HR Outsourcing: 5 Common HR Functions You Can Outsource

The HR work cannot be understated. Human resource professionals bring in new talents to the company, train employees, develop policies, process payroll, and organize employment engagement activities, among other roles.

Everything that is linked to the workforce falls under the responsibility of the human resources department. Since HR practitioners carry out tons of work every day, they tend to overwork and are left in a constant mode of playing catch-up.

If this sounds like your HR team, it is about time to save them from exhaustion and burnout. Give HR outsourcing a try and leave some of the critical HR functions to a third-party provider.

What is HR Outsourcing?

Human resources outsourcing is a contractual agreement involving two parties—the employer and an outside company. The employer seeks the services of the external provider to transfer the management and processing of certain HR functions.

There are three types of HR outsourcing companies: human resources organization (HRO), professional employer organization (PEO), and administrative services organization (ASO).

HRO is typically the outsourcing partner of large businesses with over 1000 employees. It allows employers to choose what HR services they would like to outsource and the HRO will take full responsibility for them.

PEO, on the other hand, is more beneficial for small and mid-sized businesses (under 200 employees). This type of outsourcing company can handle various employment administrative tasks but is more focused on managing employee-related responsibilities and liabilities.

The third outsourcing type is ASO, which provides assistance and administrative services for small businesses with 50 or more employees. Among the tasks, an ASO can execute are processing payroll, performing direct deposits, filing payroll taxes, and more.

Commonly Outsourced Human Resource Functions

Before you contact an outsourcing HR company, it makes sense to identify first what role/s you want to outsource. Determine which functions your staffs need more help, so they focus on other areas that drive business results.

1. Recruitment and Temporary Staffing

Recruitment is often a long and tedious process. It involves several interrelated steps, including:

  • determining the hiring needs
  • preparing the job description
  • sourcing and attracting talent
  • interviewing and reference check
  • candidate screening and shortlisting
  • identifying the best candidate/s
  • job offer and onboarding

If you run a start-up and want to hire additional team members but cannot fully dedicate and immerse yourself in the recruitment process, HR outsourcing is the best solution.

By outsourcing recruitment and temporary staffing, you can focus more on running and promoting your business, getting new investors, and engaging potential customers. Your HR partner will help you fill an important role in your company without compromising your overall business operations.

And the best part? You will not need to worry about meeting the timeline for your recruitment, doing background checks, and scheduling interviews. All you need to do is wait for your HR provider’s endorsement of applicants.

2. Payroll and Benefits Administration

Payroll processing and benefits administration are two of the most complicated and time-consuming HR activities.

According to the National Small Business Association’s 2018 Taxation Survey, 24 percent of small business proprietors believe that federal taxes have a moderate impact on their day-to-day operations. The report also found that 15 percent of small businesses spend 41-80 hours each year calculating payroll and other business-related tax.

Also, employers using a paper-based benefits administration strategy spend an hour or more on processing the benefits enrolment, answering employee questions, and preparing benefits packets.

Understaffed small businesses do not have plenty of time doing payroll and benefits management tasks, hence the need for HR outsourcing.

Outsourcing HR companies can help business owners run accurate, on-time payroll while ensuring the company complies with payroll guidelines at the same time.

HR providers are also obliged to stay up-to-date on federal and state regulations, meaning outsourcing benefits administration to a reliable third-party company ensures efficient, accurate, and consistent management of employee benefits.

3. Rewards and Recognition Management

Happy employees are productive employees. Employees feel more motivated when they are recognized for their hard work.

The question is, who is responsible for increasing motivation in the workplace? Of course, it is the human resources department. The members of the HR team indeed carry weight on their shoulders—they not only recruit new people, manage payroll, but also manage employee recognition programs in the company.

However, for small business owners, who barely have the time for other things, it would be a little challenging to organize incentive and rewards programs.

Thankfully, HR outsourcing companies can do the rewards and recognition management on your behalf. They can create a program for your business that includes perks, such as monetary rewards, employee-of-the-month events, in-office parties, paid-time-off programs, and more.

4. Risk Management

No business, small or big, is exempt from workplace and management risks. Organizations should assess the potential risks in their operations and incorporate risk management into their strategic planning.

Below is a sample risk management strategy for some of the common HR functions and business areas.

Activity/ Function

Potential risks

Risk management considerations

Hiring– discriminatory practices

– negligent hiring

– fair interview and selection practices

– thorough candidate screening and evaluation

Occupational Health and Safety– health risks, i.e. exposure to bodily fluids, chronic health issues, respiratory problems, injuries, etc.– standard safety practices

– policies and procedures that address such hazards

– appropriate clothing and safety equipment

Employee Conduct– abuse

– reputational damage

– company policy that includes aspects, such as employee wellness, fair treatment, discipline, dismissal, etc.

– conduct training and orientation

– provide an employee handbook

– ongoing training about policies and procedures

Like other HR functions, risk management demands a great deal of time and attention to detail. Putting this critical process aside may place your business in a difficult situation, so better outsource it than neglect it.

Here is the good news: HR outsourcing companies can save you time and money. They can conduct internal training and provide training materials to be used.

Outsourced risk management professionals are also trained to design a risk management assessment. They will review your company’s contracts for risk indicators and recommend strategies based on their assessments.

5. Employment Law Compliance

Compliance is a sensitive topic in every business function, including HR. The human resources department is surrounded by complicated laws, particularly in employment.

For this reason, HR professionals and business owners alike should understand the local labor laws and regulations, and stay compliant with them the best way possible.

However, ensuring law compliance is a tough job. One must stay updated on legal news and understand all the information related to employment.

A practical approach for ensuring compliance with employment laws is HR outsourcing. Outsourcing HR companies can assist employers throughout the employment cycle, from application to the termination. Some of the HR tasks they can handle include:

  • screening and background checks
  • assist in writing job descriptions
  • drug and alcohol, physical-fitness testing
  • manage leaves of absence
  • customizing and maintaining employee handbooks
  • handle unemployment and disability claims
  • awareness programs for harassment and violence
  • proper hiring and termination techniques

Furthermore, third-party HR providers understand your responsibilities and obligations as an employer. They conduct a comprehensive analysis of your current policies and procedures to expose potential liabilities and then provide suggestions to keep you in compliance.

The Bottom Line

Human resource outsourcing is a strategic HR initiative not only for large corporations but also small businesses. Through HR outsourcing new and up-and-coming business proprietors can focus on achieving their strategic goals without losing their employees, affecting operations, and risking compliance.

If you aim at making it big in the industry, start with the basics. Improve your business workflows, increase employee motivation, and develop a strategic plan. You would not have to worry about attaining these all at once, especially if you have a reliable HR partner that supports you.

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