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Human resources outsourcing has become, along with many other outsourcing options, a new way for businesses to cut costs while maintaining productivity. Companies have known for years that they can send certain tasks outside the company, or even overseas, and get them accomplished effectively. Does the same hold true for human resources? The decision of whether or not to outsource is monumental, and a company should not enter into contracts lightly. The following guide is meant to give some benefits and pitfalls of outsourcing human resources, followed by a brief pricing guide. Use this information to guide your decision, but remember to always consider the needs of your company before making a final decision.
Benefits
Cutting Costs
By outsourcing HR tasks to other companies or individuals, a business can save money that it would otherwise spend on employing full- or part-time HR staff. The U.S. Transportation Security Administration saved an estimated 20 to 25 percent in operating costs by outsourcing tasks, according to the United States Office of Personnel Management. Outsourcing administrative tasks such as payroll processing also makes it possible for the company’s current HR staff to focus on the tasks that help the business meet its goals.
Subject-Matter Expertise
A business benefits from having access to contractors who specialize in their fields. While an administrative assistant within the company may be knowledgeable about stock options and worker’s compensation, for example, she might not be up-to-date on current policies and regulations. Outsourcing ensures the company follows proper procedures. The company can also benefit from the suggestions and ideas provided by consultants.
Technology
IT professionals can work with companies as independent contractors, thus enabling the company to maintain and update its software and computer systems without paying for a full-time professional. HR outsourcing also allows the company to enjoy the benefits of costly IT systems without actually purchasing one. For example, the company may have all of its policies and employee data collected in a web portal operated by the outsourcing agency. According to the United States Office of Personnel Management, the state of Florida saved approximately $173 million with IT outsourcing, partially because it did not have to purchase a new system for management services.
Customer Satisfaction
Because a business spends less time on administrative tasks when it outsources them, it has more time to devote to its customers. This applies in healthcare settings as well. Without the need to manage insurance and billing, physicians and nurses are able to spend more time with their patients.
Pitfalls
Legal and Regulatory Issues
You may find international laws to be challenging in both the United States and the country from which you will outsource employees. Complying with tax regulations is one of the hardest parts of outsourcing. Not only does your company need to follow the laws set in America, but also within the new country as well. This can make internal auditing very confusing for new owners. You may require further legal and financial assistance in the future, especially during tax season.
Technical and Communication Issues
HR outsourcing directories often hire employees where English is their second or third language. Because of this, you may have to deal with poor communication and inappropriately used language. This may create more editing work in the long run, as important documents cannot contain unusual words or phrases out of context. Data entry errors are common and international communication can be inconsistent.
Length of Implementation Cycle
Once trained, outsourced human resource employees generally follow their day-to-day tasks. Although this may seem great for you at first, in the long run this can be a huge downfall. You may find that most outsourced human resource employees follow a script and do not engage with your customers. Most outsourced employees do what they are told and follow that same pattern every day. This creates a lack in innovation and imagination. As there is no leadership available, there is no one to set goals or continue to improve the quality of work.
Secondary Costs
If you choose to outsource your human resource department, then be sure to plan well. Investment of time in research checking on the quality of the vendor is a secondary cost. The capability of the employee’s equipment and quality of education should be the first priority. Training can be an added secondary cost that is rarely advertised and is often very expensive. You will have extra costs when starting up and when business practices develop further. As you will be working through multiple countries, lost production and information is common, and this adds to the cost as well.
Pricing
Business Process Outsourcing
According to The Yankee Group the average HR cost of an employee is between 1,500 and 2,000 dollars a year. Considering that most companies spend around 5,000 dollars per employee each year, outsourcing the HR processes to an external supplier can provide significant savings. Every external supplier has their own costs, but these can be offset over a longer period by the annual savings. A potential 15% reduction in work-force costs in a company with 20,000 employees could see savings of around 15 million dollars.
Shared HR Outsourcing
With shared outsourcing only the transactions and administrative elements are handled by an external supplier. Depending on the size of your business and the number of employees you have, the cost of outsourcing your administrative elements can range from 100,000 dollars in a small company to in excess of 10 million dollars with a large one.
Conclusion
Because of the personal information that human resource departments handle, businesses are correct in thinking carefully about outsourcing such a department. However, the savings in both time and money are demonstrable, and many companies would benefit from having experts handle their human resources. Nevertheless, remember that outsourcing carries with it potential legal and tax issues as well as a certain amount of lag time in setting up an outsourced department. Additionally, if the outsourcing goes overseas, there might be language issues or technological barriers to overcome. Finally, remember that it is the condition and goals of your company that should have the greatest impact on a decision of this nature.
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Hiring practices are not the same as what our parents went through. Regulations, workers compensation issues, payroll concerns and other entities in Human Resource responsibilities now have a new focus. Many small businesses do not have the time or where-withal to handle the levels of administrative practicalities that fall under the heading of HR. The companies that use smaller staffing and scaled back administrative concerns are going the route of HR outsourcing. They find that the practice of HR situations is best placed with those that can come in and do what administrative duties need to be accomplished.
This practice is by means of co-partnering with an outsourced company and give them certain rights and responsibilities usually kept with in-house staff. They handle payroll, benefits, work safety compliance and other regulatory considerations. HR can be a time consuming task and the small business, like yours, that allows someone else to handle these responsibilities is making an investment in time management and efficiency.
Various consulting firms that handle HR outsourcing and actual participants in this coop can be located at Business.com. They specialize in grouping together the relevant firms and agencies that handle HR programs and they can show you the quality ones to look for.
