Which HR Functions to Outsource and Why

Activities Most Suited to Outsourcing- Maintaining a clear understanding through detailed analysis of each department's function and worth to the organization is critical to making the decision to outsource. This analysis should reveal which functions are at the core of the organization's strategic objectives and, consequently, which are and are not appropriate for outsourcing. Deciding the key drivers or intended goals of outsourcing is also critical in making the outsourcing decision.

When considering outsourcing the focus should be on keeping core activities in-house and outsourcing non-core activities only. By shifting responsibility for some of these functions to an external service provider, employees will have more time to focus on core activities and help the company gain competitive advantages. Generally speaking, there is little reason to outsource if contracting out the function incurs more time and money than keeping the activity in-house. One of the reasons HR activities are often considered for outsourcing is that these functions typically include such non-core duties as employee benefits administration, staffing, training, and relocation.


Reasons why to outsource a particular HR function

Training and Development

Training is often the first function to suffer when a company needs to downsize or shave money off a budget. Not surprisingly, then, the number-one reason companies turn to outsiders for training is to achieve cost savings. However, as with outsourcing in general, non-financial considerations may also be important. For example, management may think the training department is not advancing the strategic goals of the organization or producing results benefiting the company. Outsourcing can give training the competitive edge it needs to maintain its ranking with other departments.


Payroll administration

Payroll administration is definitely the one service that is usually outsourced function in HR. It is easy to understand why because this process takes up the most time when thinking about all human resources. It takes a lot of time to manage everything, think about taxes, audits, client payroll reports, direct deposits and so on. By outsourcing these HR services a company gains a lot of time that it can dedicate to processes that are making money. It is clear to see why this outsourced human resource is so popular.


If anything is part of the core of your organization, it's the people you bring in as employees. Even the best training cannot make up for bad hiring decisions or the lack of effective recruitment. Perhaps because filling open positions is a never-ending burden for many HR departments, some organizations have turned to outside suppliers for help.
Often, HR generalists are responsible for recruiting, as well as for a wide variety of other activities, and can devote only part of their time to the recruiting process. Yet, increasingly, the pressure is on to keep businesses running efficiently, which involves filling open positions in a timely manner.


Other companies that are likely to save both time and money by outsourcing recruiting are those that do not routinely recruit. These companies often end up having to train in-house employees in such tasks as conducting and assessing phone interviews. Hiring an outsourcing agency with expertise in this area reduces the time needed before the recruiting process can begin.


Now, more than ever, organizations also need to be prepared to deal with the legal and cultural implications of considering applicants from across the globe especially in the modern day with more and more multicultural offices. Utilizing an outsourcing agency already employing recruiters with global knowledge can be more cost and time efficient than training in-house employees in this area.


While hiring an outside agency to do recruiting is clearly an attractive option for many companies. Where outside agencies are often useful is in getting candidates in the door. In some organizations, outside agencies are also taking an active role in retaining employees by ensuring they are provided with a well-structured, well-administered benefits package.


Workforce administration.

As a company gets bigger it begins to be difficult to assess and analyze everything linked with employees. The one most crucial HR service has to be employee data management. It is very important to always have an up-to-date database that includes everything related to your employees. Some outsourced human resources companies will also keep control of data linked with performance so you know who deserves a raise or who needs training. Workforce administration also includes employee discounts, outplacement services, unemployment administration, disciplinary services and more. Make sure that you properly understand what you will get from outsourced human resources company when talking about workforce administration. The more you get the better at all times.


Workers Compensation

This is another area that is full of regulations and reporting requirements and again, an employer can find themselves on the receiving end of some severe financial penalties for failure to follow the laws.  For example, a First Report of Injury form usually must be filed with the applicable state agency within 24 hours of the occurrence.  This requires an employer to act fast and make sure forms are filled out correctly and thoroughly.  Because this is dealing with an injury or illness that occurred to an employee and can require follow-up and tracking of their medical progress, many employees are becoming increasingly uncomfortable with communicating this information directly to their employee.  There can be fears of being demoted or losing their job if the employer feels that they can’t return to work or that they caused it themselves.


There can also be fears of submitting a claim because of the financial draw that is then placed upon the employer. Therefore, many employers are choosing to outsource this area to an expert vendor who has the time and ability to keep up with all the regulations and that can deal with the employee and remove some of the fears of talking with the employer about medical issues.  The biggest disadvantages with outsourcing this area involve the financial cost of the program administration, as well as the need to closely communicate and coordinate employee issues.


This isn’t an area that an employer can outsource and not think about again.  There will still be the need to communicate the proper reporting procedure and phone numbers to employees, dealing with return to work and light duty programs on-site, etc. So a company must look at the amount of time and money that would be saved by outsourcing some of the responsibilities and determine if it makes sense for them.  Companies that have a larger number of claims each year may find great savings, while a company that only has a few claims may determine that it doesn’t make sense for them at the present time.

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Insurance and Risk Management 

 A final area of responsibilities that many companies are choosing to outsource is the handling of property and liability insurance, auto (fleet) insurance, and risk management services. Again, all of these areas can be ones that are time consuming for an employer to handle internally, as they typically require a great deal of paperwork to be filed and maintained, continual updating and monitoring, and reporting. 


For example, a company that has their employees driving company cars or even transporting clients in their personal vehicles must verify the driver’s license of each relevant employee and keep up-to-date on any violations or accidents on the employee’s record.  The area of risk management and liability is becoming an increasingly large drain on employers as the number of litigations has increased over the years.


The risks of not being compliant in an area or failing to appropriately protect the company and its assets can be huge.  Therefore, many companies are choosing to outsource these areas to vendors that have the expertise in protecting companies and making recommendations for changes that need to occur.


As companies are realizing that the Human Resources department is increasingly finding it difficult to handle all of the employee needs that are occurring in the workplace, they often turn to outsourcing of certain areas, including payroll processing, employee benefits administration, workers compensation, and insurance.  The company must, however, consider the advantages and disadvantages of outsourcing a particular area and determine if it makes sense and meets their needs.


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