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5 Challenges to Outsourcing HR (and How to Overcome Them)

business.com editorial staff
business.com editorial staff

If you're considering outsourcing your HR, you need to keep certain challenges in mind and know what to look for in the right service.

  • Outsourcing your HR can cause your staff to feel disconnected from their HR reps.
  • HR outsourcing can also leave your employee data vulnerable to security threats if the company's software isn't secure.
  • You can mitigate these potential issues by being selective about which HR roles you outsource and seeking your staff's feedback on the service.

HR outsourcing offers many benefits – namely the opportunity to save money, time and resources in order to focus on your long-term goals and growing the business. But there are also plenty of drawbacks to shutting down (or forgoing) an in-house HR department and relying on an outside vendor to handle your company's HR duties.

Talk to any veteran HR rep, and they'll no doubt tell you how messy and complicated working with employees can be. A good HR rep knows people. She knows Glenn has been struggling with a long-term illness and that Carrie feels uncomfortable with the blonde jokes the guy from accounting tells in the break room every day. She knows that Burt in maintenance fell off a ladder last month trying to change a light and is annoyed about how long it's taken for his workers' comp claim to be processed. She knows that Amy is frustrated with her supervisor's passive-aggressive comments and that Gloria is planning to announce her retirement next week.

In short, a good HR person knows how to navigate the tricky waters of an organization and can steer around potential landmines toward calmer shores.

While an offsite third party can handle many basic HR functions, the people-to-people communication requires someone embedded in the organization who can read situations and respond appropriately.


Editor's note: Looking for the right HR outsourcing solution for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.


How does HR outsourcing work?

As How Stuff Works explains, outsourcing happens when businesses need assistance with tasks outside of their realms of expertise. In other words, these companies go "out" to find the "sources" they need to make their businesses run more smoothly and become more lucrative overall. These days, most businesses outsource to serve both external and internal customers. You can use outsourcing to obtain both products and services. 

Challenges of outsourcing HR

1. Disconnection with staff

The word "human" isn't part of the title "human resources" for nothing. HR representatives are critical to helping employees feel like they have a voice and are valued. Transferring these duties to computer software or to an offsite third party can lead to staff feeling disconnected from their employers and employers not fully understanding their teams' needs.

2. Reduced flexibility

In small businesses especially, HR reps and managers can help employees out in a pinch – paying out unused vacation days in an emergency or letting them dip into next year's leave early. When HR becomes automated and/or outsourced, these types of accommodations for loyal workers can be difficult if not impossible.

3. Problems taking longer to fix 

In situations where an error has been made – say with payroll or with the number of vacation days an employee has – going through a third-party HR service can mean a long wait before the error is fixed, leaving the employee angry or frustrated. In addition, when an employee quits and the business is using an outside recruiter, the hiring and training process might take longer than it would with an in-house HR department, which can be more proactive about hiring and training employees before positions even become open.

4. Fewer choices

Companies using a professional employer organization (PEO) to handle everything from hiring and firing to payroll and insurance might find that they have fewer choices when it comes to benefits for their organization. By handing off control of certain functions to a third party, you're limiting your company to whatever packages that PEO has to offer.

5. Security issues

Many service providers use web-hosted software to handle HR functions, leaving sensitive employee information potentially vulnerable to security threats as well as crashes. Checking your vendor's security record and references is essential when you're shopping around for any web-hosted HR services.

How to overcome these challenges

A satisfied, hardworking staff is the biggest competitive advantage a business has, and you can create a company culture that values employees and their contributions by making sure their voices are heard. As you can see from the list above, one of the biggest challenges of outsourced HR is not having someone who can troubleshoot the workaday problems, frustrations and miscommunications that are inevitable in any work environment.

Fortunately for companies considering outsourcing, the best HR outsourcing services let you pick and choose which functions to hand over to them, so you can keep personnel on hand to handle those important interpersonal relationships and to act as a liaison between employees and your HR vendors. While some vendors have an all-or-nothing policy regarding your HR functions (they either want to handle all of them or you can't use them), many offer an ala carte option, allowing you to decide which functions you'd like to keep in the building and which can be performed elsewhere.

These are the most common services HR outsourcing companies offer:

  • Payroll services (paying employees, handling taxes, and keeping track of sick time and vacation)
  • Benefits (health and life insurance, retirement plans, etc.)
  • HR management (recruiting, hiring, firing, exit interviews, annual reviews)
  • Risk management (employee compensation, safety training, regulatory compliance, conflict resolution, office policies)

While outsourcing any one of these services would save your business time and money, it might be wise to keep people-centric jobs (think hiring, firing and performance reviews) on the premises. In addition, allowing your employees to air their frustrations and concerns about the outsourced services will help you assess what's working and what isn't to find the best solution for your business.

Image Credit: fizkes/Shutterstock
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