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Outsourcing your human resources (HR) functions means that you hire a separate company to perform these services for your business. These would include hiring, onboarding, compliance with labor laws, as well as pay and benefits.<\/p>\n
Small businesses are typically the ones who will outsource HR, as hiring an HR department is a much bigger percentage of their payroll and personnel than with a larger company. What services you get can also vary depending on the firm you choose or if you decide to purchase HR software instead.<\/p>\n
Key Takeaways:<\/b><\/p>\n Outsourcing HR functions means that the services that HR provides will be taken care of by an outside source. This will include hiring, compliance with labor laws, keeping your employees happy, and compensation.<\/p>\n<\/li>\n There are a few different ways to outsource HR functions: hiring an HR consultant; hiring an HR firm; making use of a PEO; or using HR software.<\/p>\n<\/li>\n There are pros and cons to outsourcing. It can be cheaper, limit your liability, and be more efficient. However, it can also be less flexible, less approachable for your employees, and untailored to your business.<\/p>\n<\/li>\n<\/ul>\n Outsourcing your human resources<\/a> means exactly what it sounds like \u2013 you hire an outside firm to take care of human resources functions. HR is vital to the health and success of a company, as it serves a dual purpose.<\/p>\n HR\u2019s main purposes are to:<\/p>\n Keep your employees safe, healthy, and properly compensated.<\/b> This allows for better productivity, as employees are paid properly and feel that workplace rules are followed and enforced. They are also vital in hiring, firing, and performance reviews<\/a>.<\/p>\n<\/li>\n Ensuring compliance with labor laws and regulations.<\/b> The HR department knows what needs to be done to meet the requirements and makes sure that they\u2019re followed. This not only keeps your business out of legal jeopardy, but it also lets employees know that you\u2019re serious about following these rules.<\/p>\n<\/li>\n<\/ul>\n Outsourcing these functions means that you hire a firm that is an expert in all of these HR functions. Depending on the firm and what other services you need or outsource \u2013 you may also have a payroll service \u2013 you can get more services or fewer.<\/p>\n As with all decisions, there are benefits and drawbacks to outsourcing your HR functions. There are several aspects to consider before deciding that outsourcing HR functions is the right thing for your business.<\/p>\n One major consideration is that the contract terms tend to be lengthy: five to ten years. It\u2019s difficult to say entirely whether this is a plus or a minus, as that will depend on how much you like the service that you get. But it means that you\u2019ll have to plan ahead when deciding to contract with a firm.<\/p>\n There are several positive aspects to outsourcing your HR department. Among them are:<\/p>\n Reduced cost.<\/b> As a rule, hiring outside HR is cheaper than paying your own HR department. This is especially true for small businesses, where the HR department would have to be relatively large in order to function properly.<\/p>\n<\/li>\n Eliminate issues with turnover.<\/b> At least in the HR department. You won\u2019t have to worry about members of your staff leaving, taking a vacation, or retiring<\/a>, as you\u2019ll be able to keep using the same firm.<\/p>\n<\/li>\n Compliance with labor laws.<\/b> An outsourced HR firm will be in charge of making sure that your business meets the legal requirements. As this is the firm\u2019s bailiwick, it\u2019s unlikely that they\u2019ll be misinformed of labor laws or make serious mistakes.<\/p>\n<\/li>\n Better efficiency.<\/b> In the case of hiring, HR firms can improve your efficiency by taking care of the vetting for you in advance. HR functions are also their entire focus, which means that they won\u2019t be pulled away by other tasks.<\/p>\n<\/li>\n Needing to hire few employees.<\/b> If you outsource your HR needs, then you can have a smaller pool of employees. In small businesses<\/a>, this can be a major benefit. Not only do you not have to worry about the salaries and benefits of these people, but you don\u2019t need additional office space.<\/p>\n<\/li>\n Reduced legal risk.<\/b> When you outsource to an HR firm, then the responsibility falls on them to ensure that labor laws are followed. Egregious failures to follow the law will likely still land you with some liability, but in the case of a small mistake or oversight, the HR firm is the one who will have to take responsibility.<\/p>\n<\/li>\n<\/ul>\n There are also drawbacks to outsourcing your HR department. Anything that isn’t part of your company is likely to have potential issues. Here are some things to look out for:<\/p>\n Lack of control.<\/b> When you contract with an outsourcing company, their staff don\u2019t work directly for you. That means that you\u2019ll have less control over the HR functions and processes like vetting, pay, and employee complaints.<\/p>\n<\/li>\n Less flexibility.<\/b> With less control comes less flexibility. If you want to switch up something about how your HR runs, then you\u2019ll need to wrangle with the HR firm rather than talking to the head of your HR department.<\/p>\n Depending on what you want to change and how rapidly, it may not even be possible \u2013 you may need to go to another company.<\/p>\n<\/li>\n Lack of involvement in your business.<\/b> All outsourcing has this issue. The personnel in the HR firm aren\u2019t familiar with your company or your employees. They\u2019re also going to be the HR department for more than one company, which means they won\u2019t focus as strongly on you and your business.<\/p>\n Without being connected or investing in your business, you may not get as dedicated results. Not that they aren\u2019t serious about their jobs, but they don\u2019t have any connection to you, your business, or your employees other than a paycheck.<\/p>\n<\/li>\n Costs.<\/b> While outsourcing is usually less expensive than hiring your own HR department, it does cost money. And it\u2019s money that doesn’t go to your employees or back into your business.<\/p>\n<\/li>\n Quality isn\u2019t assured.<\/b> It\u2019s important to carefully select whom you outsource your HR to. There is a possibility that the company you hire can mishandle its duties in one way or another. At that point, it isn\u2019t as though you can talk to the person who messed up \u2013 or at least, it\u2019s unlikely. It\u2019s also harder to fire them, though you can swap firms.<\/p>\n And while the liability for a mistake is going to fall on the firm that you hired, you\u2019ll still have to deal with the fallout and correcting their mistake. It may be further complicated by the fact that you likely won\u2019t have an HR expert on your staff to sort out any potential issues.<\/p>\n<\/li>\n Strain on the employee-employer relationship.<\/b> As a rule, employees prefer to have an in-house<\/a> HR department. Having an outsourced one makes it more difficult for them to report any potential issues. In addition, it makes it seem like it\u2019s not the part of running a company that you prioritize.<\/p>\n<\/li>\n<\/ul>\n As with most outsourcing, there are different ways that you can outsource your HR department. Depending on how you want to go about it, you can end up getting more services or fewer. This gives you flexibility but also means that you have even more choices to make.<\/p>\n Here are the common types of outsourcing:<\/p>\n HR consultants.<\/b> It\u2019s possible to contract with an expert in human resources to take care of most of your HR needs for you \u2013 especially during setup. That being said, a consultant isn\u2019t permitted to handle payroll or benefits<\/a>, which means that you\u2019d have to have that outsourced or hire someone else.<\/p>\n<\/li>\n Human resource outsourcing firm.<\/b> This is what most people think of when you mention outsourcing HR. This would be a firm that takes care of all your HR-related needs for you. Unlike a consultant, they can handle payroll and benefits distribution for your business.<\/p>\n<\/li>\n HR software.<\/b> While not exactly what people think of when outsourcing, you can pay to get HR software and support. This can either be used in conjunction with an HR consultant or small HR department or can take the place of one in a business with just a few employees.<\/p>\n<\/li>\n Professional employer organization (PEO).<\/b> In some ways, this can arguably be the most outsourced of them all. A PEO will hire employees for you and then lease them to you. The main idea behind this is to offer your employees benefits<\/a> that are usually only available when working for a large organization.<\/p>\n Most PEOs charge you a percentage of payroll or a flat fee. However, these people won\u2019t actually work for you or your business, which can alter the employee-employer relationship.<\/p>\n<\/li>\n<\/ul>\n\n
What Does it Mean to Outsource Human Resources?<\/h2>\n
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Pros and Cons of Outsourcing Human Resources Functions<\/h2>\n
Pros:<\/h3>\n
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Cons:<\/h3>\n
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Types of Outsourcing<\/h2>\n
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Best Services for Small Businesses<\/h2>\n