Why do organizations outsource HRM functions?

The Milestone Team February 10, 2022
Why do organizations outsource HRM functions?

Human Resource Management (HRM) is responsible for managing and developing company culture, work environment, and all other functions related to people in your organization. This includes a variety of tasks, but the most common include some critical responsibilities like: the hiring process, employee development, recruitment, compensation, and communication. HRM includes vital functions that touch most other aspects of your business. 

Why would a business consider outsourcing HRM, then? 

Outsourcing human resource functions and performance, when done correctly and with the right partner, can provide a critical expert perspective on some of your primary human resource practices. These insights can potentially improve recruitment efforts, employee management processes, employee-employer relations, and more. Outsourcing HR services can also help ease the administrative burden for internal employees. 

Why would a business outsource the human resource function?

HRM leadership is responsible for recruiting and equipping the people your business needs to succeed and retain that talent. HRM leadership will work with the business on the full employee life-cycle. Why would a business outsource such an important department as HRM when it involves such critical aspects of your business?

While HRM is a vital function, it can be difficult for businesses to dedicate the necessary resources to ensure HRM is fully functioning. One reason is that the level of HR support a company needs at a given time can fluctuate as the business grows, making it a difficult function to hire and plan for. 

In their early stages, companies often delegate certain responsibilities to employees in other departments as a work-around from hiring HR employees. The problem is, this puts added stress on those employees and can lead to turnover or non-compliance as most of those employees aren’t trained or certified in HR practices. 

Outsourcing is a means of finding HR help without paying full-time salaries dedicated to HR. A benefit of this is getting highly trained, expert-level HR outsourced resources who can step into the businesses’ ongoing HR problems and provide solutions. As a result, human resource management can often be best done by an outsourced firm versus trying to find the expertise you need internal employees or a dedicated hire. 

What is human resource outsourcing?

Outsourcing is when a business chooses to execute business functions with a hired firm versus using internal headcount or resources. Someone has outsourced almost all business functions, but HR, accounting, and customer service are especially popular.

Human resource functions are popular to outsource—especially HR services for small business and even medium-sized businesses that can’t dedicate personnel resources to HR functions like payroll or recruiting for open positions. Often, businesses will outsource only part of their HR responsibilities, or they’ll use outsourcing providers for specific types of HR outsourcing, such as:

  • Recruiting and onboarding
  • Payroll
  • Culture development
  • Performance management
  • HR data and analytics 
  • Compensation and benefits
  • Document Management

But there’s more to outsourcing HR functions. The list above will help with the administrative burden of HR. Additionally, you can utilize HR outsourcing to provide outside perspective and leadership to shape your business’s growth strategy at a critical time.

What HR functions can be outsourced?

Many companies don’t ever consider outsourcing their human resource management roles—and, in doing so, lose the opportunity to gain expert insight into how to best conduct the different HR functions of their business. HRM outsourcing brings in leadership from an outsourcing provider to direct the HR functions of your team—whether that means working with your current team and providing direction or by executing on all HR functions, including management. Almost any function of HR can be outsourced from strategic to administrative tasks.

HR outsourcing best practices examples include the following:

Specialized HR Guidance – When you hire outsourced HRM, you get experts in their field who can analyze your current HR functions at any level—recruitment, development, employee satisfaction—and provide direction for improving those processes. It’s best practice to hire an HR company with a robust understanding of what you are trying to improve or the type of work you need to be done.

Executive HR Advice – Human resource management is often involved in high-level decision-making regarding the direction of your company culture and policies. Decisions made by you as a business owner require vetting and feedback regarding how employees will react. Major hiring sprees driven by an investment round may need a third party perspective from an fractional HR executive so a company can maintain a healthy culture as it rapidly grows. 

HR Employee Development – When you have a team of HR employees who need development or compliance help, outsourcing HRM can save on additional hiring costs by bringing in experts who can develop your current HR employees. When you outsource HRM, the provider will  deliver processes and best practices that can be adopted by your existing team and will keep you compliant. 

Should organizations outsource their HR function?

If the business just needs HR done in compliance and according to best practices, most companies will experience significant cost savings, better HR execution, and better compliance through outsourcing. Outsourced HR companies can recruit and keep up with compliance best practices better than the vast majority of businesses. 

Depending on business size, it can make sense to have some internal HR hires maintain continuity and help manage the HR function. But for the most part, the right partner makes it easy to outsource HR. 

At Milestone, our team of trained professionals has experience improving businesses by providing an outside perspective on human resource management and offering outsourced HR resources. We provide unique, outsourced solutions to improve business practices while ensuring you aren’t operating at a loss to pay for those services.

By leveraging our coaching, strategy, veteran insight, and real tools for business growth, you get the HR management resources and guidance you need until it makes more sense financially for you to fill those positions with full-time employment. 

Curious what outsourced HR help might look like for your team? Learn more about Milestone and the work we do

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