The Pros and Cons of HR Outsourcing

Posted in People & Culture | by Jiehui Kwa on 22 August 2017

Last updated on 2 November 2018

Outsourcing is an increasingly common practice among organizations in virtually every industry. Simply put, it involves contracting out certain functions to a third party, be it local or overseas (“offshoring”).

 

Regardless of location, outsourcing in all its forms is a highly successful measure for many businesses. That being said, it’s no surprise that human resources departments began to follow suit. These days, HR responsibilities like employee benefits, payroll or training can easily be placed in the hands of external agencies or contractors.

 

Of course, nothing is perfect. Like any major procedural change, it’s important to be aware of the benefits and drawbacks of HR outsourcing.

 

 

Advantages

HR outsourcing is an excellent way to streamline and improve the entire HR department. If conducted properly, the benefits will become quite apparent.

 

 

Cost-Cutting

Naturally, saving money is any business’ top priority. Improving the bottom line ensures continuous growth and maintains the confidence of stakeholders. Considering the sheer cost of running an HR department in-house, sending many of its key functions elsewhere makes perfect sense.

 

For instance, according to PayScale Human Capital, the median salary for an HR Generalist in Singapore is S$39,483 per year. Depending on experience, this can run as high as S$58,000. Factor in the salaries of HR Managers, HR Assistants and other related staff, and it’s easy to imagine how much this could affect overhead.

 

HR outsourcing gives businesses access to the same level of expertise at a considerably lower cost.

 

 

Consistent Operation

Turnover is always an issue, but it can be particularly taxing in a small, specialized HR department. Losing a head recruiter, benefits specialist or payroll staff member, for instance, can cause serious disruption. Considering the time it takes to locate, interview and train new people, companies can’t afford to “lose their groove,” so to speak.

 

With HR outsourcing, there will always be a steady stream of specialists taking care of their respective HR functions. If one or two people happen to leave the third party organization, there are plenty of others to carry the torch.

 

 

Specialization

Typically, the average HR department has a limited number of specialists. For instance, things like recruitment, payroll or benefits won’t have more than one or two staff members working in their respective functions. This makes it difficult to keep up with the inevitable workload while limiting the pool of expertise to a select few.

 

With HR outsourcing, these – and many other – jobs can be sent to agencies that specialize in specific HR fields. It’s akin to having an army, as opposed to a few soldiers.

 

 

Access to Technology

As industry and business needs change, so does technology. Considering that HR consists of multiple different departments and areas of specialization, staying ahead of the curb is unrealistic without external help. Again, giving control to outsiders puts the onus on them to stay up to date and removes a time-consuming (and logistically impossible) responsibility from a small group of in-house staff.

 

 

Disadvantages

Clearly, there are some solid reasons for outsourcing HR duties. But that doesn’t mean there aren’t some potential issues to consider.

 

 

Quality Control Issues

Finding the right contractor is like hiring the perfect employee; it’s a process that involves strict evaluation.

 

Some domestic contractors simply aren’t as focused on quality as they should be. When offshoring is involved, the distance could further exacerbate this problem.

 

Obviously, this isn’t always going to be the case. Most third party providers are reliable, knowledgeable and accountable.  Again, the best way to choose the right outsourcer is through careful research. Specifically, businesses should look at the candidate’s quality control practices and relevant industry certifications.

 

Another good measurement to analyze is employee turnover. If people tend to leave the company at rate above the industry average, it implies that there may be something fundamentally wrong. Unhappy workers don’t strive for excellence.

 

 

Security Considerations

In business, confidentiality is paramount. Credit card numbers, banking information, client records and private communication are just a few things that need to be kept secret.

 

When handled in-house, breaches are easy to identify, correct and – if necessary – punish; however, if this happens elsewhere, it makes such unauthorized disclosures harder to address.

 

Fortunately, it’s easy to determine whether a particular contractor is reliable. When evaluating potential candidates, research how they handle sensitive information. For instance, request information about their security audit practices, adherence to laws and regulations; and what measures they take in the event of a breach.

 

 

Lack of Priority

Third party outsourcers work on contracts, so it makes perfect sense for them to rely on multiple clients for their business.

 

Unlike in-house HR work, which is exclusively focused on the company, outsourcers have to handle the needs of several organizations at once. This means that no customer will have 100% of their attention.

 

Customer service, however, does not have to erode simply because an outsourcer services multiple businesses. The best way to ensure quality is to seek references – preferably from those in the HR industry – who work or have worked with the contractor in question. Similarly, find information regarding past or present complaints (if any) against the organization to see if there are any red flags.

 

 

Communication Issues

Effective communication between partners is important to ensure smooth operation. Clients have every right to remain up to date with any new developments or problems that arise. Having HR work done in-house is easier in these situations, since face-to-face meetings are easy to arrange. Outsourcing could make communication less fluid in this regard.

 

Again, a good look at references and the company’s overall reputation is the key. It also helps to have a dedicated point-of-contact within the company, whose role is to be available at all times during business hours for any questions or concerns.

 

Overall, outsourcing HR work is a great investment. It saves money and really helps make the organization more efficient – when done properly. As with virtually any major change, there are potential complications; however, with the right amount of due diligence, patience and thorough research, the odds are quite high that those who choose to outsource will be happy with the results.

 

 

JustLogin works with a range of HR Outsourcing partners who use JustLogin to run their clients’ HR. We’ll be happy to recommend one of our HR Outsourcing partners to you. Contact us for a recommendation!

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