Why Outsource HR: Pros and Cons
Why Outsource HR?
Companies are constantly faced with the challenge of focusing their time and expertise to grow their businesses. It does not make financial sense for many companies to build the internal expertise to support all aspects of their business so they look for external partners in areas such as IT, Payroll and Marketing. They also find that internalizing all of their HR needs does not make financial sense. Moreover, if a company has inadequate support then they may create compliance, legal and reputational risks.
Even when a company decides to internalize HR, they often have a “Department of One.” The one or two HR Department finds it nearly impossible to have all the expertise needed to attract, grow and retain their workforce or to stay ahead of the many challenges brought on by the changing workforce, ACA and new regulations.
As a result, many employers turn to outside experts to provide the support they need around compliance, recruiting, training and development, salary surveys and compensation design, engagement and retention strategies and benefits. Outside experts have access to more resources than a company can afford individually as well as knowledge of the latest trends and developments. Companies are looking for experts that can provide expert support in a flexible and cost effective manner.
The Pros and Cons of Outsourcing HR
When considering whether to fully or partially outsource HR, companies consider the following pros:
- You can focus on running your business and streamline the focus of your internal processes.
- External HR professionals have access to more resources that you only pay for when you need them and you do not have to spend time researching every issue that may arise.
- Outsourcing all or portions of necessary HR services is less costly than having a fully staffed, in house department.
- External HR professionals can provide you with more expertise on issues such as labor laws, salary information, compensation and benefits information, and talent development and retention strategies.
- One of the main downsides of trying to internalize all of your HR support is that it is very difficult for one person or even a team of 5 or 6 to be an expert at everything. Your HR staff has a wide array of duties and as amazing as they are, it would be really difficult to be stellar at every single one of them.
In contrast, the following factors would weigh against outsourcing HR support:
- The partner you select does not have the expertise or experience of working with companies like yours and you have risks or liabilities.
- The firm you work with has a primary focus in another area and HR support is an ancillary activity
- The external expert is has limited areas of expertise so you are always responsible someone else to fill a new need such as compensation or training and development
Choose an HR professional carefully. Make sure that the individual or firm you hire is in the business of providing HR services as your employees are your greatest resource. Check references and ask questions. You don’t want an inadequate firm to be more hassle than they’re worth, or worse, to cause legal and compliance issues.
Is Outsourcing HR Cost Effective?
There are a large number of costs involved in maintaining an effective in- house HR and payroll function:
- Salaries of the HR staff
- HR regulatory tools and subscriptions
- External Legal Support of the HR staff
- Costs of creating training programs and hiring trainers
- Costs of recruiting tools
- Office space
- Time spent developing and improving internal processes
- Managing the in-house team and the people risk of “Departments of One”
When you hire an HR consultant, you often pay an hourly rate or a monthly fee. You can decide how little or how much support you need.
- A high level of service can be provided at a lower cost.
- You can hire the best experts at a fraction of the cost of a full time resource
- You benefit from the shared knowledge and experience of an expert that works with many companies like yours.