The Pros and Cons of Outsourcing Your Human Resource Functions

Human resource management is a big tent. Inside—depending on a company’s size and budget—you’ll find a wide range of HR functions: hiring, training, benefits coordination, records retention, employment law, department management, payroll, and more.

As an HR department’s duties grow, its own human resources may get stretched too thin. If hiring additional staff isn’t an option, company leaders may consider human resources outsourcing (HRO) to cover or expand some or all of the HR services.

Globally, HRO is on the rise, in part due to the increase in remote work during the COVID-19 pandemic. Measured at $34.8 billion in 2020, the industry is projected to reach $53.2 billion by 2027.¹

Companies that outsource human resources find the practice has its pros and cons. Here are some of the frequently cited pluses and minuses:

Outsourcing Human Resources: The Pros

1. Increased Capacity
   Outsourcing providers have the staffing and expertise already in place to handle major and minor HR functions for multiple clients. They offer a depth of field that in-house HR managers—particularly those working in small or mid-size businesses—typically can’t. With HRO, work can get completed faster, and more projects can be underway at a time.
2. Expanded Services
   On-site HR managers often have more projects than the budgets to accomplish them. Outsourcing firms offer a big menu of options. Some maintain a pipeline of job candidates, which can speed recruiting and hiring. They can create retention strategies, handbooks, job descriptions, performance review forms, and training materials. HR outsourcing companies can design compensation and benefits packages. They are well-versed in employment law and can monitor for compliance. They can process payroll and provide businesses with information management systems.
3. Improved Bottom Line
   Outsourcing human resources can help companies save money through staff reductions and reduced overhead. Improved hiring and retention practices may help prevent turnover, which can be costly: It’s estimated that turnover can cost a company between one-half and two times a departing employee’s annual salary.2 Employment law expertise and oversight can help companies avoid costly legal fees.

Outsourcing Human Resources: The Cons

1. Diminished Culture
   Human resource management can be the beating heart of a well-run organization. HR and benefits managers usually meet with all employees at one time or another, sometimes to discuss personal matters. HR managers are familiar with the company culture, and the local community, and may be effective morale-boosters. Outsourcing can feel impersonal. Some companies continue to maintain a small in-house HR presence to provide a human touch, offer on-site service, and coordinate with the outsourcing firm.
2. Lost Time
   Working with an off-site human resource provider can be more time-consuming for stakeholders up and down a company’s organizational chart. A payroll mistake that, before HRO, required one call or email to correct may take much longer with outsourcing. Finding the right person to address a problem, getting a prompt response, and then reaching a resolution may take some time. This not only results in lost time on the job, but in increased frustration for employees.
3. Risked Data
   A data breach is a serious business risk, and that risk may increase when company data is shared with another party. Companies should discuss data security before selecting an outsourcing firm and have agreements in place about how data will be secured and what will happen should a breach occur. Ransomware attacks are on the rise3 and hackers are always at work. The best HRO firms have protections in place to help prevent information from being compromised. But when it comes to sensitive personal information, you can’t be too careful.

Update Your HR Skills

Earning a graduate human resource degree can help you enhance your leadership skills and prepare for today’s industry challenges. If you’re considering HR master’s programs, there are a couple of excellent options.

There’s Walden University’s online Master of Business Administration (MBA) degree program with a Human Resource Management specialization. In your online courses, you’ll build organizational and leadership skills; explore key practices and strategies for developing, managing, recruiting, and leading diverse talent; and much more.

Walden’s online MS in Human Resource Management degree program is another way to get the tools you need to lead effectively. In this master’s in human resource management degree program, you’ll learn from HR-certified faculty, build practical skills using AI-driven simulations, and receive all the materials you need to prepare for SHRM certification.

Walden designs its online degree programs so you can continue your career and enjoy your personal life while pursuing a college degree. You can set your own study schedule and work anywhere there’s an internet connection.

Choose your path and then earn the master’s degree that gives you the tools you need to reach your HR career goals.

Walden University is an accredited institution offering online Master of Business Administration (MBA) and MS in Human Resource Management degree programs. Expand your career options and earn your degree in a convenient, flexible format that fits your busy life.

¹Source: www.researchandmarkets.com/reports/347960/human_resource_outsourcing_hro_global
²Source: www.gallup.com/workplace/247391/fixable-problem-costs-businesses-trillion.aspx
³Source: www.pbs.org/newshour/nation/why-ransomware-attacks-are-on-the-rise-and-what-can-be-done-to-stop-them

Walden University is accredited by The Higher Learning Commission, www.hlcommission.org.