Is HR Outsourcing a Good Idea?

HR outsourcing is the most sought-after solution to manage the human resource requirements of startups and small and medium level enterprises. The reasons are obvious — HR outsourcing minimises their expenditure and allows them access to expert recruiters. Plus, they can expect better results without worrying about the challenges that in-house HR departments face today.

Challenges of HR

Globalisation

Like any other department in your company, even the HR department too has its challenges and limitations. The biggest challenge that HR executives face today is globalisation. In today’s world, borders have become virtually nonexistent, as most of the work happens digitally on the cloud.

Thus, the HR department doesn’t only have to compete to find the best talent for their company, but they also have to work on finding the right talent for their remote location. This becomes a task considering the low outreach abilities of the in-house HR department in comparison to HR outsourcing. That’s why many companies prefer to outsource certain HR functions to independent HR outsourcing companies or recruiters to ensure better recruitment of employees.

The most common HR activity that is often considered for HR outsourcing is recruitment. Outsourcing HR activities like these have found immense popularity among IT firms which primarily manage remote teams. The larger organisations have many teams internationally at diverse locations. Therefore, such entities usually keep an in-house HR professional who heads the HR department, and the rest is done through HR outsourcing, wherein recruitment agencies and freelance recruiters fill up space on a contract basis.

Demand and supply gap

Another major challenge for the HR department is the increasing demand for talented IT professionals and the lack of supply thereof in the job market. Aggressive headhunting in the job market has made it difficult not just to attract but also to retain the best IT talent. At the same time, the rate of retention of employees has become a key performance indicator in the HR matrixes. The cumulative impact of these factors has made things difficult for the HR department as well as for the employer.

Millennial generation

On top of it, the Gen Z or the millennial generation has its own rules for work. This creates a challenge with standard HR activities. Millennials are aware of their core values, and sometimes, rate themselves better than their employer.

Thus, if the company wishes to adapt to the working style of this new generation workforce — one that has a different set of needs and wants — then it helps to know some information beforehand about the employees you are about to hire. This is where HR outsourcing comes into play.

Their experience and outreach help track the right talent and gain more insights into the mindset of the millennial workforce. This helps you plan a better recruitment strategy to attract the right employees to your workforce.

The recruitment environment is experiencing a rapid transformation, and you have to build a sail to reap the benefits of these winds of change. Building a door of rigidity will only make things difficult for your company. Thus, outsourcing HR is the most efficient method to overcome the challenges of present-day recruiting. HR outsourcing is better than following those classic in-house HR functions that have reduced productivity but increased expenses.

HR outsourcing advantages and disadvantages

To ensure a broader outlook of the HR outsourcing advantages and disadvantages, first, we have to understand the size and scale of the business. For startups or small and medium-sized companies, HR outsourcing is the best means to organise their HR functions and get optimum results with limited expenses.

The advantages of outsourcing HR functions include:

Savings: The company saves their resources, time, and more importantly, money spent on preparing a new HR executive. A company typically pays an annual salary to the HR executives for duties that are done just 6 or 7 times in one year, which can be done away with if outsourced. Plus, companies usually save valuable time, as the outsourced recruiter has the required experience and established network to suffice the current requirements of the firm.

Avoid extra expenditure: Companies don’t have to buy and implement the latest HR information tools or develop regular reports, as the HR outsourcing services provider usually has these information systems and databases from the previous projects.

Knowledgeable HR professionals: Many HR outsourcing companies work in different industries. These HR professionals have extensive knowledge of the recruitment market. Thus, the company can seek advice and benefits from the options, ideas and decisions taken by their HR recruiters.

Lesser Risk: HR outsourcing greatly minimises the risk for the company, as outsourced recruiters are usually engaged for the short term on a contract basis. Therefore, it is easier to terminate a short-term contract, in the event of financial shortages or non-performance, than to terminate regular employees.

Flexibility: The company has the flexibility to only opt for the HR package they require, for instance — only recruitment and employee branding or admin and payroll. This allows the freedom of customisation according to the current requirements. Plus, the company only has to pay for the services they need, which minimises costs and maximises the outcome.

The disadvantages of HR outsourcing include:

In-house employees may feel demotivated: In-house employees may feel demotivated when an outsider instructs them on what to do and how. With the influx of HR outsourcing, gradually, some inhouse HR functions cease to exist, and a smaller group of employees are tasked with the remaining work. When you hire a new HR outsourcing partner, your employees may feel less significant.

A new partner will need more time: As is the case with any newcomer, even a new HR recruiter will need time to know and adjust to your company. An HR recruiter will need more time to gauge the workings of the firm to help with better recruiting.

Lack of bonding: Lack of bonding could become a disadvantage while outsourcing HR activities, as the recruiter may not feel or have that kind of belongingness or connection with the organisation.

The advantages of HR outsourcing strategy far outweigh the disadvantages. An active HR outsourcing strategy will ensure better results at lower expenses, which is better than a full-time HR department with regular annual payment expenses. HR outsourcing services are extremely beneficial for startups and small and medium enterprises, who need exceptional talent to scale up their business operations.