Human resource management is becoming more critical in organizations. But unfortunately, many people still need to learn how this works. You must perform many things in an organization, like payroll management, HR functions, and whatnot, daily. However, when a job requires specialized skills, you need a skilled person instead of doing it yourself. You may need an experienced virtual assistant or business lawyer for extra work. But if you still need to start HR outsourcing, it’s the perfect time to do it now. It has many benefits like less stress, saving time, saving money, and energy. However, if you want to try it, then start by understanding the basic definition first:
What is the outsourcing of human resource management?
“It’s an arrangement where you hire a third-party company to oversee some or all HR functions.”
HR outsourcing is a common practice where we get human resource services and expertise from outside the organization. Many known companies are working as a medium where you can approach to get expert assistance. For instance, you can hire someone to look after your HR payroll processing using a paystub generator or without it. You can outsource employee benefits administration, talent acquisition, or other functions.
Types of HR outsourcing:
If you are planning to outsource the HR functions, then it’s vital to understand different types first. Mainly these types help to handle HR tasks with the following differences:
| PEO | HRO |
| Typically takes all your HR tasks | It doesn’t use a co-employer model |
| Some providers allow you to pick specific services | In this model, the employer remains on the business books, and you bear the legal responsibility for your actions. |
| In this model, the PEO handles the total legal and financial cost of the company’s employment practices. | Here you can outsource 1-2 tasks. |
So, HR outsourcing is for any business facing challenges while handling the HR tasks in the organization.
Steps to outsource human resource needs:
In theory, human resource is one thing that every business needs. But before going for it, here are the following situations when you need HR to handle the challenges:
- If you aren’t spending equal time on HR practices compared to other business needs
- If you have predicted lawsuit or liability to deal with
- Lack of money to hire new workforce or pay the benefits to in-house HR staff
- Employees from other departments are handling the HR functions
- If you don’t have enough in-house HR staff to handle the tasks properly and do the employee management
- If you are facing difficulties in managing software like an online paystub generator
But if there aren’t any of the above situations, you can still consider outsourcing HR. In this way, you can minimize operating costs. You can read more about common mistakes to avoid when choosing a technology partner. Apart from this, follow these steps to outsource HR needs:
Step # 01:
Map out the HR functions that you need to outsource. List all details from employee recruitment, selection, orientation, performance management, compensation, benefits, career development, succession planning, and exit.
Step # 02:
In addition, identify all the areas where you need to implement or improve the new operations. This way, you can easily decide whether the company should outsource HR.
Step # 03:
In step number three, calculate the cost of the HR department while keeping in mind the opportunity cost. Apart from this, remember to consider the company cores and compare the amount of time and effort spent on income-producing activities. In addition, there are other vital areas that you need to think about:
- Compare the cost of the HR department and HR outsourcing services
- Outsourcing HR doesn’t mean you will fire the current staff
It means you can outsource HR needs without firing the staff. There are many examples where companies redirected HR employees to other income-producing functions like billing.
Step # 04:
In addition, remember to understand the service options for the company’s needs. HR outsourcing is available in many forms, like PEO and HRO, which we discussed earlier. If the PEO has better unemployment and compensation rates, then probably it’s a more cost-effective option. But if the company has excellent SUTA and WC rates, then HRO could be a better option.
Step # 05:
Here you need to find an expert or specialized service for HR outsourcing services. Looking for a better option that understands all needs would be best. Apart from this, the broker should possess analytical competence and should be able to identify cost-effective solutions. So, if the broker has successful testimonials, it will be a good indicator that you should hire that service.
Step # 06:
This is the sixth and last step you must purchase and implement. The HR management provider helps to implement the functions and procedures as the detailed plan will include deadlines, resource allocation, and communication. Here are the following functions that providers offer for the companies:
| Payroll processing | Employee benefit administration | Employment law compliance |
| Employee relations | Talent acquisition | Performance management |
| Background screening and reference checks | Risk management | Drug testing |
Apart from this, it’s the responsibility of outsourcing service providers to offer employee counseling.
Pros & Cons of HR outsourcing:
After knowing about HR outsourcing, you may be ready to try it. But consider the pros and cons before deciding.
| Pros | Cons |
| Saves time | Might feel impersonal |
| Lower your benefit premiums | Corrections take longer than usual |
| It saves money and reduces the cost | Represents recruitment challenges |
| Improve operational efficiency | Loss of control on some level |
Outsourcing HR functions can eliminate stress and distraction from the primary job functions and helps to improve efficiency. So, you can outsource consultants, firms, HR software, or professional employer organization per your organizational needs. However, if you want to improve an organization’s efficiency, give HR outsourcing a chance. In this way, you not only reduce operating costs, but it helps to reduce the cost of hiring new staff.
