Why Do Companies Outsource Human Resources?

The Milestone Team September 6, 2021

While most companies would prefer to keep all functions in-house, successful businesses understand that outsourcing is sometimes necessary to make the best use of your resources.  Headcount taxes your bottom line more than most other expenses, and it’s a fine line between maintaining the people and talent you need and determining what departments you can outsource without sacrificing service or quality. 

Traditionally, you wouldn’t include HR on the list of business functions to outsource. Company culture and employee retention are paramount for your business—and HR plays a big role in developing both, while also managing primary administrative and payroll duties. Why would a business outsource the human resource function, then?

What is human resource outsourcing?

Outsourcing a business function or department isn’t an all-or-nothing approach. A common misconception is that outsourcing HR entails outsourcing every responsibility typically included: payroll, benefits, recruitment, onboarding, etc.  But HR outsourcing strategies can include a specific function of HR, like payroll, and not the others. 

Take, for example, a specific need to increase recruitment efforts. If your current HR team doesn’t have the capacity to attend additional job fairs or be more active on sites like LinkedIn, you might outsource only your recruiting and onboarding responsibilities while using your current HR team to manage the other administrative tasks. 

Human resource outsourcing is identifying whatever HR needs your business requires, and locating the right outsourcing provider to meet this need. If you are a small business owner currently handling all HR tasks yourself, the right outsourced provider can take administrative tasks off your plate while providing much needed strategic guidance.  Pros and cons of outsourcing HR functions can vary for businesses depending on their size, the type of business, and what their specific HR needs are. 

Some well-known benefits of outsourcing include:

  • Specialized HR skills and training
  • Reduced headcount costs
  • Ability to fluctuate HR resources based on need

Disadvantages might include:

  • High turnover with outsourced HR employees 
  • Loss of control over specific HR functions
  • Lower tenure length for HR employees

When should you outsource HR?

Businesses have to identify whether or not to keep certain business functions in-house or to outsource, specifically with HR needs. The strain of not having the HR resources you need become apparent quickly when payroll is affected, you spend too much time managing recruitment and applications, and you are required to handle employee relations issues yourself. 

Some other reasons for HR outsourcing might include:

  • Your business is growing faster than you can hire for HR
  • You aren’t able to locate HR talent
  • Your HR onboarding process requires too much time
  • You don’t possess the capacity for leading training efforts 
  • You can’t afford the full-time HR resources you need but want to provide a high level of support to your employees

Any one of these can interrupt the focus and agility of your business. And the last thing you want is to spend your time on is hiring for HR instead of running your business. 

Why do small businesses need HR?

Many small businesses operate with a hybrid HR model due in part to the small number of employees on staff. Unfortunately, some employees end up shouldering certain HR responsibilities that they probably shouldn’t. At the same time, hiring full-time HR employees can seem excessive when you are operating a small team. Why do small businesses need HR services?

Even for small businesses, an HR presence can be critical. 

  • HR fosters growth. Not only does an HR presence help with employee retention, they are vital to fostering efficient hiring and onboarding. They can assist with recruitment efforts, and it speaks volumes about your company when interviewing with HR as well as a Lead, Manager, or CEO. 
  • They set the tone of the business. Without an HR department for a small business, you lack a liaison between the business owners and the employees who are investing their own futures in the company. With an HR department, you’re committing to your employees and showing that you’re invested in the team as well. 
  • HR keeps you in check. From labor laws to payroll details to the administrative functions, small businesses need the expertise of someone proficient in HR services. 

That can feel like a lot to handle, especially if you don’t have the resources already. 

Milestone can handle HR outsourcing needs as well as financial and accounting services. They understand that you need tactical, strategic back office talent to meet your needs—whether you operate a large organization or as a small business. Not only can they alleviate HR responsibilities from your current team, but they work to improve processes within your business to allow for more growth in the future. Contact Milestone today to learn more about their outsourcing capabilities.

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