Farming It Out: Human Resources Outsourcing Becoming More Common
Corporate human resources departments used to juggle tasks that included payroll, recruiting, hiring, employee training, compensation planning, and benefits administration – all while keeping companies in compliance with labor laws and regulations. But the demands of an increasingly global and diverse workforce require many HR professionals to shift toward strategic functions and outsource the rest.
While some companies still have HR departments that tackle everything, an increasing number have had to turn to third-party vendors in recent years to manage and perform many of these administrative tasks – just to stay on top of a growing volume of complex work demands.
The HR outsourcing trend has steadily increased over the last 10 to 15 years, said Joe Sommers, a 25-year HR professional who serves on the Society for Human Resource Management HR Consulting and Outsourcing Special Expertise Panel. Now, he said, many organizations outsource payroll, benefits management, staffing and recruiting, and employee relocation to third-party vendors.
“HR has been pulled much more into the strategic process,” said Sommers, director of HR Services at ZERORISK HR Inc., a Dallas-based HR consulting firm. And while it's hard to tell where the economy is heading, it's a good bet that companies and HR departments will increasingly have to focus on the core aspect of their businesses. The U.S. workforce also is growing more diverse with four generations in the workforce and the increase in globalization. That, he said, will likely lead to an increase in outsourcing. “It's just going to require a lot more planning and support, to not only find the non-traditional workforce that you need, but also to manage it and effectively use it in your organization.”
Outsourcing Can Cut Costs
Corporate downsizings could increase outsourcing of HR functions as well, Sommers said. HR departments are not immune to cutbacks, and often some of the first people to go are those who handle recruiting. However, even in a downturn, companies sometimes still need to hire staff, he said. And in the absence of having an in-house recruiter, many companies turn to a third-party vendor to handle that task. In many cases – even after economic conditions improve – companies continue to utilize the third-party vendor instead of hiring an in-house person to do the job.
Nicole Sherard-Freeman, a Michigan-based lead change management consultant for Ceridian, a Minneapolis-based firm that provides HR outsourcing solutions for companies, also said she has seen an increase in the number of companies outsourcing HR functions in recent years.
“The HR outsourcing market is one of the fastest growing segments of the business process outsourcing space,” said Sherard-Freeman, who also has outsourced administrative functions in previous HR positions. The reason, she said, is two-fold. There's the recognition that “a value-add HR department can't be all things to all people.” And many companies now recognize that maintaining in-house administrative functions can be more costly than allowing a third-party vendor to handle these tasks.
“And we’ve noticed an increased interest in outsourcing in Michigan – more so than in past years,” she said. “Is it due to the pressure in Michigan’s economy? Perhaps. But a good HR leader always evaluates the function’s administration model, and explores alternative solutions that could make more sense for their business.”
Outsourcing HR functions doesn't always make sense, Sherard-Freeman said. But for many companies, having third-party vendors handle payroll and other administrative tasks can help grow a business.
Focus on Core Functions
“For small companies, outsourcing HR can be an integral part of helping you focus your attention on keeping your business profitable, growing, and retaining your customer base, and on new product or service development – the core elements of making your company successful,” she said.
Outsourcing many functions at mid- to large-sized companies also can make sense because HR administration can be time-consuming and complex, Sherard-Freeman said. Laws and regulations can cost your company money, time, and customer goodwill, and because of that “evaluating an outsourcing model could be a good investment of your time.”
There are other advantages to outsourcing as well, Sommers said. For one, if you hire third-party vendors, your HR employees no longer have to be the absolute experts in each area. And by clearing some tasks off their plate, your HR team is better able to turn its attention to the business itself rather than having to focus solely on company gatekeeping and administrative functions. Typically, tasks that require a lot of paper shuffling, numbers, forms, and records are time-consuming and have a low return on investment. And in such cases, outsourcing can be much more cost-effective, he said.
A vendor's experience in dealing with other firms also can help your company from a competitive standpoint by bringing new ideas, innovations, and creativity into your organization, Sommers said.
But as with any investment, there also can be some pitfalls, Sherard-Freeman said.
“. . . Outsourcing isn't likely to net a good return on your investment if you aren't clear on what you want to achieve by outsourcing, don't want to take advantage of your outsourcing partner's expertise, or aren't willing to change your processes and practices to fit your provider’s model,” she said.
Next week, read how to effectively manage third-party HR vendors to avoid the pitfalls of outsourcing in your organization.
Written by Jenny Cromie, certified human resources specialist (CHRS)
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Corporate human resources departments used to juggle tasks that included payroll, recruiting, hiring, employee training, compensation planning, and benefits administration – all while keeping companies in compliance with labor laws and regulations. But the demands of an increasingly global and diverse workforce require many HR professionals to shift toward strategic functions and outsource the rest.
