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

By editorial staff, writer
Jan 23, 2013
Image Credit: fizkes/Shutterstock
> Human Resources

If you're considering outsourcing HR, keep in mind the following challenges.

Outsourcing HR offers many incentives -- namely the opportunity to save money, time and resources in order to focus on long-term goals and growing the business.

But there are plenty of drawbacks to shutting down your in-house HR department and relying on an outside vendor to handle its duties.

Talk to any veteran HR rep, and they'll no doubt be able to tell you how messy and complicated working with employees can be.

A good HR rep knows people. She knows Glen 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 workman's 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 off-campus third party can handle many basic HR functions, the people-t0-people communication requires someone embedded in the organization who can read situations and respond appropriately.

Editor's Note: Looking to oursource your HR? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:


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 off-campus third party can lead to staff feeling disconnected from their employers and employers not fully understanding their staffs' needs.

2. Reduced flexibility: In smaller-sized 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 that take longer to fix: In situations where an error's been made -- say with payroll or with the number of vacation days an employee has -- going through a third-party vendor 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 can take longer than 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 Professonal Employer Organization (PEO) to handle everything from hiring to firing and payroll to insurance might find that they have fewer choices when it comes to selecting benefits for their organization. By handing off control of certain functions to a third-party, you're also 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 vulnerable to security threats as well as crashes. Checking your vendor's security record and calling references is essential will 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 help 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, they can pick and choose which functions they wish to hand over to someone else, keeping 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 .

The most common services offered by HR companies include:

  • Payroll services (paying employees, handling taxes and keeping track of sick time and vacation)
  • Benefits (health insurance, life insurance, 401ks, etc.)
  • HR management (recruiting, hiring, firing, exit interviews, annual reviews)
  • Risk management (employee compensation, safety, conflict resolution, office policies, etc.)

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

Learn more about HR outsourcing on

Photo courtesy of Stock.Xchng


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