Is Outsourcing the Future of HR?

HR outsourcing is a contractual agreement between an employer and an external third-party provider where the employer transfers the management of, and responsibility for, certain HR functions to an external provider. There are several types of HR outsourcing options available to employers. Options can be as specific as outsourcing one particular aspect of one HR function or as broad as outsourcing the entire human resources department. HR outsourcing can be personalized and flexible to meet the exact needs of the business.

With the pandemic hitting us hard, many businesses and organizations were left with no choice but to reimagine their business model and find ways to become more agile. One of the newest trends to gain popularity throughout last year has been outsourcing HR services to gain greater efficiencies. Outsourcing vital HR functions like payroll, compliance and goal alignment to a third party will allow companies to leverage external expertise to drive business success. HR outsourcing continues to become more popular than ever and here are a few more reasons why:

• frees up time to focus on more strategic efforts
• puts an expert, experienced eye on your current HR policies
• outsourcing is a hassle-free way to keep your employee handbook updated
• can improve employee relations and streamlines hiring orientation
• provides training and professional development
• handles administration for time-consuming tasks
• provides companies access to specialized HR expertise
• helps with regulatory compliance
• speeds up response times on transactional HR functions such as benefits enrollment and payroll.

In the past, employers used to look for loyal and driven employees to form long-term partnerships with. Now, companies are increasing the number of vacancies for temporary projects instead. This format is gaining popularity rapidly. Even some managerial roles have started working on short-term contracts.

Outsourcing, in general, has become more common. Many companies were forced to cut contractor budgets due to the global crisis. More and more organizations are actively replacing full-time employees with freelancers to save money. By outsourcing, employers are able to save money on costly areas such as benefits for additional employees and instead use that money to increase the range of benefits that are offered for remaining employees. Outsourcing has become increasingly important as HR professionals seek ways to reduce time and resources spent on transactions and administration, so they can concentrate on more strategic activities. This reduction in time and resources also translates to savings for the business.

The process of deciding whether to outsource HR functions begins with consideration of how outsourcing could help an organization and includes how well positioned HR would be to help the organization manage a transition to outsourcing. It is important to analyze how the company is currently delivering HR and to identify whatever gaps may exist between the organization’s HR needs and HR functions. Employers should also research the outsourcing industry and its trends; and analyze how industry trends could affect their organizations.

Selective outsourcing—as opposed to relying exclusively on a single provider—generally means outsourcing routine, transaction-oriented processes and is popular because it can be tailored to meet an organization’s specific needs. Outsourcing HR functions can involve significant costs but outsourcing to a skilled vendor—and using that vendor correctly—can save an organization money in the long run. The key is to manage the relationship well. This involves establishing a collaborative way of working with vendors that builds trust and open communication. It can be accomplished by setting forth all expected benefits in a written business case that includes quantitative and qualitative targets, and by using practices that have been shown to produce successful outcomes.

This year has upended the priorities of most HR leaders, as they had to quickly navigate everything from remote-work culture to staying up to date with the ever-changing legislation related to COVID-19 that often affects the workplace. As the speed of in-demand skills accelerates, companies are shifting their investment away from build strategies and focus more on buying and renting talent than they have ever before. 2021 will continue to be all about innovation and disruption, so be prepared to ride on the wave of creativity and change the way your business operates.