The dimensions of HR outsourcing can seem mystical, and although we wish for a playbook, unfortunately, there isn’t one. The decision path to engage with an HR outsourcing partner depends on two elements. First, the organization’s maturity, and second the strategic goals for the next 12-24 months.
There are three approaches to outsourcing HR functions:
- Business processes: Management of tasks by an external service provider.
- Shared services: Outsourcing only some of the HR functions.
- Application and facilities services: External HR providers would be supporting an internal HR unit.
Payroll and benefits administration, employee onboarding, compliance, employee relations, performance management, and HR strategy sit on top of the list of HR functions commonly outsourced. Let’s take a closer look:
Studies have rated payroll as the most popular outsourced HR function. The services offered by vendors include payroll calculation, taxes, producing checks, direct deposit, and issuing tax return forms. As this involves complex calculations, allowing payroll experts to handle it helps avoid mistakes that can put a dent in employee relations and incur tax penalties down the line. As a business owner, you definitely don’t want or need that headache.
This includes health care, 401k, and additional insurance coverage plans. Outsourced HR specialists help with employee inquiries, enrollments and coverage changes, and tracking to determine eligibility. Organizations may choose to turn to a benefits service provider to obtain better terms than they could negotiate on their own, which will consequentially enable them to offer their employees better benefits packages for themselves and their families. It’s a win-win for everyone!
Wouldn’t it be amazing as a business owner to have all your employees work together in harmony and peace without any drama? Yeah, nice fantasy! Unfortunately, that is not the world we live in and when you bring people together with different backgrounds, skill sets, and perspectives, you are bound to have a few issues pop up as they begin to figure out how to work and succeed together.
Understanding and navigating employee relations issues are not for managers of the faint of heart. Having an expert who is key in building trust and defusing conflict quickly is essential to ensuring a positive and productive work environment.
Risk Management and Compliance
Laws and regulations impose severe responsibilities for HR. From the time-consuming task of staying up-to-date with legislation to the penalties that come with failure to meet mandates, the organization has the potential to be easily exposed to litigation. Findings have shown this makes up over 50% of HR activities. Claims management is another critical aspect that allows HR to access legal expertise. Additional areas that outsourced HR specialists cover in risk management include unemployment claims administration and workers’ compensation.
Even if organizations can manage their drug screening protocols, relying exclusively on third-party drug testing service providers is a safer path. This gives protection and prevents potential legal loopholes as well as conflicts of interest that could arise.
Coaching and Development
There have been mixed feelings about outsourcing professional development. While some have argued that coaching is more effective when integrated into the daily agendas, others are of the notion that involving external experts in coaching brings a fresher perspective and vast expertise, which is beneficial. Ideally, every meeting and interaction with your team presents an opportunity to unlearn, relearn and develop.
Policy Development and Enforcement
Not only does establishing clear HR policies provide structure and consistency, but it is also paramount to the success of any business to ensure awareness of obligations and expectations. However, creating your HR policies and ensuring they are enforced accurately is not an easy task and can be pretty complicated, especially if you have remote employees across the country or a global organization.
Strategy is not just for the revenue-generating factors of a business, it matters all around especially within human resources. Identifying your approach to culture, performance management, training, and talent management are all vital to your competitive strategy in the market which all relay back to your bottom line.
Your HR strategy should embody all elements of your workplace culture and be the vehicle for which change and strategy are implemented. Without a solid strategy, your culture and your people will feel disengaged and as a result, your customers will as well.
Wouldn’t it be amazing if you won the lottery one day? What if you did – who would be “ready” to operate the business? This is why succession planning for your workforce is so important.
Now we may not all be millionaires one day but the case of the matter is, our employees move on whether it be through attrition, retirement, or relocation, and not everyone will be here forever. Ensuring you have a plan that aligns with your strategy and growth plans will be fundamental for the success of your SMB today and for the future.
As outlined, outsourcing some or all HR functions depends on various factors within the business. However, one key question all leaders need to think about is what path will advance the company’s mission and strategic objectives faster and more effectively. Regardless of the decision, it’s crystal clear that there are great benefits to outsourcing your HR function. The only question is, which areas will you tap into first.