Is HR Outsourcing the way to go?

July, 03, 2014 by Vera Gavizon author workhoppers

 The whys and whens of outsourcing HR

PEOs or professional employer organizations are now one of the most common solutions to focus on the core activity of a business and leave other more administrative, yet still essential, functions to a third party. Commonly, PEOs can be seen as an HR outsourcing solution that handles activities such as payroll, benefits, and pretty much everything concerning HR administration for a company.

HR outsourcing

It is simple, unless you are a consulting HR company or a PEO yourself, chances are your core business does not lie in HR administration functions; nevertheless, a lot of times vast amount of resources are invested in building a whole department such as HR, just to see no direct revenue coming back from it.

Without a doubt, HR is essential in today’s marketplace where employees are less and less skilled workers and more and more knowledge workers. Moreover, work-life balance, recruiting top skilled employees, innovative compensation, and career growth are on the rise and have never been more of a competitive advantage among organizations; in fact, it is clear now that having a solid HR department is not this “bonus department” you get when you have extra resources, it is in fact sometimes the department that will, in a way or another, successfully yield those extra resources (but that is another story altogether…).

What we are trying to say is that HR=super important; yet, sometimes in certain types of companies (see below), priority needs to be given to the core functions of a business before looking into HR matters. The way it can be seen is that to build a house it is imperative to have a strong foundation (core business), yet that does not mean you can forget about the roof (functions such as HR administration) if you truly want to have a sturdy and complete architecture. So what to do? HR is essential but you can’t focus on it right now?

Options to outsource HR:

Use freelancers: PEOs and third party hires such as freelance experts that can take care of specified functions of  HR activities are a super viable solution for this dilemma.  You might want to keep recruiting activities for yourself and transfer Benefits plan administration and payroll to experts. Most likely, you will find synergies by transferring these activities to specialized talent.

Specialized HR companies: Buy the services of a company that specializes in some of the non-core HR activities. They know what they are doing and at the end it might cost you less to hire an expert than trying to re-invent the wheel.

Now, there is a reason why the top 50 companies in the world are likely to not be hiring PEO’s or third parties and that is, well, they have the resources to build a personalized HR department of their own; nevertheless, this is not the reality for most businesses. Indeed, almost 50% of existing companies are small – sized and thus, an extra hand on non-core business activities is very much in need sometimes. Small-sized organizations many times cannot take the luxury to design a whole HR department when they already have their hands full trying to build the foundation for the whole organization.

The point is that outsourcing HR functions for smaller, growing companies makes complete sense; outsourcing HR gives the opportunity to give full attention to the core of a business while not neglecting, arguably, the most important assets of a company- people.  It is recommendable to retain the recruiting function in the company, most likely done by the owner or top management of the company to ensure that you attract the right talent for the growth and competitiveness of your business.

But ultimately, HR outsourcing by hiring PEO’s or any third party freelance expert to handle HR administration functions is ideal for small to medium-sized companies whose main strategic mission and vision revolves around the initial growth (specially but not exclusively) of a specific core business function.

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