Human resources departments are responsible for a lot of different activities in a company, not the least of which is recruitment and hiring. These activities need the dedicated skills and education that HR professionals bring to the table. However, even though HR is a critical component of most businesses, it doesn’t always get the attention and—well, resources—it deserves.

Small businesses often struggle to provide comprehensive HR services to their employees. Many of us who have spent time in small companies have experienced working with the multifunctional office manager who performs HR duties in between ordering office supplies, planning the annual holiday staff party, and getting a new microwave for the lunch room.

It doesn’t have to be this way. HR outsourcing (HRO) is a well-established industry that businesses of all sizes can turn to for high-quality, customized HR packages.

What HR services can businesses outsource?

Nearly any service found in a traditional HR department can be outsourced to one or more HRO providers. Here are some of the more common HR services businesses can contract out.

Payroll Administration: Everyone likes to get paid, but no one likes an unprofessional mistake to have an impact on their paychecks. Payroll administration is one of the most commonly farmed out HR functions for this reason.

Benefits Program Management: Benefits programs are an important part of employee compensation. They are also difficult to manage, as plan providers are constantly revising their packages. An HRO vendor can tailor a benefits program for your employees, and handle the ongoing program administration for you.

Training and Development Systems: A growing number of employers want to provide business skills training and career development initiatives to their employees, but creating these programs from scratch takes significant time and resources. Several HRO vendors offer customizable training systems that can be delivered to your staff online.

Incentive and Reward Programs: Incentive and reward programs contribute to creating a positive workplace. HRO vendors can build a program for your business that includes a selection of monetary rewards, perks, and employee recognition events.

Recruitment and Hiring: This is the bread and butter of HR departments. An HRO vendor can bring additional features to hiring programs that in-house HR teams can’t easily provide for, including things like background checks, drug screening, and temporary staffing campaigns.

What are the benefits of HR outsourcing?

Deciding to outsource any business function only makes sense if there are tangible benefits gained by doing so. Here are some of the noteworthy benefits associated with HR outsourcing.

It lets you concentrate on your core business. The scope of HR activities is pretty large, and keeping all of your HR functions internal can take its toll on your primary business. HR outsourcing lets you focus on your key operations.

It avoids the trap of “good enough” HR. Internal HR departments can quickly find themselves under-resourced, especially during periods of company growth. This can result in employees receiving only “good enough” HR services, leading to unhappy staff and a negative work environment. HRO providers can easily scale their programs to keep up with your personnel growth.

It reduces liability and compliance issues. It’s not easy to stay informed on all of the federal and state laws concerning employee rights and workplace requirements. HRO providers take responsibility for maintaining the appropriate standards, lowering your liability and compliance risks.

Are there any potential downsides to HR outsourcing?

There are pros and cons to every business solution. If you decide to go ahead with HRO, here are a couple of potential issues you should keep in mind.

HR outsourcing involves some security risk. Depending on the level of HRO services you select, you will have to provide some sensitive information to the vendor. This can include employees’ personal information (SSNs, banking information, etc.), salary and compensation numbers, and exposure to proprietary business processes.

Before signing an agreement with an HRO vendor, ask about confidentiality agreements and the security measures they have in place to avoid sensitive data. Also, check if they offer some form of insurance for any business losses incurred due to a data theft incident.

Employees may find HRO to be impersonal. Some staff may find having their HR services provided by an external vendor to be impersonal, which can cause employee disengagement and negative feelings in the workplace. To avoid this, you should clearly communicate the advantages of having the HRO to employees. For example, suggest that using a dedicated HR provider allows for more feature-rich programs than you could provide internally.

Should You Outsource HR?

The growth of the human resource outsourcing industry has given all businesses a viable alternative to operating their own onsite HR departments. HRO offers a flexible “pick-and-pay” solution where your company can choose which services they want to contract out, while maintaining focus on your core business. HRO providers can also help you to train and develop personnel, resulting in more engaged and happier employees.

What do you think about HR outsourcing as a business solution? Let us know in the comments below.


Posted by Aaron Axline

Aaron Axline is an author, technology journalist, blogger, and knowledge management expert.