Over 30% of American companies outsource at least one HR task. Why this growing trend? It frees them up to focus on their real business while getting elevated capabilities they can't build in-house. For many companies, Human Resources (HR) falls into the latter category. HR outsourcing (HRO) services allows businesses to tap into expert capabilities and technology without having to build these competencies in-house.
As Jennifer Morehead, CEO of Flex HR, a leading HR outsourcing and consulting firm, explains, “HR outsourcing enables companies to access specialized support in areas like compliance, payroll, benefits administration, recruiting and more from external experts. This allows them to focus on business growth and strategy.”
The Benefits of Outsourcing HR
Outsourcers can perform HR functions for less money by spreading around costs over their full client base and using the latest technologies to stay efficient. Pretty simple math.
Then you have all those complex HR areas that keep evolving - compensation rules, hiring regulations, training protocols, and compliance laws. Too much for a single HR team to master them all and stay current!
Outsourcing partners meanwhile devote full attention to being HR subject matter experts across the board. It’s all they do, day in, day out. So they nail the details other departments miss.
They also see enough volume of employment law changes and compliance snafus to figure out best practices for advising clients. No single company gets that full landscape view.
There’s something to be said for letting outsourcers shoulder the burden of investing in next generation HR data tools too. Those systems are pricey! Why not leverage partners’ infrastructure?
And during growth spikes or hiring sprees, the ability to scale support staff quickly is pure gold. Outsourcers’ built-in flexibility wins hands down.
Put it all together, and HR outsourcing starts looking pretty appealing. The expertise and tech needed to do it right requires total commitment larger than any one HR department can offer. Offloading the function just makes good business sense for many leaders these days.
Key Areas for HR Outsourcing
Depending on company size, not all HR activities may make sense to outsource. Generally, transactional and administrative tasks are better candidates for outsourcing while more strategic, employee-facing HR roles are better kept in-house. Some key areas for HR outsourcing include:
Payroll Administration: Payroll processing is a complex, compliance-heavy process. Outsourced payroll provides accuracy, efficiency and peace of mind.
Benefits Management: Managing various health, insurance and retirement plans available across states and vendors is challenging. Outsourced benefits administration removes this administrative burden.
Compliance Services: Ever-changing employment laws create compliance landmines for companies. Leveraging outsourced compliance advice and audit services mitigates compliance risk.
Recruiting Support: Sourcing and screening candidates can be time-consuming. Outsourced recruiting coordinators can manage requisitions end-to-end efficiently.
HR Information Systems: Rather than investing in HR software and tools, outsourced HRIS platforms provide ready-to-use, secure systems.
As Jennifer Morehead of Flex HR points out, “Today’s uncertain environment calls for flexibility and agility within business functions. This makes a variable, scalable outsourced model ideal for HR compared to fixed, in-house departments."
Key Considerations for HR Outsourcing
Choosing the right HR outsourcing partner is key. You want experts who've been around and have a solid grasp of everything from compensation rules to handling confidential employee data. Having enough staff and backup resources matters too - your provider needs manpower to handle workload spikes.
“One of the oldest items in the HR field that has historically been outsourced is the 401K plans,” says Jim Cichanski, the Founder of Flex HR. “The reason being how complex it is, you need a good platform system to manage etc. Today the whole field of HR is complex. Dealing with multiple state laws, changing laws, payroll taxes in various states, are just a few things on the laundry list of items you must stay in compliance with. These are the reasons our clients come to us to outsource their HR functions.”
Since HR data is sensitive, take time upfront to thoroughly understand how any potential partners store data and protect privacy. Solid security controls should be non-negotiable.
It also pays off when your provider's tools play nice with your existing HR systems. Data should flow freely between platforms for reporting purposes without headaches.
Beyond technical fit, go for partners who communicate well and invest in understanding your company's specific culture and needs. Helping employees transition smoothly is crucial.
Don't lock yourself into rigid contracts without "outs" as needs evolve. Terms should allow flexibility as the partnership matures over time.
Getting Started with HR Outsourcing
Once a company decides to leverage HR outsourcing and identifies the right partner, the key question becomes - where to start?
According to Jennifer Morehead, "We recommend new clients focus first on outsourcing transactional, administrative HR activities like payroll, benefits or compliance. As comfort levels increase on both sides, more strategic HR functions can be transitioned to the outsourcing arrangement, which often happens quickly.”
Here is a phased approach companies can follow:
Phase 1: Outsource Transactional HR: Begin by transitioning high-volume administrative activities like payroll, leaves and attendance management, HR helpdesk etc. to the provider. This builds capabilities in process transition while freeing up internal bandwidth.
Phase 2: Expand to Specialist Areas: Next, move into specialized domains like recruiting, learning management or compensation planning based on current pain points and provider expertise. Centralize policies and programs under the provider.
Phase 3: Transfer Strategic HR: Finally, strategic HR roles like HR business partnership, workforce planning, talent management etc. can be outsourced to benefit from the provider’s technology, resources and expertise.
At each phase, expectations, roles and responsibilities should be clearly defined between provider and internal team. Governance mechanisms like steering committees and regular reviews further facilitate transparency and course corrections if required.
A New Era for HR
The disruptions of 2020 have accelerated the need for business agility and technology adoption across functions. As companies increasingly turn to outsourcing providers to transform their HR infrastructure for the future, a new era for HR is set to unfold – one grounded in cohesive strategy and enabled by integration of external capabilities.
While risks need mitigation, the long-term gains from HR outsourcing far outweigh them. As Jennifer Morehead summarizes, “Investing in the right HR outsourcing partnership provides game-changing advantages like technology, expertise, efficiency gains and analytics that far exceed the capabilities of any single HR department."
The message for companies is clear - it’s time to reset perspectives on HR. The incremental benefits of HR outsourcing will compound over time to provide sustained human capital advantage and become a core component of overall business strategy.
Jennifer Morehead is the CEO of Flex HR as well as an entrepreneur, sales and marketing expert, and an independent board member. Morehead prides herself on building strong teams that exceed expectations for their clients. She is the co-author of Make Your Business Social and the author of CEO From Home.
Before Flex HR, Morehead successfully launched and ran a company that created marketing solutions for local businesses throughout the country. She created a high-growth environment for her business while also running human resources in addition to her duties as CEO. Before her marketing solutions business, she helped run a sales department at a media company that included roles in recruiting, hiring, and putting together new employee training sessions.
Morehead has always been passionate about human resources and finding new ways to improve efficiency in the workplace. This passion led her to create Flex HR, a company that provides custom human resources solutions for businesses of all sizes. Through her years of experience and expertise, Jennifer Morehead has become a leading authority on the management of human resources and the creation of a productive and thriving workplace.
