Outsourcing Your HR Function
Are you thinking of outsourcing the HR function within an organisation? Let’s take a closer look at some of your main considerations.
Outsourcing any activity to an external provider can offer benefits, such as increased efficiency and access to expertise outside of your organisation. But it can also present challenges, such as loss of local knowledge and processes, and fragmentation of the service provided. Payroll is the most commonly outsourced HR activity, followed by providing advice on complex specialist topics. Some companies also look at the alternatives such as some shared services, employee self-service, and buying-in consultancy services.
The practice of outsourcing involves buying one or more business services from an external provider. This could include HR and/or other services such as IT. The specific processes included within any HR outsourcing arrangement will vary from organisation to organisation – some may outsource virtually all their HR processes while others select specific components such as payroll or recruitment.
What is the risk of outsourcing HR?
The first risk to consider when it comes to implementing HR outsourcing is the confidentiality risk. But what is the risk of a confidentiality breach of information from within the company? Employees are the first ones to be interested in the salary of their superiors or managers. The information is less sensitive and therefore less interesting for an external person who does not personally know the company employees.
Secondly, HR outsourcing is in essence placing skills outside the company, so it can be perceived as a risk for the sustainability of the company. It is therefore a question of choosing the right skills for outsourcing: do not implement the outsourcing of skills that add value to the company.
Potential benefits of outsourced HR
When organisations put forward a business case for HR outsourcing, the potential benefits are frequently cited. In practice, these benefits are not necessarily mutually exclusive, while conversely they might be achieved through some alternative solution rather than via outsourcing.
Commonly mentioned benefits include:
- Reduced costs
- Increased efficiency.
- Access to improved HR IT systems without capital outlay.
- Improved people management information (including people analytics).
- Access to HR expertise that is not available internally.
- Increased flexibility and speed of response to HR problems.
- Ability to support or fit well with an overall strategy (for example where the organisation is outsourcing a number of its support functions, of which HR is just one part).
- Reduced risk, as it is possible to scale up and down more efficiently.
- Capacity for HR to operate more strategically.
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