When to Go In-House and When to Outsource HR
Is outsourcing HR the best solution for your business, or should you move HR in-house? Do you have an answer to the above question if Yes then thumbs up, if No then continue reading to find out more about the two options.
HR workers manage a wide level of responsibility based on the needs of the organisation. They manage the hiring processes of recruiting and interviewing potential employees, as well as orientation and training of workers. They also manage the relationship between employee and employer, as well as completing payroll and managing benefits. HR professionals work with the leadership team to implement policy changes and to best coordinate the wider administrative functions and duties of a business. Hiring and training new employees is one of the most expensive parts of the business cycle.
One of the best ways to determine whether your business should outsource the HR department or keep it in-house starts with taking a look at the size of your company. This will give you an idea of the services and manpower needed to run HR. Next, review the pros and cons of both options by taking a deeper look into what you may gain or lose through the process. Last, research the stories of other businesses similar in size to your own and find out how outsourcing or in-house HR has worked for them.
When you first start your business, your priority is to hire people who are integral to building the product and growing the company to fill the roles that move the bottom line and grow the business. At some point, a business grows big enough that it needs people to take care of the back office operations of the company. You need someone responsible for coordinating interviews, sending offer letters, managing benefits administration, and much more.
Figure out what stage of growth your business is in:
If you’re running a new business it can be easy to believe you can do it all yourself. There are only a few people in your company. Between managing benefits, equity, salaries, time off, writing employee documents, hiring, firing, onboarding, and everything else that is going on, where will the time come to talk to investors, build the product, or do significant business development? At this stage, you should outsource most of your human resources function. Your focus should be on the people who are coming in and out, not whether they are getting their pay check on time.
You’ve raised a much larger round and you are going to be scaling your business much faster, maybe growing from 50 employees all the way up to 100-500 employees. Recruiting is probably a massive priority as you grow and you might be running into new issues when it comes to expansion and compliance.
At this point, you need a back office time. For starters, you need to have someone on board who is able to handle strategic HR projects that are meant to make the company better. These include initiatives to keep employees healthy, to ensure that they are acquiring new skills that make them more useful. These requirements are better filled in-house, since they are so specific to your company.
But there’s still a role for outsourcing. While you might feel an itch to bring everything in-house, payroll experts are costly and normally unnecessary. There’s also no need to bring basic compliance in-house. Outsourcing this or getting software to do it will save you money and time that will allow your busy HR department to focus on hiring and strategic projects.
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These types of companies are not too dissimilar to medium-stage companies. The difference here is that many larger companies bring many HR functions back in-house because they consider it a competitive advantage. But even for large companies, many of the administrative HR tasks can remain outsourced. Why bog down your in-house HR team?
Keep your HR department focused on finding quality talent, tackling strategic projects, and being the liaison to the rest of your team. Allow outsourced HR and payroll providers to handle the rest.
Apart from these few other factors can also be considered before coming to a conclusion:
- What level of HR expertise/skills do you need?
When hiring a in house HR person you are getting only the skill set they bring. When using an HR firm with multiple consultants, you have access to all of the skill sets employed at the firm.
- What is your budget?
This is a key question. If you determine that you would like to hire a HR Manager with 5-10 years of experience, this is where the cost of outsourcing to an HR firm makes more sense because the cost will be a fraction of hiring an internal HR Manager.
- What are the employee-related goals for your business?
Do you want to become an “employer of choice” with a goal of attracting top talent? Do you want to create career paths for employees? Focus on employee retention? Using an outsourced HR firm with the experience of doing this type of work regularly, can help you achieve these goals more quickly. Additionally, it will provide you with some ideas you may not have thought about due to the consultants varied experiences.
- Do you need your HR person onsite every day?
With 100 plus employees, having HR onsite every day makes sense.
- How much time do you have to supervise an HR person?
Entrepreneurs rarely have time to effectively supervise. And supervising a skill set like HR, that they often know nothing about, makes it even more difficult. Working with an outside HR firm gives Leadership peace of mind knowing that skilled professionals are in place who will work proactively, advice and collaborate, versus look for frequent direction. With an outside HR firm true supervision is minimal.
- Do you want an HR professional who can provide objective advice and guidance?
When hiring someone in-house, they may not be as forthcoming with feedback that does not agree with “the boss”. The internal HR person wants to remain employed and because of this may be reluctant to share feedback that could be perceived as “not being a team-player.” An experienced HR consultant understands that one of the roles they play is to be a trusted advisor and look at situations objectively while sharing ideas and feedback that will improve the client’s workplace, support their goals and culture while also mitigating risk.
HR is an important department. But many businesses sometimes forget this. Or they forget that the people doing it are qualified to do more than monotonous tasks. Outsourcing human resources and introducing new changes within the company can be both eventful and fruitful and worth the risk taken. Finding the right consultant not only gives you a sense of satisfaction but also will reward you and your company in the long term and will provide you with long lasting benefits. Try to hire a professional that truly understand the sentiments of the company and its motives and values.
I hope this article inspired you to investigate what works best for you, your organisation and most importantly, your employees – because they are your business’s most important resources.
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What business functions have you considered outsourcing? Tell us in the comments section below.
Pragna provides a wide range of Recruiting and HR solutions for businesses of all sizes. Click here to discuss your HR/Recruiting needs with us.