Is HR outsourcing good or bad?

In recent years, many businesses have chosen to outsource an expanding variety of activities—including human resource functions. Companies can outsource in attempts to improve service and product quality, reduce production cycle times, lower costs, increase their focus on core competencies, and, in general, enhance organizational performance. But before a company chooses to outsource, they likely have questions about its viability as an option that will yield great results. 

One of the most common questions is about the effectiveness of outsourcing human resources on the functions and performance of their business. Is HR outsourcing good or bad? What are the risks and benefits of outsourcing HR? What are the advantages and disadvantages of HR outsourcing? These are all valid questions. Let’s review what outsourcing Human Resource Management (HRM) looks like and be transparent about the benefits and risks that come along with it.

What is outsourcing in HRM?

Put simply, HRM outsourcing is a contract agreement between a business and an HR service firm where the business transfers over the management and responsibilities of some or all HR functions to the firm. There are many HR outsourcing options available to businesses, and not all aspects of a businesses’ HR have to be outsourced. In fact, many good HR firms allow a company to pick and choose the functions they outsource, allowing the services to grow and change as the company expands.  

So, what are the reasons for outsourcing? The reason a business might outsource functions of its HR can vary. According to the Society for Human Resource Management (SHRM), 48% of companies outsource their HR for more specialized expertise around legal and compliance issues. Many companies also outsource their HR due to cost effectiveness.

HR outsourcing benefits and risks

As with any major business decision, it’s good to look at and weigh the benefits and risks of an option before choosing it. Although HR outsourcing comes with many benefits, if done incorrectly, there can be some risks associated with it as well. Here is an overview of the common pros and cons of outsourcing HR functions.

What are the benefits of outsourcing HR?

So first, let’s talk about the many benefits of outsourcing HR functions for your company. Benefits include saving time, reducing cost, saving on tech, investing in expertise, increasing efficiency, and flexibility with staffing. 

• Save time: Outsourcing non-core HR activities frees up your resources helping you to focus on the core functions of the business, rather than supporting ones.
• Reduced costs: One of the biggest and most obvious advantages of HR outsourcing is lower labor and operations costs, as well as a reduction in overhead expenses.
• Save on technology: Outsourcing HR can remove the need for technical expertise as the firm takes responsibility for the HR processes and technology.
• Expertise: Access to skilled resources means that businesses can avail of the right talent, assuring a higher quality of HR tasks.
• Increased efficiency: An outsourced HR firm brings in specialized knowledge and experience, which in consequence leads to an increase in productivity and efficiency of your HR function.
• Staffing flexibility: If your business has operations with cyclical or seasonal demands to bring in extra staff, outsourcing HR provides an opportunity to add additional resources when you need it and release them when they are no longer required.
• Compliance: State and Federal Employment law is constantly changing. Hiring an outsourced HR partner can help a business stay compliant and within best practices. 

What are the risks of outsourcing HR? 

Okay, so we covered the benefits of outsourcing HR, now let’s take a look at HR outsourcing risks and mitigation for those risks. 

• Loss of managerial influence: Once contracted, the HR functions are operated by a non-internal team. This might not matter if the firm is doing a good job, but what if they make decisions that don’t reflect well on your company? Finding the right partner that takes the time to understand your companies values is the key to outsourcing HR successfully. 
• Potential hidden costs: Cost savings are the main reason most companies decide to outsource, but you need to be aware of potential hidden costs. An outsourcing contract should cover the details of the service that the outsourcing company will be providing. A great outsourced HR partner will be upfront and transparent on fee structure during the sales process so your cost is known and predictable. 
• Threat to security: If you have confidential information that an HR outsourcing company will have access to, like payroll or medical records, you introduce a possible breach of confidentiality. Most of the time, outsourcing HR will actually increase the security of your important employee information, but it is smart to understand how an outsourced partner handles sensitive data before you contract with them.

Outsource like a pro. Choose Milestone for your HR outsourcing solutions 

Outsourcing HR or any other business function could have its cons, but it doesn’t have to. Choosing a quality, dedicated outsourced HR firm has a major impact on the success of your outsourcing. Milestone Business Solutions is your trusted HR service provider for all your HR and accounting needs. We believe that every business deserves access to excellent expertise and compassionate, detail-oriented HR support. In that light, we have developed flexible monthly HR outsourcing packages, with no long-term contracts, only long-term connections. With Milestone, you’ll have a single point-of-contact dedicated to handling the details of your HR, allowing you to focus on growing your business. Let’s explore how our support can give your business the HR experience it deserves. Contact us today.