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Is having an internal team (or individual) managing your HR functions the best way to go or would you be better off outsourcing it?
Plenty of business owners and employers find themselves asking that question.
You may have found the company has grown quickly and outstripped your ability to handle your people processes alone. Perhaps there have been major personnel issues or employment law changes that you felt unequipped to deal with or the staff tasked with managing underestimated. Or maybe a change in the market or turbulent economic times (hello COVID-19!) forced your organisation to quickly pivot or downsize to reduce costs.
Outsourced HR is no flash in the pan; it has been around for decades in various models and scales, from administering non-core activities like payroll or time management to full-service offerings that take care of the complete employment lifecycle, from recruitment to exit, along with all associated legal compliance. And it’s only getting more mature and comprehensive, with rapid improvements in the breadth, value, precision, and delivery of services.
So in 2020, perhaps instead of asking whether your business should be using in-house staff to take care of its people processes, a better question to ask is whether you are at a significant competitive disadvantage if you don’t have a focused, outside partner taking care of your HR functions.
Let’s look at the benefits.
Easier
Most employers aren’t HR experts and don’t aspire to be. Fair enough.
A company’s people processes mightn’t be too onerous when it’s small, but the more it grows and the more people you employ, the more paperwork, oversight, and complexity.
You could look at hiring an HR advisor, but do you know what you need and who the best person is for the role? Or do you delegate the increasing workload to an existing staff member, who probably isn’t trained in HR either?
There’s a lot more to people management than looking after timesheets, payroll, and leave. From finding new employees, bringing them smoothly into the business, training them and overseeing their development so they perform to their full potential (and stay engaged) all the while ensuring the business meets all its obligations under employment law; HR requires dedicated experience and know-how.
Outsourcing puts your HR functions in the hands of a team of specialists, simplifying management without increasing your headcount.
Frees time to focus on business
Obviously, once owners and management entrust their HR responsibilities to an outside company, the time they used to spend on admin and managing staff can be better spent on building the business.
Many don’t currently have that luxury. A 2015 study by US small business advisory service, The Alternative Board, found that nearly three-quarters of company owners would prefer to spend their time on strategic activities that create new opportunities, growth, better profitability and morale, but only 32% have time to.
Instead, respondents said they were frustrated by wasting time on administrative tasks, unscheduled communications, and personality issues.
Outsourcing HR services to a business partner takes care of these and other people processes so you can work on actually leading and developing the business.
Improved compliance
There are many facets to managing employees and the laws that govern employment relationships aren’t always straightforward. They also change quite often.
Plenty of businesses get caught out not complying with employment regulations. Whether it’s errors with employment agreements, minimum entitlements or holiday pay, or poorly handled disciplinary or redundancy procedures, these mistakes can cost you, big time.
Entrusting HR to qualified experts that know the legal landscape means your company won’t get caught out. All policies and documents will be lawful and clear. Any actions you take will comply with current regulations and you’ll easily be able to demonstrate that compliance (especially if the outsourced service includes modern HR software).
You gain access to a wealth of knowledge and support that you wouldn’t have otherwise, across all levels of the business: administration, mid-level advisory, and senior management. This expertise is particularly invaluable when times are tough and the business needs to make changes.
From a performance point of view, you also don’t have to risk bringing on an HR person who doesn’t perform or fit your company culture.
Save money
HR experience doesn’t come cheap. The HR Institute of NZ says the average HR advisor earns between $50 and $100,000 a year. HR managers earn more, from just under $60 to $105,000 according to PayScale. Obviously, the more experience, the higher the salary (Glassdoor puts the upper rate for HR managers up near $200k). These rates don’t factor in the expense of recruiting and getting an employee up to speed in the business and finding them office space.
While outsourcing obviously isn’t free, a good HR provider will provide access to a team of qualified specialists, providing a service that your business would have to pay a whole lot more for if it employed those people. The savings are even greater when the offering combines HR consultancy and software, which many companies pay for separately.
Other financial benefits include avoiding penalties for noncompliance with employment laws, and the fact that management gains more time to focus on efforts to strengthen the business and bring in additional revenue.
In the current uncertain economic environment, these fiscal benefits could make a huge difference to your company’s viability.
Continuity of service
Any employee has the right to 4 weeks’ annual leave, plus public holidays, sick leave etc., which is something all employers have to factor in. A good outsourced HR service is readily available throughout the year, so you don't have to worry about being short-handed.
Improved employee performance, engagement, and retention
Employees are the main driver of any successful business. HR management exists to develop and enhance employee, and ultimately, company performance.
An outsourced HR solution puts more specialist resources at your disposal for finding and hiring people quickly. You can attract better talent and enhance the working lives of all employees, so they stay and help build the business with you.
You have access to best-practice advice and the latest systems for tracking and managing staff performance and professional training. You also have a partner who can work with you on proactive plans and programmes that help the business achieve its goals.
This all helps build an inclusive, resilient company culture that rewards success and deals quickly with any performance or behavioural issues. It also means the business and its staff will be able to adapt and respond to changes, which is essential in these turbulent times.
