Pros and Cons of HR Outsourcing

This article discusses the main types of agreements prevalent in HR outsourcing and explains the company case for HR outsourcing. It also discusses HR’s contribution to the entire organization, outlines the critical role of HR in the procurement process, and concludes with an assessment of successful vendor relationship management. An outsourcing HR function is defined as one that provides all the HR functions to a third-party company that competently manages them. There are various types of HR functions, and organizations can acquire additional functions through outsourcing. This outsourcing enables organizations to focus on their core strengths and cut costs on HR functions such as recruitment, training, performance management, benefits administration, and employee benefits administration.

There are many benefits of employing a third-party company to outsource their human resource functions such as recruitment, training, and performance management. The main advantage is cost savings. Human resource functions such as recruitment cost significantly more than what it takes for established firms to carry out the same functions. Moreover, the HR professionals and their skills are costly, so cutting down on recruitment and training costs would help in saving a lot of money.

Outsourcing the HR functions also allows a firm to concentrate on its core business functions without buying new staff and training each new staff member. It also allows organizations to focus on their core business functions without purchasing a new team and introducing each new staff member. There are many benefits of HR outsourcing. For one, this lowers the operational costs because there are no additional human resource costs. HR professionals and their associated costs, such as recruitment and training, are a considerable expenditure for any organization. Outsourcing these functions allows the organization to reduce these costs.

An outsourcing module includes additional benefits such as a comprehensive package, client data integration, applicant tracking, payroll integration, communication module, job search engine optimization, and other similar uses. These benefits come along with a certain amount of cost to the employer. But this should not be the deciding factor. The employer must take into account several factors before deciding whether to outsource their HR functions or not. Some of these factors are mentioned below:

One significant advantage of an HR outsourcing contract is that the vendor provides compensation administration services. Compensation administration includes the administration of filing taxes, insurance, and filing employee forms and records. This enables the organization to concentrate on its business processes without maintaining two separate systems for employee compensation administration and recruitment, training, and other HR functions.

Another advantage of an HR outsourcing arrangement is that the vendor performs all the necessary payroll functions for the company. Thus, the company does not need to hire new employees for its payroll administration function. The company relies on the work that the vendor has performed. Suppose the organization wishes to change its recruitment procedures or its methods of tracking an applicant’s history or even its credit score. In that case, it can easily alter the system that the vendor has established for its use. In addition to the advantages mentioned above, the vendor’s compensation administration services also enable the organization to increase its efficiency. This means that the organization’s overall profit will grow because the HR functions will no longer be performed by the staff members themselves but by the outside contractor instead.

On the contrary, an HR outsourcing contract may sometimes disadvantage an organization. One disadvantage of an in-house HR team is that it takes time and resources to train the hired staff. When the employees are thoroughly trained, they will be able to do the job according to the organization’s rules and regulations, which means they will not feel pressured to perform substandard work. Training is also an essential part of the overall recruitment process
of the organization.

An HR outsourcing contract often disadvantages both the HR manager and the applicant. The HR manager often oversees the hiring process and decides who will get the job. The applicant cannot choose who will get the position and must submit a list of desired applicants to the HR manager. The applicant does not know who will get the job with an outsourcing company, and it isn’t easy. He has to compete with several well-qualified applicants for the same position.

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