced HR functions that can benefit any business.
Hear From Industry Experts
Read the latest tips, research, best practices, and insights from our community of expert B2B service providers.
First, in our list, compliance, is an HR function that can (and sometimes should) be outsourced. While the bevy of rules, regulations, and requirements for a company can seem overwhelming, HR-specific firms retain experts on staff who ensure that the organization stays up to date on the latest compliance standards.
Whether the concern is ADA compliance, digital accessibility, wages and hours, or additional areas of compliance, an external HR firm is tasked with ensuring that your business stays in bounds to local, regional, or national standards. They also proactively guide personnel and departments toward a more compliant path.
This may be one of the most obvious HR functions for outsourcing because it remains a critical component for companies of every size and industry. Whether you’re trying to staff a call center, a marketing department, technology, and product development, or even executive leadership, there are a number of extremely skilled and versatile recruiting firms and HR organizations that specialize in the field of building and supplementing a company’s staff. HR firms with dedicated recruiting resources are also often able to perform extremely broad searches, finding candidates who may not otherwise be exposed to your company’s job board or postings.
Payroll and Benefits Administration
Either together or individually, outsourcing the HR functions of payroll and benefits administration is another key area for companies looking to save time, lower operational costs, and provide better, more consistent results to employees. Payroll functions are commonly outsourced, and many third-party firms exist strictly to manage the compensation side of your business.
However, there are also HR firms that offer benefits administration services as well, removing much of the onboarding burden from company staff or leadership. HR benefits firms may also be in a position to negotiate more favorable rates with providers or offer additional employee support, which provides additional value to employees and the organization as a whole.
What Are the Benefits of Outsourcing HR Functions?
“Cutting costs” might be the first benefit of outsourcing HR functions that comes to mind for a lot of people, but that is far from the only benefit. In fact, it may not even be the most compelling reason for you to consider outsourcing HR duties to a dedicated firm. Here are just a few more benefits to consider when thinking about or planning to outsource your HR needs.
Improved Hiring and Recruitment
Not only are costs reduced (and time saved) when working with an external HR firm on recruiting and hiring new employees, but the results often include access to a larger pool of qualified and motivated candidates who have the experience to jump into a position right away. Combined with a standardized onboarding process and streamlined search, external HR firms offer significant benefits in the hiring process for firms and organizations of nearly any size.
Expert Benefits and Compliance Functions
Good employees are looking not only for good opportunities but also for employers that offer a comprehensive package of salary and benefits. However, the cost and effort required, especially for small businesses, to put together a unified benefits package can be daunting. This is where an external HR firm can help your company excel; their relationships with and ability to shop for benefits providers offer a leg up for your firm and can result in higher-quality benefits that attract the best candidates.
Additionally, external HR companies often have on-staff compliance and legal experts, as well as consultants who continually stay up to date on the latest requirements and regulations. They can also advise companies on best practices for compliance and legal matters — a function that would cost significantly more if you were to build and staff an in-house department for it.
What Kinds of Companies Provide HR Outsourcing Services?
There are several types of companies that offer some or all HR services to businesses. While consultancies, software developers, and many more might have HR functions available, there are two main types of firms that specialize in outsourced HR services.
Professional Employer Organization (PEO)
A professional employer organization, or PEO, is a company that typically bundles a range of standard organizational functions and services. Ranging from payroll and benefits administration to recruiting and hiring, workers’ compensation and more, PEOs function as a part of the company that has retained their services. They can even act as employees of your firm for tax purposes in a type of co-employment arrangement.
Human Resources Outsourcing (HRO)
Human resources outsourcing firms, or HROs, operate in a slightly different way from PEOs. First, HROs are independent of your company in every way, though they may provide similar services across multiple organizational functions.
For example, HROs may also handle payroll, benefits, compliance, and other necessary services for your company, and they often provide bundled services and flexible options to ensure that your organization has what it needs. While PEOs function as employees, HROs act as partners and consultants, which may allow for more choices and customization options.
3 Mistakes to Avoid When Outsourcing HR
To get the most out of your relationship with any external HR firm, there are a number of common errors you’ll want to avoid. We’ll walk you through three of the most basic mistakes below.
Moving Forward Without a Plan
The first thing you’ll need to do, long before you begin searching for an external vendor for your HR needs, is to establish a plan and strategy for your organization. Too often business leaders are excited by the flashy functions and promises that HR companies make, as well as the potential cost and time savings that are promised.
However, without considering your company’s specific needs and the basic strategy for integrating external HR services, you could end up losing more than you gain. Establish a solid foundation before you begin interviewing HR outsourcing firms and you’ll be in a much better position to find exactly what your company needs.
Failing to Communicate Clearly
Second, and very closely related, you’ll want to clearly communicate the needs you identified in your plan, and any changes throughout the process as well. Frequently, miscommunication or non-communication can result in your company’s needs not being met, employees not receiving benefits, and cost overruns that could have been avoided. Be clear with your HR firm and maintain solid lines of communication to make the most of your partnership and their services.
Not Keeping Employees Informed
And finally, speaking of employees, you’ll absolutely need to communicate clearly with them about the company’s relationship with the HR provider, processes, points of contact, and resources. So long as your employees are well informed about who to talk to, how to enroll in and utilize benefits, and how to get their questions answered, both your company and the HR organization you choose can save time and ensure the highest level of service. As a result, all of these efforts can translate to higher levels of employee satisfaction, overall.
Much More to Learn
While far from exhaustive, the information presented here offers a solid foundation for anyone considering outsourced HR services for their business or organization. Collaborate with your employees to learn what would be the most beneficial for your company, organize a plan for outsourcing HR functions, and keep the lines of communication open. By doing so, you can take full advantage of the expertise and high-level service that is offered by external human resources providers.