What are the advantages and disadvantages of outsourcing HR functions?

Introduction

When a growing business needs to decide whether to hire an HR team internally or outsource HR functions, it can be a challenging decision. Outsourcing HR functions involves selecting a trusted third-party company to manage some or all of the company’s HR tasks. In this blog, we will discuss the advantages and disadvantages of outsourcing HR functions.

What is HR outsourcing?

HR outsourcing involves hiring a third-party company to oversee some or all of a company’s HR functions. The outsourced HR tasks can include payroll processing, employee benefits administration, talent acquisition, and more. There are two primary types of HR outsourcing: HR outsourcing (HRO) and Personal Employer Organization (PEO).

Advantages of outsourcing HR

The following are the advantages of HR outsourcing:

1. Reduced costs: Outsourcing HR can help a company save money by delaying the need to expand the HR team, reducing the costs of hiring, and avoiding noncompliance penalties. Choosing a PEO can also help save money on benefits, especially health insurance.

2. Reduced errors: Outsourcing HR tasks can reduce errors that occur due to inexperience when tasks are delegated to other staff such as the receptionist or office manager. Mistakes can result in pay being late, which can lead to an increase in employee turnover.

3. Access to expertise: Outsourcing HR to a comprehensive solution such as a Professional Employer Organization provides access to their experience and expertise. A local PEO provides a dedicated Human Resources specialist that can customize solutions based on the unique needs of a company.

4. Improved benefits: Outsourcing HR to a Professional Employer Organization can provide access to Fortune 500-level master plans at rates that a company may not likely get on its own. This can help attract and retain talent, and a company can offer more perks and voluntary benefits.

5. Improved morale: Outsourcing HR tasks can improve company-wide morale by providing proper onboarding, competitive benefits, and more. Human Resources staff is happier because they do not have to spend hours on administrative duties.

Disadvantages of outsourcing HR

The following are the disadvantages of outsourcing HR:

1. Distance: Depending on who a company chooses, the outsourced HR personnel may be distant from its employees, not understanding the company’s specific needs or the employees’ desires. This can make Human Resources inaccessible and employees feel frustrated and undervalued. To avoid this, a company should choose a local vendor who maintains a practice of responsiveness.

2. Retention issues: Outsourcing HR tasks can result in higher turnover and reduced productivity if the partner is a poor fit for a company’s culture. It’s essential to thoroughly vet any outsourced HR partner to ensure they are in alignment with a company’s values and culture.

3. Dependency: A company may become dependent on the provider, which can cause problems if they want to switch or if the provider goes out of business. Companies should research and find a partner that can scale as they grow.

Conclusion

When deciding whether to outsource HR functions, a company must weigh the advantages and disadvantages carefully. Outsourcing HR tasks can provide cost savings, access to expertise, improved benefits, and morale. However, it can also result in retention issues and dependency on the provider. When outsourcing complements an in-house team, a company can avoid problems and reap the benefits of having an extension of its HR department.