HR & People | 5Min Read

Outsourcing the HR function | Pros & Cons of HR Outsourcing

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Outsourcing means obtaining work that was done by employees previously inside the company from sources outside the company. If someone has specialization in the event which is not critical to the business and unable to do it cost-effectively, it is better to get it done from outside the company. An asset of any firm is its employees. Leading companies worldwide are taking the most strategic approach to managing human resources.

HR outsourcing refers to the process by which a company uses the HR outsourcing services of a third person to save their HR functions. A company can outsource some or all functions from the single or combinations of HR service providers located in many destinations like India, China, and the Philippines.

Requirements of HR outsourcing

Requirements of HR outsourcing

The points which conquer the firm decision to outsource the HR services are as under

  1. To enable the business to focus on key functions.

  2. Cost savings.

  3. To create a suitable and cost-effective platform to work on.

  4. To transfer focus from an internal process to the business goals.

  5. Transferring the risk for people of the organization.

Differentiations of HR outsourcing

Human resources outsourcing services can be broad divides into the following categories:-

  • Application service provider -  A group of many companies specializes to provide hardware and software applications in support of big firms that have developed application packages to support HR activities in an organization.

  • Business process outsourcing - The difference between ASP and BPO is that BPO clients have directly connected to firm employees through call centres. Multinational companies mostly go for BPO as they operate in many countries which employ a lot of people.

  • Total HR outsourcing - In this, the whole function of HR is domed by the service providers. There is no particular HR department in firms.

Services by HR outsourcing

HR outsourcing services involve the whole organization and any shortcut or opportunistic behavior from the service provider will make the company's long term benefit. Company HR advantage is sustainable because it is very difficult to be copied by others.

Services by HR outsourcing

HR can take the following outsourcing services from outside the company

  • Hiring services - Recruiting and selecting is the HR outsourcing service that a company can conquer from outside the company. A variety of people join the labour markets at different stages of their career, firms find these people and allow them the opportunity to be hired by them.

  • Developmental services - In the area of outsourcing external development resources, companies buy markets with developed knowledge. An organization can enhance the capability of its employees by giving them exposure to outside companies.

  • Performance management - Organisation performance based on their total organizational level, departmental level, and individual employee level. Employees are chosen based on the above level to work in HR functions.

  • Compensation and benefit man agent - Compensation and incentive play a vital role in an HR department. Employees feel motivated when they get perks, bonuses, and rewards besides the salaries for their dedication to work in the organization.

  • Specialized consultancy service - Consultancy is the most popular service of today's business world. Many MNCs and big firms provide policies and insurance to their employees so that they can stick and work on the organization for a longer period.

  • Management of employees relation - Apart from outsourcing, the HR department also manages the relationship between the employees to ensure that the work will be running smoothly at all times and all organizational goals are achieved.

Pros of HR outsourcing

HR the department enjoys the following benefits in an organization

Save More by Spending Less

The most significant advantage of HR outsourcing is increased savings. Even if you manage to keep your HR costs low, the total cost of HR functions can be high. It would be unfair and risky for a startup to rely on a single HR employee to manage recruitment, employee benefits, and payroll. As a result, you'll need a team of HR professionals to carry out the various functions. As a result, your expenses rise. The advantage of outsourcing HR services is that you are no longer responsible for managing HR costs.

Capabilities and knowledge

Hiring someone from an expert organisation ensures they have been completely prepared and have excellent knowledge in that one specific field. A person in-house may not be as well-versed in a subject as a trained professional.

Efficiency

When companies outsource their human resources, they can concentrate on their core business processes rather than human resources.

Aware of current laws

Laws governing hiring practices, compensation, safety, and other issues are constantly changing, making it difficult for HR departments in all but the largest companies to stay up-to-date. On the other hand, outside HR firms must do so because their entire business revolves around these issues. Using an outside firm lowers your risk of a legal case.

Up-To-Date Technology

To compete with other firms, outside HR firms must be aware of and skilled at using current HR software. Meanwhile, companies with their HR departments are frequently slow to update old systems because new technology costs money and requires time spent on training.

Cons of HR outsourcing

HR outsourcing department also has some barriers which affect their work in firms are

Data insecurity

One of the most tragic consequences of outsourcing HR functions is data insecurity. Outsourcing human resources functions may result in the disclosure of confidential company information. Often, for an outsourced company to provide adequate service, some sensitive information about the company's organisational structure, product information, or other inner workings is required for the vendor to perform without interruption. When providing sensitive information to a third party, whether intentionally or unintentionally, there is always the risk of information leakage. With the rise of cybercrime, this is one of the most pressing HR outsourcing issues today.

Split between employees and company

When a company is outsourced, an outsider handles workplace issues that may not be acceptable to all employees. This frequently creates a major split between employees and the company, which can harm the company's overall productivity. As a result, dealing with the disadvantage of outsourcing HR functions is difficult.

Increases Employee turnover

Another significant disadvantage of outsourcing human resources is the high rate of employee turnover. When you outsource your human resources functions, you will almost certainly be in contact with a representative. This HR representative will become acquainted with your company's work culture, dynamics, and other HR concerns over time. However, as with other business uncertainties, this person may leave without making any effort to support your company.

Adverse consequence on organization culture

Employees are strongly supported and advocated for them by great in-house HR teams. They work to resolve internal conflicts, advance their professional and personal development, and bridge communication gaps between staff and management. Outsourced HR teams may be less concerned with these issues, which harm overall workplace morale and culture.

Communication gap

Partners must communicate effectively for the business to run smoothly. Clients have the right to be reminded constantly of any new developments or problems that may arise. In these situations, having HR work done in-house is easier because face-to-face meetings are simple to set up. Outsourcing may reduce the flowability of communication in this area.

Importance of HR Outsourcing

In today's world of business, a new concept has been added to reduce the complications of managing day-to-day HR issues more effectively and efficiently. Depending upon the size of the firm's business and how much control one wants to maintain over HR functions, one can either outsource all the tasks or some to an outsourcing company. If you need to hand off the entire HR function consider a PEO(Professional employer organization). A PEO becomes the employer of handling all the tasks very certainly and conveniently. If one needs no PEO then he/she can sign a contract with some other outsourcing company.

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