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6 key considerations for outsourcing HR functions
Before deciding to outsource your HR department, take a look at these considerations, including cost, regulations and length of contract.
While it may be tempting to dole out menial and repetitive HR tasks to outsourcers, there are multiple considerations for outsourcing HR functions you might not expect.
HR outsourcing is the process of having some or all HR activities and transactions performed by an outside agency or consulting firm. It is usually cost-effective and can help reduce the overhead of establishing and managing a large team. Outsourcing also enables HR to focus on strategic human resource efforts instead of daily, time-consuming rote tasks. It is also an attractive option for small and medium-sized business (SMBs) that do not want to go through the hassle of managing important services -- for example, payroll and benefits -- internally.
Companies often outsource non-mission-critical processes, as well as tasks that do not contain confidential information. However, they may outsource updates to employee compensation or processing of payroll. Managing benefits, pensions, personal and job data changes and training administration are just some of the common types of responsibilities that outsourcers can take on. While some organizations may choose to outsource everything to one provider, others might use a mix of specialist vendors.
As a CHRO or CIO, you typically make the final verdict to outsource HR services, either individually or together.
Here are a few issues you'll want to understand when making your decision.
1. What functions to outsource
First, you should get specific on what you want to outsource, since there are a multitude of activities and transactions available. Think about your HR team's biggest headaches, and look at which transactions they perform most often. You will also want to think about the areas in which your HR team doesn't need to give as much input, such as answering questions or benefits enrollment.
Typically, HR outsourcing providers are specialists in providing HR services and can bring expertise to your organization that didn't exist previously. For example, processes could become more legally compliant, efficient and standardized.
However, bear in mind that outsourcers cannot always take on everything. Your team will still need to run the strategic aspects such as talent acquisition strategy, employee experience and people analytics.
2. Whether to follow standard processes
In many cases, outsourcing requires you to adopt the standardized processes of the outsourcing provider. This allows them to deliver efficient service at the price point that makes it cost-effective. Be ready to decide whether you want to keep your specific processes or adopt those offered by the outsourcing provider.
3. Which time zones allow for quick responses
Whether you operate in a few time zones or across the globe, it's important to have coverage across your hours of operation. If you operate globally, you may require a "follow-the-sun" model to cover all business hours.
One of the biggest needs for coverage across your countries of operation is to have adequate response times. When you have important processes like payroll that can only move forward with accurate and up-to-date information, it is important that outsourcers process and complete tasks in a timely fashion. Whether a business operates in one country or globally, you will want guaranteed service-level agreements (SLAs) that enable processes to operate efficiently.
4. Cost vs. quality
While a low price can be attractive, it may also have an impact on the level of quality. Without the right level of service, you may run into issues such as data inaccuracies, incorrect payroll runs and stalled workflows. This negative experience can have an impact on motivation and retention of any staff directly affected by the quality of the outsourcing service. Likewise, if an outsourcer doesn't deliver, this could result in incorrect processing and the inability to file compliance reports or make legally mandated payments on time.
5. Data privacy and protection globally
Legislation governs data privacy and the protection of employee data in various locations around the world, particularly in the European Union (EU), Russia and China. Germany, in particular, has data privacy officers and work councils that may have more stringent requirements than those provided by the EU's General Data Protection Regulation (GDPR). As a result, you might need approvals -- and get potentially strong pushbacks -- to outsource transactions that process or store sensitive employee data outside of where the employees are located.
Since you could potentially be transferring data across the world, it needs to be transported and stored securely. If your IT team has strong data access requirements -- such as strict system authorizations, VPN or access tokens -- then take that into consideration. The outsourcing team could be large or located in different locations to enable a follow-the-sun approach. Because of this, you and your teams might not have adequate access to data and you'll need to plan for that well in advance.
Outsourcers must meet data retention and storage requirements for the different data regulations. For example, the outsourcing processes may have to include purging data once it meets the maximum retention time.
6. Length of contracts
Outsourcing contracts are usually long-term, ranging from three to 10 years or sometimes -- but rarely -- beyond. This level of commitment means that once you have outsourced HR processes there is often a long period before you can bring them back internally.