The Pros and Cons of Outsourcing Human Resources Services

Human Resources

There are various reasons why you might want to outsource your human resources operations. Maybe it’s because of resource or financial limitations. Either way, human resources being a crucial component of any successful business, outsourcing comes with its own set of constraints.

If this is something that you are considering as a CEO, check out this list of pros and cons that you should keep in mind.

What Can an Outsourced HR Solution Do For You?

An external HR solutions agency can provide the following services for your company:

  1. Payroll– An agency can construct your company’s payroll structure, take care of employee compensations, deductions, attendance, and maintain time records. In addition to that, it also coordinates leave and absence requests.
  2. HR Administration– It includes administrative duties like maintaining personnel records, employment records, and databases, preparation, and modification of HR documents, creating reports on HR metrics. Also, the outsourced HR team acts as the first point of contact for HR-related queries from employees and external companies.
  3. Health Insurance and Benefits/PTO– Your HR team will identify and put in place health insurance or other types of insurance or benefits, like PTO, 401-ks, etc. The team will also conduct and coordinate any health insurance-related claims within your company.
  4. Recruiting and Hiring– This includes assessing your company’s personnel needs, evaluating prospective candidates, conducting in-person as well as virtual interviews, conducting background checks to an extent, making hiring recommendations, and drawing up performance analysis of new hires.
  5. Workplace Safety– This includes conducting training and orientations on workplace safety protocols for common workplace accidents. Your HR team will also coordinate and investigate any complaint or harassment report that is lodged against your employees.

Pros of Outsourced HR Solutions

Traditionally, human resource departments are in-house department. However, in the modern world of cut-throat competition, efficient business strategies have often rendered the HR department “unprofitable” or simply opted to outsource as for efficiency purposes.

  • Saves Money– Outsourcing would generate the operational costs of running your HR department void (like salaries and benefits), and the resources that would have been spent on it can be re-allocated to your other business needs.
  • Expertise/Time Management– If you’re a new or small business owner, it is quite likely that you do not have the financial resources to hire veteran HR personnel who have substantial experience in their field. You might allocate your HR responsibilities to your operations manager, who may have some overlaps in his job with HR but may by no means be an expert in it.

Selecting an outsourced HR solution takes care of this problem because the external agency takes care of evaluating and hiring personnel with significant expertise in their fields. In addition to that, it frees up your internal employee’s time.

  • Better Compliance with Employment Laws– This relates to the point mentioned above. Outsourced HR personnel, more often than not, are experts in their fields. They’d undoubtedly be well-versed with employment laws and ensure that your company complies with them.
  • Ensures Usage of Recent Practices and Tools– Since HR is what they specialize in, outsourced agencies are always informed about the latest and the most efficient HR practices and tools. Hence, indirectly, your company is too without being directly responsible for the research.

Cons of Outsourced HR Solutions

Albeit the pros, outsourcing HR may not be for everyone. If you like the direct oversight of an on-staff team brings, you may relate to these cons of outsourcing:

  • Loss of Direct Control– The apparent apprehension when it comes to outsourcing any service, in general, is the loss of direct control. Although an outsourced HR agency will strive to align its services to suit your company’s needs, you will not be able to control it if it doesn’t. You might often find yourself coming to an impasse with the outsourced agency on potential HR issues.
  • Conflicting Goals– An external HR solution’s job is to provide the HR needs to your company in the most efficient way possible. However, an in-house HR department will always adapt better to your company’s goals and business vision. It is because it will know your company’s business priorities and employee relations more intricately than any outsourced solution.
  • Impersonal– The work culture of your company is unique. It is like its own little ecosystem that evolves as your company grows; this is the same with any company, and it is infrequent for the work culture of two different companies to work well with one another.

Thus, an outsourced HR agency’s work culture will likely differ from that of your own company. It would create a much more impersonal work environment within your own company.

  • Coworker Issues– External agencies cannot respond to coworker-to-coworker issues, like the escalation of a heated disagreement about the best way to complete a project, and your managers would still need to step in to resolve those.

Weigh Your Company’s Vision Against the Decision to Outsource

Although you know the pros and cons of outsourcing HR, you should always weigh the need to outsource against what your vision for your company is. For example, if the idea is to create a fueled company by efficiency, outsourcing may produce great results. However, if you want to be the one in complete control of your company as it grows, outsourcing would be detrimental for you.