Should You Outsource Your HR Function or Manage It In-House?

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Author Bio: James Smith

Employees are a vital part of any business, whether big or small. They can either make or break your business. This is why the human resource function is very important in an organization, regardless of its niche. The responsibilities of human resource workers, whether outsourced or in-house, are many and vary from organization to organization. Some of their responsibilities include posting job ads on various platforms, shortlisting candidates who meet the requirements, doing background and reference checks on them, conducting interviews, drafting employment contracts on behalf of their clients, training and orientation of new employees, facilitating continuous training for all employees of an organization and managing the payroll, among others. It all depends on the needs of an organization.

One thing that many business owners, especially small business owners, struggle with is the decision on whether to have an in-house HR department or outsource their HR functions. While many business owners only look at the cost implications of their decisions, there is a lot more that needs to be considered when making this decision. This article compares the two alternatives, explaining the pros and cons of each in detail.

Outsourcing HR functions

More and more small and medium-sized businesses are embracing this option because of the numerous benefits it offers.

Pros

  • Recruiting

Most small businesses are working on a tight budget and cannot afford to waste time and money on recruitment strategies that are inefficient. This is where a HR consulting firm comes in handy. Most of them have extensive experience and expertise in helping companies hire the best talent out there while minimizing the cost of recruiting new employees. Since they typically work for many clients at a go, they benefit from economies of scale when it comes to posting job ads on various platforms and conducting interviews. These cost savings are ultimately passed on to their clients. Some firms such as Nominee Director Services also help in hiring directors and filling senior management positions. They have access to more talent and therefore connect the organization with the best in the market.

  • Risk management

Employment law is ever-changing and staying up-to-date on the changes can be quite difficult without outside help. Outsourcing your HR functions will give you access to experts in the field of employment law and they will help your organization stay compliant at all times and avoid getting on the wrong side of the law. They can also help ensure that your employees are well taken care of and happy with their work conditions and terms of employment. With happier employees, you will have a healthier and more productive work environment.

  • Employee development

A HR firm will monitor your employees’ performance to ensure that they are performing up to standard and fulfilling their responsibilities. They then present these findings to management who will decide what action to take.

  • Support in-house team

If you already have an in-house team, a HR firm can step in to help them from time to time. For example, you can hire a HR firm to undertake large short-term projects that your in-house team is not equipped to do. A HR firm can also provide training to your in-house HR team on new and more efficient recruitment practices in the industry so that your in-house team can improve their performance.

Cons

  • Distance

The HR firm you hire is most likely going to be working from an off-site location. This creates a sense of distance between the organization and the firm. Imagine a situation where an employee wants to report harassment by a fellow worker. It will be such a hassle for them to get in contact with someone from the firm. This may make them even more frustrated and may make them feel unimportant to the company. The result of this is demotivated employees who end up being less productive, costing your organization a lot.

  • Loss of control

Senior management may completely give up control over the organization’s human resources, leading to loss of control and in some cases, dependency on the HR firm. This can lead to problems down the line in case outsourcing is no longer an option. The organization may be unable to handle the HR functions without the help of an outside firm.

  • Poor performance

This can be caused by a number of things. While most HR firms strive to understand their clients’ needs, values and culture in order to match them with suitable talents, some just never get it no matter how hard they try. This may lead to recruitment of employees who are not a good fit for the overall company culture. Such an employee may have trouble relating with other employees and this ultimately affects their productivity at work.

  • Information leaks

An outside HR firm will need access to some company information such as the product information and the information on the organizational structure in order to be able to do their job. This may lead to sensitive company information getting into the wrong hands.

In-house HR department

While outsourcing your HR functions sounds like an enticing option, you should at least have a look at the pros and cons of having an in-house HR department before making your final decision.

Pros

  • Better understanding of company culture and values

An in-house HR team is part of the fabric of your organization. This means that they will have a better understanding of the culture and values of your organization and will therefore be able to get employees who are a good fit for your organization. These employees will be able to relate well with the rest of your employees, enabling you to have a strong team that can work well together to achieve your company’s objectives. An outsourced HR firm may not be able to provide you with this because they may have difficulty understanding your company culture and values.

  • More invested in your organization

Since the HR staff are full-time employees of your organization, they are also entitled to employment benefits just like the rest of your employees. Some of these benefits may be linked to the performance of the company. For example, part of their compensation may be in form of company shares. Also, they may already have some shares in your company. Additionally, full-time employees will have a sense of loyalty to your organization. This means that the performance of your company directly affects them and they will therefore be more invested in it. They will want to ensure that they only hire the best to ensure that the company performs well. An outsourced HR firm may not have this kind of commitment to your organization’s success.

  • Good relations with your employees

Your employees will feel more comfortable airing their issues to an in-house HR team because they do not feel distant as an outsourced firm would.

Cons

  • Expensive

Hiring full-time HR staff can be expensive in the long run, especially for a small firm which only needs to recruit new employees once or twice a year. This means that the HR staff will be paid even for idle time, while they are also entitled to employment benefits just like all other employees. For a small firm, it makes no sense to have fulltime HR staff, especially if working on a tight budget. It may be more cost-effective to outsource HR functions whenever the services are needed.

  • Not as well-connected as an outside HR firm

HR firms are constantly recruiting new talent for their clients. They are therefore likely to be well connected in the market and have access to a wider pool of talent. Your in-house HR department may not have these kind of networks and this means they have access to a smaller talent pool.

  • May not be up to date with industry practices and employment and labor laws

Since your in-house HR staff are mostly dealing with in-house issues and only do recruitment once in a while, they may not be up to date with industry practices, and employment and labor laws. They may therefore be stuck with inefficient recruitment practices, costing your organization a lot of money that could have been put to better use.

Conclusion

It is clear that both in-house and outsourced HR workers have their pros and cons. There is no wrong or right way to go. It all depends on your organization’s unique situation in terms of size, culture, values and of course, budget. Do not go for one option or the other because all other organizations in your niche are doing so. You need to thoroughly assess your business to know exactly what it needs for it to run efficiently and be successful. You can even go for a mix of the two, where you have an in-house team but occasionally hire an outside HR firm to help your in-house team if that is what works for your organization. At the end of the day, the important thing is that both you and your employees are satisfied with the solution you choose to go with.

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