The Benefits Of Outsourcing The HR Function

Human Resource Management has come a long way from being just “personnel management”. It has taken many years for HR from being a someone who never got a ‘seat at the table’ to being considered critical to the company’s long-term success. However, as markets today become more and more competitive, HR must distribute its time wisely between critical functions like talent development, performance management, succession planning, etc. and process-driven tasks like payroll, temporary staffing, etc. As a result, focusing HR’s time and energy on strategic efforts have driven many companies to outsource the HR functions like recruitment, payroll, etc. According to the Cambridge Dictionary, “outsourcing” is a situation in which a company employs another organization to do some of its work, rather than using its own employees to do it. Over the last few years, the outsourcing of HR activities has increased dramatically. The HR service providers reported a 27% growth for 2016.

Now, outsourcing the HR function is usually done with the aim to cut costs. This approach is a short-sighted approach in the worst. It has far-reaching implications on the “Human factor” in the company. So, it is highly advisable that companies do a thorough cost-benefit analysis before deciding to outsource any of their HR functions. So, we would now go on to discuss the potential benefits of outsourcing the HR function.

First and foremost, we shall talk about the obvious- cost reduction. In fact, in the 2016 Global Outsourcing Survey by Deloitte, 59% of the participating companies said their chief motivating factor to outsource some of or all HR functions was cost cutting. For a startup, which is low on funding, HR costs can be a substantial amount of the total cost. Hence, outsourcing functions for immediate requirements like recruiting can ensure two things- save money from fixed costs expenditure and gain better recruits due to the established expertise of the external company (assuming it is a reputed company). Also, for an established company that is facing a financial crunch, fixed costs can be reduced by outsourcing recruitment. It could also bring in expert advice from specialists in different fields of HR. This could, in turn, enhance the organizational knowledge of the company.

Next, it brings in external expertise to the organisation. Managers are the first “HR” point of contact for the employees. However, they are also responsible for a lot of other tasks. As a result, sometimes, HR activities are neglected. HR professionals having had valuable experience in the field of HR bring valuable knowledge to the organisation. Companies enjoy all the benefits of having a competent, professional team working for them; that too, without having to employ a full-time staff.

Then, we move on to the benefit of better compliance. Employment laws are changing like ‘the weather changes due to global warming’. In this scenario, maintaining strict adherence to rules becomes difficult for the company. And, in the case of any ‘Employment Law’ being broken, it invites strict actions from the government. So, having different company looking into your non-core HR matters independently not only leaves the HR team to focus on more strategic tasks, but also gives the company immunity in case of any law being broken in any country as it would be the responsibility of the vendor company. Every domain of business has to adapt its processes to keep pace with this ever-changing digital world. So, how can HR stay behind? Outsourcing HR to an external agency gives the company access to better technology in handling its HR processes. For example, ‘software-as-a-service (SAAS)’ is a software licensing and delivery model in which software applications are hosted remotely by a vendor or service provider and made available to customers via a Web browser. This model of software delivery creates greater organizational agility.

It can be said that recruiting the candidates that are the best fit for the organization is critical to the success of the organization. However, employee turnover is becoming a greater problem for companies; especially those ones that employ candidates for jobs with highly specialized skills where losing a single employee can be very costly to the companies. When companies are undergoing change, it might delay some HR processes. This might translate into employee discontentment. Also, when a company loses a HR employee without prior notice, it may have an impact on the employees he/she was responsible for. When HR processes are outsourced, there is a team hired to give dedicated service to its employees. Employees feel more connected to the company because their problems are dealt with more seriously. Outsourcing ensures that there are experts available to dedicate their time, knowledge and resources to safeguarding the smooth running of HR administration, resulting in improved company morale and thereby, reduced employee turnover.

Employment labour laws are the sword hanging over the head for companies. They cannot afford to break employment regulations; especially in countries where there are strict penalties for doing so. Since, these laws are prone to change frequently, it can be difficult to remain up-to-date on them. A representative study of 1,214 closed claims reported by small to medium-sized enterprises (SMEs) with fewer than 500 employees in the U. S. showed that 24% of employment charges resulted in defense and settlement costs averaging a total of $160,000. On average, those matters took 318 days to resolve. Outsourcing firms employ HR professionals who are up-to-date with the federal and state employment laws. HR firms also maintain and audit company policies and practices to ensure the client organization’s best interest are protected.

Works Cited

  1. Deloitte , 2016. Global Outsourcing Survey, s. l.: Deloitte.
  2. Hiscox, 2017. www. hiscox. com. [Online] Available at: https://www. hiscox. com/documents/2017-Hiscox-Guide-to-Employee-Lawsuits. pdf [Accessed January 26, 2018 January 2018].
  3. PrismHR, 2017. Human Resource Outsourcing (HRO) Trends Report, s. l.: PrismHR.
31 October 2020
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