Why do organizations outsource HRM functions?

The Milestone Team February 10, 2022

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 Businesses Choose to Outsource HR Functions

HRM leadership plays a pivotal role in the success of a business, from recruiting and equipping the workforce to managing the full employee life cycle. Given the critical nature of these functions, it might seem counterintuitive for businesses to consider outsourcing such a vital department. Yet, the reality of managing HRM internally can be fraught with challenges, particularly for growing businesses.

As companies evolve, the level of HR support they require can significantly fluctuate, making it a complex and often burdensome function to manage effectively. This is especially true in the early stages of a business, where it’s common practice to delegate HR responsibilities to employees from other departments as a workaround to avoid the costs associated with hiring dedicated HR staff. However, this approach can strain these employees, potentially leading to high turnover rates or issues of non-compliance due to a lack of formal training in HR practices.

Outsourcing emerges as a strategic solution to these challenges, offering businesses access to highly trained, expert-level HR resources without the need to commit to full-time salaries. This model allows outsourced HR professionals to step in and address ongoing HR challenges, providing solutions that might not be readily available internally. By leveraging the expertise of an outsourcing firm, businesses can ensure that their HR functions are managed efficiently and effectively, allowing them to focus on core business activities and strategic growth.

Cost Reduction and Control

One of the primary motivations for outsourcing HRM functions is the potential for cost reduction and enhanced control over HR-related expenses. Outsourcing enables businesses to convert fixed HR costs into variable costs, offering flexibility and scalability that aligns with business needs and budget constraints. This approach can lead to significant savings in areas such as payroll administration, recruitment, and benefits management, allowing companies to allocate resources more strategically and efficiently.

Access to Expertise and Specialized Services

Outsourcing HRM also grants businesses access to a pool of expertise and specialized services that might not be available in-house. HR outsourcing firms employ seasoned professionals with a deep understanding of HR regulations, compliance, and best practices. These experts can offer invaluable insights and strategies to improve recruitment efforts, employee management, and employer-employee relations. Additionally, outsourcing firms stay abreast of the latest HR technologies and innovations, ensuring that businesses benefit from cutting-edge solutions that enhance HR functions and overall operational efficiency.

Focus on Core Business Activities

By entrusting HRM functions to an outsourcing partner, businesses can redirect their focus towards their core operations and strategic goals. This reallocation of resources away from administrative HR tasks towards revenue-generating activities and strategic planning enables companies to operate more efficiently and effectively. Outsourcing HR functions not only alleviates the administrative burden on internal teams but also empowers businesses to pursue growth and innovation with greater agility and focus, ultimately contributing to a stronger competitive position in the market.

Incorporating these considerations into the decision-making process underscores the strategic value of outsourcing HRM functions. It not only addresses the immediate challenges associated with managing HR internally but also positions businesses for sustainable growth and success by leveraging external expertise and resources.

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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