Human Resource Outsourcing Examples
One essential part of any organization is Human Resources (HR). An HR department is responsible for nearly every facet of employee management. HR management is both comprehensive and complex.
Read more below.
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Human Resource Outsourcing Examples
One essential part of any organization is Human Resources (HR). An HR department is responsible for nearly every facet of employee management, including:
- Learning & Development
- Payroll & Benefits
- Employee Relations
- Performance Management
- Employee Engagement
… and much more. In a nutshell, HR management is both comprehensive and complex.
Even though HR is necessary to a business, many small- to mid-sized companies may not have the resources needed to set up an in-house HR department that is efficient and effective. If your business’ HR needs exceed your internal HR capabilities, HR outsourcing could be an option for you. Let’s take a look at examples of human resource management: what it is, its functions, and how much it can cost you.
What is human resource outsourcing?
An HR department manages a company’s employees. The human resources department is trained to handle everything from mediating interpersonal conflicts to setting up a retirement plan. Outsourced HR firms can take on the daily operational tasks of a company’s HR. Beyond daily tasks, Outsourced HR can handle or support internal HR departments in areas such as HR strategy, leadership development, and employee engagement.
The goal of HR is to use a company’s people most effectively. Employees must be hired, satisfied, motivated, developed, and retained for a company to succeed. While a company usually has many assets—capital, equipment, supplies, or facilities—its people are its most significant. A small business that outsources its human resource function often performs better as the outsourced firm will bring expertise and expanded ability to the HR function.
Why do companies outsource human resources?
Of all the services organizations might outsource, the reasons for outsourcing HR functions are among the most likely, providing significant cost savings and advantages. By working with an outsourced HR firm, businesses can create the right policies and programs to take care of employees’ needs and well-being and set up their teams for success. Because outsourced HR firms are specialized in providing HR services, they will have technology solutions and tested processes in place, allowing the company to benefit from their expertise and efficiency. Outsourcing HR can also be less expensive than hiring in-house. If a business owner is trying to do HR independently, outsourcing can immediately free up time and ensure compliance. Some outsourced HR services offer other adjacent services, too, such as accounting services. Outsourcing your HR functions can help to streamline your HR processes, resulting in more effective HR management and administration.
What are some examples of human resources?
Here are a few strategic human resource management examples to get a better understanding of what an outsourced HR firm can do.
Recruitment and selection
Hiring employees is arguably the most visible element of HR. Recruiting strong candidates and selecting the best ones to work for a company is a significant HR responsibility. People are the bones of any organization, and finding the best fit is an essential element.
The HR hiring process starts when a new job is created or an existing job opens up. Typically, the manager sends the job descriptions to HR, where they start recruiting candidates. Outsourced HR firms usually have access to several selection instruments to narrow down the best person to do the work. The process typically includes interviews, different assessments, reference checks, and other recruitment methods.
When there is a pool of candidates, an HR firm may deploy pre-selection tools. These tools help to separate suitable candidates for the company to interview. The most successful candidates then continue to the next round, where they are interviewed and receive a more in-depth assessment.
Once employees are hired, performance management becomes necessary. This is the second primary HR task. It involves helping people to develop their skills at work, boosting the company’s bottom line. Usually, employees have a designated set of responsibilities that they are in charge of. Performance management is a structure that enables employees to get feedback on their work — reaching their peak performance. It is also an opportunity for employees to give feedback, providing the company with valuable information it needs to retain talent.
Examples can be seen in formal in-person performance reviews; other times, they can take place in 360-degree feedback instruments that also acknowledge the evaluation of peers, clients, and other relations, and more informal feedback. Sometimes, companies work with an annual performance management cycle, which involves planning, monitoring, reviewing, and rewarding employee performance. Outsourced HR firms can support this process or train internal leaders to do it more effectively.
Employees who are confident in their full potential improve the efficiency, sustainability, and profit margin of a business. In other words, good performance management is crucial.
Learning and development
Within HR, learning and development is the function that helps employees adjust to changes in processes, technology, and social or legal shifts.
Learning and development helps employees to improve and upkeep their skills. Good learning and development policies can help advance the organization towards its long-term goals by developing its employees.
If an employee leaves a company, a plan should be established to ensure someone is ready to step into that role. This is known as succession planning. Here’s an example: if a crucial senior manager retires, the company should have a replacement ready to guarantee that the company stays running. This will save the company significant time and money.
Succession planning is often closely tied to performance reviews and learning and development efforts. As a result, a talent pipeline is created, along with a developing pool of candidates who are qualified and ready to fill positions if someone were to leave or retire.
Compensation and benefits
Another HR task is compensation and benefits. Equal and fair compensation is key in motivating and retaining employees, and an outsourced HR firm is responsible for ensuring equity and fairness. Making the right pay offer is essential when attracting the best talent, but this should also be balanced with the company’s budget and profit margins. Outsourced HR departments may monitor pay increases and set standards of merit. Outsourced HR has access to market-rate research and can carry out periodic pay audits. This way, a business doesn’t have to conduct research and keep up with what every employee should be getting to stay competitive.
Compensation comprises both primary and secondary compensation. Primary compensation is the direct money paid for an employee’s work, which often is a monthly salary and sometimes performance-based pay.
Extra holidays, flexible working times, day-care, pensions, or a company car and laptop, can be rolled into this category. Outsourced HR can also help develop a secondary compensation strategy.
Human Resource Information System
These last two HR tasks are not HR practices but tools that outsourced HR firms use to perform their work better. The first is the Human Resource Information System (HRIS). An HRIS supports all the foundations we discussed above, and HR is responsible for the data in HRIS. For example, HR specialists often use an Applicant Tracking System (ATS) to track candidates and hires for recruitment and selection.
A performance management system is used to identify individual goals and input in performance ratings. In learning and development, a Learning Management System (LMS) is used to distribute content. Other HR systems can be used to keep track of budgets and training approvals. Outsourced HR specialists often use a payroll system or other digital tools for efficient succession planning.
Sometimes, when a business chooses to Outsourced HR, they don’t have to deploy these systems themselves and instead can rely on the HR outsourcing company to maintain the specialized system. Other times, outsourced HR experts can help a company select the right technology and then ensure it is implemented effectively.
HR data and analytics
The last of the HR tasks revolve around data and analytics. HR has made a major jump towards becoming more data-driven in the last decade. HR data is used to make informed decisions around recruiting, retention, compensation, and culture.
There are a variety of HR metrics or HR KPIs. These data sets show you specific analyses that answer how a company is doing in a given area. The process that incorporates the collection, organization, and analysis of this data is referred to as HR reporting.
Reporting focuses on the past and current state of the organization. Using HR analytics, an outsourced HR firm can make predictions for a company’s future. Examples include workforce needs, employee satisfaction, employee turnover intention, and many others. HR outsourcing companies often create a dashboard for businesses to see this information and track progress against their goals.
How much does it cost to outsource human resources?
There are three ways outsourced human resources can price their services. Some companies will charge a flat fee per employee, referred to as Per Employee Per Month (or PEPM), which can vary based upon the scope of service and range anywhere from $50-$200 per employee per month. Others will charge a percentage of the employee’s salary, which can be expensive depending on how high of salary your employees have. A given rate could range between 2% and 10% of your employees’ wages.
HR outsourcing can also be charged on a fixed monthly fee to provide a scope of defined services. This can include operational tasks, administrative tasks or can expand to include strategic services and projects. Depending on the scope of services and headcount, a flat fee could be $500-$3000, or potentially higher.
When you only choose to outsource HR functions as needed, you often incur expenses on a one-off basis. For example, paying for individual employee background checks during hiring will run you anywhere from $50-100 per person. Or, if you only want to pay for manual auditing once a year, a business could pay anywhere from $500-1500.
When your company is experiencing growth and making many new hires or changes, the upfront costs can seem daunting. However, it’s worth noting that in a survey by Deloitte, 78% of respondents said their outsourced human resources provider either met or exceeded objectives related to cost. It is important to compare the price of outsourced HR with your ROI.
HR outsourcing best practices
Before hiring an HR outsourcing firm, consider these two best practices while making sure the provider is the right fit for you and your company.
Process documentation is crucial in helping an outsourced HR firm become familiar with your business’s current policies and procedures. Process documentation can help your HR staff to perform all their necessary activities, including payroll, performance management, exit formalities. The key to a smooth outsourcing experience is using process documentation that details the internal controls required by the HR firm to ensure best practices and appropriately separate duties and supervisory authorities. If you don’t have process documentation, it may make sense to have your outsourced HR firm do the documentation before they start on other HR activities.
Partner with a trusted HR firm
When you choose an outsourced HR partner, making sure that they are a good fit for your business is key for becoming a partner, not just someone to keep you in compliance. When evaluating potential outsourcing partners, ask the following questions about their proposed solutions:
- How will the HR firm improve current operations?
- What types of events can be expected within the first year?
- How many people are required to oversee the implementation of the new firm?
- How does the firm handle privacy and security concerns?
- Is there evidence that the outsourced HR firm is compliant with all HR regulations and data protection requirements?
Go the extra mile, outsource your HR with Milestone
Employees are the backbone of every business, and they deserve access to top-tier expertise and compassionate, detail-oriented HR support. At Milestone, we believe in true business partnerships and work with you to make your life easier, help you build a successful business, and give you access to best-in-class technology.
We have developed flexible monthly HR outsourcing packages that focus on long-term connections, not long-term contracts. You will have a single point-of-contact that is dedicated to handling the details—letting you focus on growing your business. We are committed to serving as a resource of expertise for your entrepreneurial journey—whether you have an internal human resource professional who could benefit from additional support or you need a team to manage your strategic and operational human resources initiatives. Contact us today to share your story. Let’s explore how our support can give you and your employees the HR experience you all deserve.