Business Process Outsourcing (BPO), which started as a trend among multinational corporations a generation ago, has now gained traction on Main Street. In fact, a 2022 Clutch Survey of 1003 small business owners and managers found that 90% planned to outsource at least one business function this year. When considering the Human Resource Business Process, functions such as payroll processing, benefits administration, employment law, and talent acquisition are among the top outsourced operations. With all of these areas to cover, is HR outsourcing the right decision for your organization?
Before we explore the pros and cons of in-house vs. outsourced HR, let’s get a quick overview of a few key functional areas within human resource management.
Key Functional Areas of HR Management
- Talent Acquisition - Recruiting, hiring, and maintaining a workforce that meets the current and future needs of the organization.
- Employee Engagement & Retention - Managing the relationship between the employees and the organization with the goal of retaining a high-performing and engaged workforce; Creating opportunities to leverage the unique backgrounds and characteristics of all employees.
- Training & Development - Enhancing the competencies, knowledge, skills, and abilities of the workforce to achieve business goals.
- Total Rewards (Compensation Planning, Payroll, Benefits) - Designing and implementing compensation systems that attract and retain employees.
- Workforce Management - Allocating people and resources in a way that optimizes employee productivity.
- Employee & Labor Relations - Preventing and/or resolving issues regarding the terms and conditions of employment.
- Performance Management - Communicating and clarifying employee job responsibilities and performance expectations; Monitoring employee output.
- Employment Law - Applying all relevant laws and regulations relating to employment.
- Workplace Safety - Ensuring the care and safety of all employees in all work environments and business activities.
Whether you are considering outsourcing your entire HR department or just one of the HR functions mentioned above, there are a few things you might want to consider before pulling the trigger. For example, how will this affect your company’s budget, culture, degree of control, and levels of privacy? While no two organizations are exactly alike in how they experience outsourcing arrangements, here are some common pros and cons of HR BPO.
Pros and Cons of Outsourcing
- Helps you stay focused. HR activities can be time-consuming. Outsourcing allows you to focus more on your revenue-driving operations and strategy and less on non-core HR activities that can easily overwhelm a small team.
- Gives you access to specialized HR expertise. Finding a single HR generalist or director capable of performing all HR functions well at both the strategic and tactical levels is unlikely. HR professionals who function at the strategic level (i.e, they are primarily concerned with creating the framework for talent management, leadership development, performance management, and organizational design which supports the company’s long-term goals) typically have neither the time nor expertise to manage daily administrative HR tasks, and vice versa.
- It almost always saves money. Outsourcing can provide you with all the expertise of an HR specialist or team of specialists, often for a fraction of the cost. HR outsourcing costs could range from $500 - $2,000 per month, depending on the number of employees and the area being outsourced; however, hiring an experienced HR Generalist could be several times that amount, plus you’ll also need to cover the payroll taxes and benefits for the employee.
- Assists you in complying with the plethora of Federal and State employment regulations that growing businesses face. Being out of compliance exposes your company to the risk of fines, penalties, scandals, and eroded customer trust.
- Outsourcing may bring a perceived loss of control. For a small, tight-knit company, where management/ownership enjoys a close working relationship with staff, letting go of some or all HR functions may elicit feelings akin to a new parent using a sitter for the first time. A great outsourcing partner, however, will take the time to get to know your business and culture so that you feel like the outsourced HR function retains the company’s culture and influence.
- Outsourcing can affect your relationship with employees. Some employees may find that dealing with a third-party for employee matters feels cold and impersonal.
- Privacy and confidentiality are two essential pillars in delivering HR services, and outsourcing could increase the risk of an information breach. A third-party’s server failure or a data leak can have serious consequences.
Is HR Outsourcing Right For You?
There are many ways an outsourcing arrangement could work, i.e. fully outsourced, partial/ fractional services, flexible scope, fixed price, temporary or permanent arrangements, etc. For most small businesses, the benefits of at least some HR outsourcing outweigh the drawbacks, but ultimately your decision to take the plunge will depend on what you can afford and who you feel you can trust.
Some business owners prefer to take the “baby steps” approach by outsourcing a few things and then expanding to other HR activities as they are comfortable. Bear in mind that some HR activities are unsuitable for third-party management. For example, deciding when to terminate an employee, day-to-day change management efforts, setting organizational culture, and some employee developmental activities are always best handled by someone in-house.
If you are interested in outsourcing some or all of your HR management, let’s talk. At Amy Cell Talent, we provide the resources of a full HR department with expertise in compensation, benefits, talent acquisition, employee experience, culture, change management, and more. To connect with me about this blog or for questions about our fractional HR services, contact me at Info@AmyCellTalent.com, or 734-747-2936.
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Top talent sourcer, HR consultant, and municipal search advisor. Passionate about helping clients meet their hiring goals and leading her team to the charge.View Bio