Outsourcing HR functions occurs when a company engages a third-party HR expert to handle HR responsibilities for the organization. For your business to achieve all it can, you need the strongest team on your side — qualified, enthusiastic employees who share your vision. But that can be a big ask. In addition to being a resource-intensive process, it is also one that’s fraught with potential pitfalls. And at the end of it, you may still find yourself with employees who aren’t exactly what you need. Understanding the reasons for HR outsourcing is crucial for your business to maximize its potential.
Not all businesses have the means to overcome these hurdles, and that’s particularly true for small businesses. Instead of calling it quits, many have decided to turn to the world of outsourcing HR and personnel services. A thorough examination of both the pros and cons of HR outsourcing will give you a complete picture, making sure your choice to outsource HR functions is smart and advantageous.
Benefits of Outsourcing Human Resources
Whether outsourcing HR, IT, or customer service, many businesses have found a great number of benefits of HR outsourcing. According to ZipDo, approximately 80% of businesses engage third-party services for at least one human resources task. Companies outsource HR functions for diverse purposes, such as to improve payroll processes, optimize recruitment processes, or better focus on their core business areas. The reasons can be different as well as the benefits. Still, a significant 87% of businesses that have outsourced their recruitment efforts are satisfied with their chosen service provider.
The spike in popularity is motivated by the fact that human resources outsourcing reduces the cost of scaling and opens up a wider talent pool. Businesses outsourcing their HR management can economize from 20% to 30% on average. Moreover, the use of Professional Employer Organization (PEO) is becoming increasingly relevant, offering specialized HR services and expertise. Nevertheless, it is not a foolproof method. Without adequate research, you can find yourself wasting a lot of time and money. There are also potential risk management concerns you could run into. Fortunately, Helpware is around to make the process as smooth as possible.
Let’s take a closer look at the benefits of HR outsourcing and personnel services, as well as the associated risks — and how to mitigate them.
Outsourcing HR Services Is Relatively Cheap
Businesses usually do most of their work themselves, but sometimes they choose to outsource. So they hire outside companies to handle tasks like HR services and IT support. Specific examples include outsourcing HR functions like recruitment, payroll processing, and worker compensation claims. Outsourcing helps because it lets employees concentrate on the main goals of the business, and it can also improve their performance and growth.
Outsourcing HR tasks is often cheaper than doing them in-house and this is one of the main benefits of HR outsourcing. If you were to create or grow your own HR team, you'd need to spend time and money finding and training the right people. Moreover, you might need to upgrade your facilities to fit these new employees. Outsourcing skips these steps and also avoids the challenges of managing and developing these employees effectively.
Exposure to Top Technology and Expertise
Outsourcing HR costs less while still giving you access to top industry experts, which is one of the primary reasons to outsource HR. This is partly because the service provider tends to have lower overheads than your business. That lets them offer you lower rates.
It requires money to automate administrative processes. Through human resources outsourcing, you alleviate your business of this burden. Moreover, you’ll benefit from their economies of scale and specialized knowledge.
Savings also accrue from the increased flexibility enabled by outsourcing. It’s great to have internally hired staff, but what happens when business is quiet? That extra staff complement ends up becoming an unnecessary expense.
With outsourcing, you can simply scale up and scale down as needed to suit your business’s traffic. This may even include switching back to exclusively using in-house staff during seasons of low activity. The result is that your efficiency is maximized—and no money is wasted.
Though all kinds of outsourcing can save money, it’s particularly true of human resources. When you don’t handle HR properly, it can lead to non-compliance, which in turn triggers fines, penalties, and litigation. A competent outsourcing HR service provider has the latest technology and expertise to protect your business from such dangers.
Access to a Larger Talent Pool
No organization exists in isolation — competitors are an unavoidable part of business. To outcompete your rivals, you need the most competent people on your side. And if you don’t have them, chances are your competitors will! Outsourcing HR is a smart way to maximize your talent pool, allowing you to benefit from the best minds in the business, and retain top talent.
If you tackle the hiring process on your own, you’ll likely be limited to your immediate environment when it comes to candidates. An outsourcing HR service provider — especially one that’s remote — opens up a much larger talent pool. For example, if they’re established in a tech hub, you could stand to gain from all the tech professionals in the area. The provider could also have extensive talent networks that span the entire globe.
Speaking about the benefits of HR outsourcing, one more important thing is that you also don’t have to worry about employee retention once the top talent has been found. This can also be a tricky process, involving negotiations and a willingness to invest in your employees. If it is not done, you could find your talent drifting off to rival firms. Through outsourcing, you shift the responsibility of talent retention to your outsourcing provider, who may be able to do a better job.
The Benefit of Experience — and New Ideas
If you have no experience with HR, it is also worth considering what you can learn from your outsourcing HR provider. They likely have years of experience in the industry, allowing them to impart precious knowledge that’s difficult to acquire elsewhere. This can help you avoid mistakes that rookies would otherwise make, saving you time and money.
The outsourced input increases the diversity of ideas flowing into your business. This increases the probability of breakthroughs and innovations that put your business ahead of the rest. Diverse teams are 70% more likely to capture and penetrate new markets. In addition to the larger talent pool, you’ll also have access to better technology. The result? Increased efficiency, giving you a competitive edge.
Opens Opportunities for Globalization
The growing complexity of technology has improved the ability of businesses to scale globally. With the click of a button, a customer in New York can interact with a business in China. Though this opens a slew of opportunities, it has also forced businesses to consider how they localize.
For instance, people tend to do things differently in different regions of the world. This extends beyond language, encompassing other factors such as culture, customs, and manners. The worst part is that these cultural niceties are often things you cannot learn in a book—they must be experienced first-hand. Without adequate knowledge about localization, your business is liable to make embarrassing mistakes that could offend others or even cause a scandal. This could be a disaster for more than just your HR team.
That said, the cultural sphere isn’t the only one with the potential for trouble. Consider the legal side of things as well. Does the host country mandate paternity leave? Are you required to provide staff with medical aid? How does the termination process work? Without thoroughly understanding how to navigate these legal landmines, your business could find itself facing serious litigation.
Understanding the benefits of outsourcing human resources becomes essential in this context. Here, outsourcing is the smart choice, as it makes globalization easier. Your outsourcing partner is likely already very familiar with the laws and customs of their particular region. As such, if you’d like to expand your business opportunities in that country, they should have the appropriate knowledge to ensure that everything integrates successfully. Furthermore, they may already have the networks and connections to put your business in a favorable position competitively, or just do things more efficiently.
Allows Companies to Focus on What’s Important
As the saying goes, “A jack of all trades is a master of none.” Unfortunately, too many businesses have discovered this painful truth firsthand. The last thing you want to do is spread yourself too thin. For example, a small hotel’s HR may be handled by one person. However, should it become a multinational business, hotel management will no doubt require a more sophisticated HR solution.
Outsourcing is one way to make sure your team stays laser-focused on the central objectives of the business. After all, your main business interests likely have nothing to do with the nitty gritty of HR, even though it’s a much-needed aspect of any successful organization. By outsourcing HR services and other jobs that might be necessary but aren’t a core part of the business, you’ll guarantee your employees’ undivided attention. This allows everyone to invest their time and creativity in projects that will yield the most growth for the business.
Moreover, this approach benefits your outsourced HR team, as they’ll ideally be qualified and experienced—and in a position to concentrate on your company’s needs. As a result, the internal functions of your business that rely on HR won’t be disrupted or have their efficiency compromised.
Payroll Administration and Compliance
Payroll administration, and compliance, while maintaining at the same time a productive workplace are key HR functions crucial for every business, particularly for large enterprises where the entire payroll process can be a full-time endeavor. When you choose to outsource HR, the service provider takes over this extensive process, which includes time-tracking, benefit deductions, payroll tax filing, reporting, and more. The complicated paperwork involved in hiring new employees can be quite burdensome. An outsourced HR service streamlines this process, especially beneficial for larger organizations. Additionally, an HR outsourcing company ensures your adherence to legal compliance in terms of employment law, thereby creating a compliant and efficient workplace environment.
A Strategic Approach to Reducing Turnover Rates
Outsourced hiring is a good decision if you need to lower the employee turnover rate. A specialized HR team from outside the company can effectively convey essential information like company specifics, salary benefits, and policies. Moreover, they will focus on building strong and positive employee relations, which is key to decreasing the turnover rate.
Are There Any Risks to HR Outsourcing?
While considering the potential benefits, it's crucial to be aware of the disadvantages of HR outsourcing as well. Outsourcing HR comes with many potential benefits, but don’t run into it blind! There are sizeable risks that could cost your business if you don’t take steps to shield yourself. As is the case with any significant entrepreneurial decision, thorough research is necessary before you embark on your outsourcing journey.
To make an informed decision, it's essential to carefully evaluate the HR outsourcing advantages and disadvantages. This balanced assessment helps ensure that your choice to outsource is both strategic and beneficial for your business.
Perhaps the biggest thing most entrepreneurs fear in respect of outsourcing is the loss of control. When things are handled internally, you can rest assured that you are directly overseeing every part of the process. What if your outsourcing HR service provider is in a different country? The thought alone gives some people anxiety. Connected to this is the worry that outsourcing will cause the quality of work to drop. After all, why would a third-party provider care about your company as much as you do?
These concerns aren’t as much of an issue as they initially appear. The essential thing is to draft a document that outlines precisely what you expect from your outsourcing provider. This could contain details such as your business’s vision statement, expected outcomes, short-term and long-term goals, and code of conduct. Should any doubts arise, you can always refer to the document. If you do have specific aspects of HR that you absolutely cannot bear to lose control over, then simply partner with a provider who will accommodate that requirement.
Additionally, check that the provider you team up with shares your business’s values and work style. If they function in a vastly different manner, it’s time to look elsewhere as your association probably won’t work out. Most importantly, remember that you will always have the last say. Your provider will never have more power than you. So long as there is clear communication and an understanding of expectations, your relationship should be a fruitful one. Finally, you’ll be able to optimize communication by scheduling frequent calls with your provider and having them give you regular updates.
Working with a third party requires you to share your business’s sensitive data. This may include employee as well as customer information. With this comes the risk that data could be leaked or improperly handled. It’s hard to overstate how calamitous a data breach can be for a business, its employees, and its customers. Your data could be seized by rivals, or used by criminals to wreak havoc. In addition, this could violate the trust of employees and tarnish your business’s reputation with its customers.
This is a critical consideration when outsourcing HR, as it handles a great deal of sensitive business information. Further, HR may also have access to the private data of customers and employees, including medical information, bank account numbers, and social security numbers.
Addressing the disadvantages of outsourcing HR, including potential security risks, demands careful selection of your outsourcing partner. Fortunately, this problem can be largely mitigated by partnering with a trusted provider. This means you’ll need to do some research. Find out whether your desired provider has been associated with previous scams and data breaches. Read what past clients have to say about their security. This information should give you an idea of whether your data will be in safe hands.
Outsourcing service providers rely on their reputation to gain clients. It’s what they lead with. Therefore, it’s in their best interests to have the latest and most up-to-date security systems and software available. Before signing up, ask them what security measures they provide and whether they have had data leaks in the past.
The importance of a reputable outsourcing service provider goes beyond data security issues. They also have to comply with the appropriate laws and regulations. As such, check that they have a consistent track record of compliance. With a reputable outsourcer such as Helpware, security issues are not a problem you have to stress about.
When You Can’t Do Everything, Outsourcing Is the Answer
Your business likely has an amazing team that’s great at what it does. However, this doesn't make them omnipotent. As your organization grows, its needs will grow ever more complex—and handling HR in-house will become harder than ever. Through outsourcing, you can make the scaling process a pothole-free one. The benefits of HR outsourcing are too numerous to ignore.
Outsourcing HR is cheaper. It also saves you time as you don’t have to worry about the hiring process or tackling time-consuming admin. And it’s a huge advantage if you plan on globalizing. With the right outsourcing partner, localizing can be done without a hitch.
Although outsourcing isn’t devoid of issues, these can largely be avoided if you do your homework. In the end, you need the right outsourcing HR provider on your side. For that, it’s hard to do better than Helpware.
Helpware Is the Outsourcing Service Provider You Need
Helpware is a digitally enabled People as a Services (PaaS) outsourcer, offering everything you need to establish the best HR department for your business. Our security measures keep your data safe, with powerful safeguards including fraud detection, profile impersonation, and abuse detection.
Through Helpware’s flexible back-office support, you can construct the unique solutions your business needs. We have typists, transcribers, coders, and clerks for data entry, as well as experts to handle account set-up and accounting support. To boost efficiency, virtual assistants are also available.
Do your needs go beyond HR outsourcing? We can help you with that too. Helpware provides the type of customer service outsourcing that could be the catalyst for your business to thrive. This includes a multiplatform customer solution that encompasses call centers, email, and chat.
Explore the benefits of HR outsourcing with Helpware. Contact us today to discover the most effective outsourcing solutions tailored to your needs. Otherwise, you’ll never know how much outsourcing can benefit your business.