Before You Outsource HR, Ask Yourself These 3 Questions

There are a great many office functions that can theoretically be outsourced. From phone services to sales lead generation, outside vendors are an option for potentially saving businesses cost and hassle.

However, there is something to be said about keeping processes in-house. First and foremost, you retain more control over internal functions and performance. Second, it can sometimes be more efficient to not require a “middle man” to enact desired changes or check statuses.

Especially with HR functions, it is important to take outsourcing pros and cons into consideration. And of course, what works for one business won’t necessarily be most advantageous for yours. So before you pass off HR responsibilities to a third party, here are a few questions to ask yourself.

1. What Types of Expertise Do We Need?

Depending on how your team functions, different areas of HR knowledge might be required to keep things running smoothly. If you have a small group of employees who all live in one local area, complications might be minimal. It’s likely that you are aware of the basic state and local payroll rules already.

But if your company has multiple locations or hires across state or national borders, you might need specialists. For example, from a legal standpoint, you cannot hire international remote employees if you don’t have a company entity in the country of hire. To get around this, you would need to contract global payroll services. Not only do global payroll services give you the ability to hire international talent, but they can also help you with reporting requirements. Because different countries have vastly different rules and regulations, anyone other than an expert on international payroll would struggle with compliance.

2. Does Our Company Require Full-Time HR Personnel?

HR needs vary a great deal depending on the size of your company and how many employees are on the payroll. When businesses first get going, it’s common for HR duties to be performed by the business owner or an employee who has other responsibilities. That may work well for a while, but once the roster expands, there could be an awkward phase.

Once more employees come on board, you’re also going to likely be adding benefit options for your staff. This may include health insurance, retirement, or other perks. During this period of having 10-25 employees, there still might not be enough HR work to require a full-time expert. On the other hand, there might be enough responsibilities that it becomes unsustainable for someone to keep up in addition to other work.

In this situation, you can look at hiring someone part-time or outsourcing all or a portion of your HR needs. Once that occurs, whoever was previously performing those duties can focus more on growing and sustaining the business.

3. Will Outsourcing Save or Cost Us Money?

Determining the true cost savings or expenditure of HR outsourcing isn’t always as simple as a monthly expense line item. There is also the matter of internal time savings. If the business owner performs all the HR functions, including onboarding and payroll, it might seem like you’re saving money.

When a business owner has one employee and plenty of free time, doing HR internally can absolutely save a few bucks. But let’s say the business owner is the main dentist at a small but busy dental clinic. It might take 15 hours each month for the owner to complete HR tasks that save a few hundred dollars of outsourcing. If the dentist could have used that time to fit in another 30 patients, the cost savings are no longer savings. Instead, they equal thousands of dollars of lost patient income.

There is also the stress and liability to consider, especially with payroll services. Handling payroll internally can be somewhat difficult. Third-party payroll processors often have very high-powered software that is too complex and expensive for the average business owner. This allows them to process payroll with a lower risk of errors and omissions. Any errors in payroll can cause big problems in employee satisfaction and government penalties.

Not only that, but it’s fairly common for the IRS to have errors in their records even when payroll is correctly filed. A business that runs payroll in-house is responsible for resolving those issues through tedious and seemingly endless rounds of correspondence. Outsourcing payroll offloads not only the main function of paying employees, but also the maintenance and reporting aspects. If you contract with a payroll provider and receive an IRS notice, all you have to do is forward the notice. That’s it — easy peasy.

Make the Best Decision for You

The choice of whether or not to outsource some or all of your HR functions is an individual one. The overall goal is to have a business that runs as smoothly as possible and sets you up for future success.

So if your current processes are becoming very time-consuming and stressful, or you’re falling into a capacity gap, make an assessment. You might find that you aren’t running HR as efficiently as you could be.

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