Thanks to his deep industry knowledge and financial acumen, Doug is building a rapidly growing manufacturing business. But Doug is no human resources expert, and his wife, who squeezes their HR function into her busy day as the company’s marketing director, is worried about finding qualified new hires — not to mention keeping up with the regulations governing employee benefits.
Miranda, who leads a midsize retail chain, has plenty of HR employees in-house. But thanks to departmental inefficiencies, including redundant positions, HR is costing her company a bundle.
Both Doug’s and Miranda’s companies may benefit from outsourcing their HR function. Here’s what they — and you — need to consider.
Efficiencies = savings
In recent years, HR administration has become a broad and complex function that includes everything from hiring and firing to managing health care and retirement benefits to filing workers’ compensation claims. It can be challenging for smaller businesses to find one person with all of the necessary expertise — and afford to pay that person. Besides, most companies would rather focus on what they do best. While HR isn’t a core competency of, say, Doug’s business, it is for an HR outsourcing firm.
An HR provider has greater experience and will be up to date on IRS regulations, legislation and even court decisions that affect employee hiring and benefits. It also can offer greater economies of scale for managing and supporting a company with, for example, information management systems and staff resources. Companies that outsource may even realize discounts on benefits that HR providers typically buy in bulk.
For companies such as Miranda’s that are concerned about their HR department’s impact on the bottom line, outsourcing can offer several benefits. These include increased service quality and responsiveness, advanced technological capabilities and lower costs due to greater operational efficiencies.
On the flip side, outsourcing can trigger fear and anxiety among a company’s HR staff, and all employees may worry about the security of their personal information. For their part, owners and executives often feel uncomfortable turning over certain managerial responsibilities and decisions, such as recruiting or laying off staff. In such cases, outsourcing limited functions, such as payroll administration or employee assistance programs, might make sense. It’s also important that businesses choose a provider they trust and can communicate with easily.
Some HR providers are willing to work on a per-project or hourly basis. But most HR outsourcing contracts are structured with terms of at least one year and specify that the provider will help the company achieve predetermined cost-saving and performance goals. Providers typically assume a degree of financial risk if they fail to achieve those goals.
If your business is struggling to effectively perform the HR function at a reasonable cost, outsourcing may be the solution. Besides lowering expenses, outsourcing HR enables you and your employees to focus on higher-value and more strategic activities.