In the world of human resources, a growing practice is human resources outsourcing or HRO.
Outsourcing is a mainstream business practice, where a company subcontracts certain tasks or functions to external providers.
Often times, these functions include non-core tasks, managing operations, or services that can be too technical, costly, time-consuming, or highly complex for the company to perform them itself.
But how does HR outsourcing work? And what can be outsourced?
Before we dive into all of that along with the pros and cons of HRO, let’s first understand how human resources outsourcing works and which HR functions can be outsourced.
What is human resources outsourcing?
Human resources outsourcing (HRO) involves the transfer of HR functions, responsibilities, management, and risks to a third-party provider.
These activities can vary from one company to another, based on business needs, goals, location, company size and culture, and so on.
HRO covers several elements or tasks such as: business process outsourcing (BPO), where an external provider handles one or several HR functions, including recruitment, payroll, and administration.
Another HRO alternative is shared service outsourcing, where the HR services provider only undertakes smaller tasks such as auditing and maintaining company records.
Most-outsourced HR functions
Now it’s time to look at the most-widely outsourced HR functions.
One of the common HRO functions is recruitment.
Hiring the right people is no easy feat. The recruitment process requires thoroughly navigating the labor market, using the latest tech, writing efficient job descriptions, among others.
Moreover, hiring involves screening, interviewing, and, depending on the vacancy, testing candidates’ technical skills. It also involves connecting potential candidates with the hiring manager who will assess if they’re a good fit for the team and role they’ll fill.
This is often referred to as recruitment process outsourcing (RPO), where HR firms, like Tawzef, help companies or clients hire a large number of employees or a single top-level employee.
Since it is their core competency, RPO providers can take on a portion of the recruitment process or all of it. In the event of the latter, RPO firms would also be in charge of sourcing talents and conducting background checks.
Another often-outsourced human resource function is performance management.
This usually includes monitoring and measuring employee performance, training and development, talent management and succession planning, defining KPIs and ensuring employees are achieving targets.
This HRO option helps companies oversee their employees and their performance within their organization. Performance management is generally a hard-to-task for small HR teams.
People are an indispensable cornerstone for the overall success of a business. That’s why organizations constantly try to reduce turnover and enhance employee performance by ensuring fair and competitive pay.
Outsourcing compensation means a company would outsource its payroll, job evaluation systems, and executive compensation design.
In a bid to mitigate the risk of liability, reduce upfront costs, and bolster efficiency, companies use HRO to manage the design and implementation of compensation programs.
By working with an HRO firm, businesses can leverage the HRO company’s market knowledge and competency, both of which could take internal HR staff years to build. And even then, they’d need significant experience and practice.
Part of an HR department’s job is to ensure the success of the company and the wellbeing and safety of its employees.
To strike this balance, HRO becomes an option, where an external provider delivers program advantages that HR managers may not be able to do on their own.
In this case, the HRO services provider handles the most complex aspects of benefits administration such as opening the enrolment process, tracking benefits history and eligibility, and offering health care, pension and retirement plans.
One of the most frequently outsourced HR functions is compliance.
As laws and regulations continue to change, companies need to devote more time to researching and being aware of current legislation.
Having specialized experts with a deep understanding of the legislation surrounding subjects, like payroll, insurance, and pensions, is a guarantee that the company can meet legal and regulatory requirements.
Legal compliance and regulations are considered an area where HRO service providers often excel.
The 5 pros of human resources outsourcing
The decision to use HRO – or not to – can be a challenging decision for an organization to make.
A company would have to assess its financial ability along with the overall size of its business. Some companies can be ambitious, which isn’t a bad thing.
But sometimes the size of a company or its industry would dictate certain needs that require human resources outsourcing services rather than having the company’s HR department attempt to perform those functions itself.
Businesses need to determine whether using HRO will provide value or if they should wait.
Companies also need to research human resources outsourcing service providers to find the ones that suit their needs.
To help companies get the most of their human resources outsourcing experiences, here are the 5 main benefits to HRO.
Human resources outsourcing can:
Save costs and time
Company executives are constantly looking for ways to cut cost and time, whether this involves cutting labor, operational, and/or administrative expenses.
For example, recruiting and training in-house HR professionals takes time and money. Meanwhile, human resources outsourcing companies come with extensive expertise in a variety of industries along with an established network. They’re better suited to handle the same duties and tasks in a shorter time, at a lower one-time expense.
This could even be more relevant to small businesses, where financial resources and time budgets can be tight. Establishing an entire HR department in a small company often results in high costs that a company cannot afford.
Provide access to advanced technology
Companies are slow to upgrade their outdated HR information systems (HRIS). At the same time, adopting new technology may require additional financial and time investment. Not to mention training HR and other employees to use the new system.
On the other hand, HRO firms are always equipped with state-of-art HR technologies. This allows them to both remain competitive and support companies by reducing their costs.
Offer more strategic focus
Why would a company outsource its HR activities, when it already has a whole department dedicated for that?
In addition to cost reduction, time efficiency, the latest tech, and leveraging competencies and best practices in non-core business activities, C-suite executives often expect their HR teams to perform more than just administrative tasks.
HR professionals are increasingly required to take on long-term strategic roles. That’s why companies often opt to outsource transactional functions to free up their in-house HR capacity.
External recruitment, compensation, benefits administration, and training and development are functions that can be easily handled by an outside specialist firm, which would deliver high-quality results and cost and time efficiencies.
With more focus on aligning the HR strategy with the broader business strategy, companies can achieve further business growth.
Offer more flexibility
Employers have the freedom to be picky in deciding the HRO services provider and package they require.
Every market has many human resources outsourcing providers, which gives companies the opportunity to explore a wide array of customizable options to fit their needs.
HRO spares businesses a great deal of risk.
For example, many businesses often contract external HR service providers for a short period of time. This helps them ensure that their needs are met in a certain time frame, while not having to be committed to paying monthly salaries or fees for services they don’t need.
This also reduces the pressure on their finances.
Moreover, having knowledgeable professionals, such as payroll and pension specialists, at their disposal, can reduce the risks of HR compliance lawsuits, since HRO firms keep up with ever-changing laws and regulations.
The 4 cons of human resources outsourcing
While outsourcing HR functions can deliver tangible benefits, companies should be mindful of drawbacks.
Here are the 4 main downsides. Human resources outsourcing firms may:
Hinder in-house morale
One of the biggest downsides of HRO is that employees may get demotivated, when outsiders are brought in.
This could mean less wages, layoffs, or budget cuts, all of which would translate into less productivity.
The solution: Companies can easily avoid this dilemma by working with external providers who can develop a non-discriminatory environment and integrate with the in-house workforce.
Delay in-house development
This is particularly relevant to businesses subcontracting external providers to handle their entire HR functions.
HRO could deprive companies of developing their own talent if they decide – at a later stage – to establish an in-house HR department. However, this should not mean excluding HRO as a solution.
The solution: Despite potential difficulties, employers should collaborate with HR firms that will work on training employees and pave the way for potential transitions.
Involve confidentiality risk
A company’s HR staff usually handles highly sensitive information, like bank account numbers and medical records.
The solution: Besides their thorough research of HRO companies, employers need to assess the outside firms’ methods of ensuring confidentiality and handling sensitive information.
Reduce human interaction
One of the challenging drawbacks of using HRO firms is the lack of interaction between a company’s management and its employees.
Outsourced employees may not be able to pay the same personal attention to employee matters that may be handled more sensitively by in-house ones.
In addition, when companies outsource HR functions that are closely-related to such matters, employees might feel disconnected when dealing with personnel who are off-site or over the phone, compared with familiar faces at the company.
The solution: Employers can handle this discomfort by ensuring outside HR professionals visit the workplace from time to time.
HRO with Tawzef
Tawzef for Recruitment and Consultancy offers a variety of human resourcing outsourcing services to small and medium-sized companies in Egypt and the Middle East.
Our unique experience across multiple industries and vital economic sectors positions us as the go-to HRO service provider for many companies.
By outsourcing your HR functions to a third party like Tawzef, you’ll be able to better focus on your core business, while letting Tawzef focus on your people and overall HR operations.
If you’re looking to grow your company but struggle to hire the right people, or if you’re looking to outsource your human resources functions, get in touch with Tawzef at email@example.com and our team will get back to you with a human resources outsourcing agreement detailing all your needs.
Wrapping it up
HR departments play a major role in companies across the globe. Part of their job is to ensure that the right people are filling vacant jobs and getting the necessary training to perform their responsibilities efficiently.
In other words, the HR department’s role is to create a healthy work environment for new and current employees and help them grow in their jobs.
But it’s not always easy, applicable, or affordable to have an entire HR team in a company.
That’s where human resources outsourcing comes into play. Small, medium, and lareg businesses alike can outsource their HR operations to ensure that their human assets are well-managed and well-cared for.
Need help managing your HR operations and functions? Reach out to Tawzef at firstname.lastname@example.org