Is a question many small to mid-sized businesses ponder as they expand and scale their operations. As with any business decision, thorough research is necessary to ensure the right partner is selected.
This is not a one size fits all approach. There are many companies that “play” in the HR outsourcing space, and there are often differences in their offerings.
So, let’s run through some of the basics of HR outsourcing to consider the important factors when selecting a provider.
What is human resource outsourcing?
When a company choose to outsource all or some of its human resources responsibilities, a global employment outsourcing provider is often engaged to take these functions.
This can range from outsourcing payroll and benefits administration to recruitment and onboarding or employee performance management. The HR outsourcing provider is paid a fee by the company for performing these functions.
Why do companies outsource human resources?
Companies typically seek to outsource HR tasks when they are experiencing growth beyond that which their current infrastructure can effectively handle. Or they may be preparing to expand into a market in which they have not previously operated.
Many small business owners find it more cost-effective to outsource HR rather than invest in building an in-house unit.
Here are five compelling benefits of human resource outsourcing
It helps businesses save costs
HR functions can be outsourced to help a company realize substantial cost savings, both in terms of overheads and time.
According to SHRM, companies that maintain in-house HR departments spend an average of USD$3000 per employee, per year. Whereas research shows that companies that outsource some or all of their HR tasks can save up to USD$450 per employee.
For businesses that aren't familiar with the regular protocol, managing things such as employee leave dates, expense claims, and benefits administration can be difficult and time-consuming. Outsourcing these tasks to HR service providers can not only speed up the process but free up time for you to allocate your energy toward growing your business.
It helps to mitigate risks
Processing payroll, administering benefits, and various other matters dealing with employee relations can be laborious. They also require a high level of attention to detail. In the hands of an inexperienced HR department, this can lead to a lot of processing errors. Placing these responsibilities in the hands of experienced payroll professionals can help to minimize inaccuracies and ensures that all processes occur smoothly and on time.
It provides companies with better data security
When dealing with sensitive information belonging to business partners and employees, data protection is of the utmost importance. A reputable HR outsourcing company will have the advanced systems and software encryption needed to keep data secure.
It ensures regulatory compliance
Expansion into a new market or territory requires compliance with Federal, state, and local laws that vary between locations. They are also frequently evolving. For companies that have newly opened in a foreign country, navigating this alongside potential language barriers can be especially daunting.
Outsourcing these responsibilities to a team of dedicated experts who will stay on top of changes in different regulations and update your company policies and procedures, can help businesses stay in compliance and avoid potential lawsuits as well as reputational damage.
It gives companies access to better HR technology
Not all companies have the infrastructure and resources needed to manage their HR functions in house. From managing sensitive payroll data to processing employee PTO requests and overseeing training information, a lot of high-end technology is needed to keep multiple processes organised in an accessible location.
Most reputable third-party HR companies come well-equipped with these technologies, giving you access to their advanced and secure tech stacks.
How do you choose an HR outsourcing partner?
When researching HR outsourcing companies, you’ll want to research a variety of factors.
Look into their time in business as well as whether they work with any companies similar to yours. You want to work with a stable, healthy business with experienced HR professionals.
Ensure they have a track record of successfully operating in the location you wish to conduct business. This is to ensure compliance with local tax and employment laws.
Understand what type of technology they use. You will want a platform that enables you to manage the employee lifecycle and keeps your company’s data secure.
What does their servicing model look like? Would you have a designated point of contact or would you be working in a portal? Is the service you’re looking to procure a part of their core business? Or is it an ancillary part of their business? This will be a determining factor in terms of the service you’ll receive.
What services does an HR outsourcing company usually provide?
HR outsourcing companies can offer a full-service HR department. Or they can take on a portion of the tasks that HR staff is responsible for.
This frees up time to focus on more strategic priorities. Outsourced HR services often include:
Calculating payroll including wages, tax withholdings, payroll taxes, wage garnishments, pension contributions and leave accrual.
Benefits administration including employee enrollment and subsequent withholdings.
Many HR outsourcing companies offer an Employer of Record service. This is especially helpful if you are expanding into new territory without a registered legal entity.
Training programs that can offer employees personal and professional development opportunities.
Employee performance management programs to help your organization operate at the highest level.
Is it an “all or nothing" approach?
Nope! The decision whether to outsource or to keep your operations in-house does not have to be either-or. In fact, there is often a very viable third option, and that’s “co-sourcing”.
In this case, the outsourcing provider and the company would take an honest assessment of the strengths of both organizations and figure out what should remain in-house and what should be outsourced to a specialist.
This usually creates a much deeper, and more relevant, supplier/client relationship.
Whether you’re looking to outsource specific functions or for a full-service HR solution, there are many options.
You’ll want to conduct thorough research to ensure you select the right partner for your human resource outsourcing.