HR Outsource, Debunked: A Step-by-Step Guide

Hermione at Pangea.ai
Octavia Drexler
Published: 20.10.2022

HR outsource services may still be slightly odd for many organizations, given that the nature of Human Resources is to be very close to both company leadership and the other employees. While many would feel that Human Resources is an internal affair and shouldn’t be outsourced, the truth is that HR outsource is becoming increasingly more common for a wide range of reasons (like, for example, the option to outsource specific HR tasks to companies that have the expertise and the network already built).

Why outsource your HR and more importantly, how do you do it successfully?

Two women shaking hands in agreement.

Why HR Outsource?

Studies show that 35% of companies with less than 1,000 employees outsource at least 1 or 2 functions of their HR teams. There are several reasons subcontracting your HR needs is beneficial, but most of them come down to 2 factors (which, coincidentally, are also the 2 main reasons behind outsourcing anything): time and money.

Outsourcing HR can help you save a lot of time and money. It can take your HR team away from distracting (and often not very human-oriented) tasks, and help them re-focus on what employees really need, as well as picking the best future employees for the organization.

Money-wise, it can help you reduce HR costs while, at the same time, increasing operational efficiency. Time-wise, it can save your HR team hours and help the entire organization be more prompt with a series of recurrent tasks (such as payroll, for example).

Additionally, HR outsourcing services can help you achieve improved compliance and increased engagement and loyalty among employees.

All in all, HR outsourcing can be a win-win for pretty much everyone in an organization.

Types of HR Services You Can Outsource

Some Human Resources tasks shouldn't be delegated. No matter how large or small your company may be, it is recommended to have at least one internal HR pro.

At the same time, the range of HR services you can subcontract today can make it easier for your internal team to focus on HR's strategic objectives while outsourcing the more mundane tasks.

Here are some popular HR services you can outsource.

Payroll and Tax Services

This is probably one of the most commonly outsourced HR services. It includes tasks such as processing payroll, calculating taxes, and preparing and filing tax reports.

Employee Benefits Administration

From health insurance to retirement plans, employee benefits can be a complex area to navigate. HR outsourcing companies can help with everything from creating and administering employee benefit programs to handling open enrollment periods.

Risk Management and Compliance

Risk management is another big area where HR outsourcing can be extremely helpful. It includes things like developing safety programs, conducting safety audits, and handling workers' compensation claims.

Training and Development

HR outsourcing companies can also help with training and development initiatives, from designing and delivering training programs to conducting needs assessments.

Recruiting and Staffing

Finally, HR outsourcing firms can also assist with recruiting and staffing initiatives, from writing job descriptions to conducting background checks. The advantage to outsourcing recruiting is that agencies who do this already have a very good understanding of the specific market you're in — and how to get to top talent in your industry.

For instance, a software development recruitment agency will already have a network of good, pre-tested engineers, which will make the entire recruitment process smoother, more efficient, and more successful.

Employer Branding

Employer branding is another area where HR outsourcing can be extremely helpful. HR outsourcing companies can help you develop and execute employer branding and marketing strategies that will help you attract top talent to your organization.

For instance, you might want to consider outsourcing the organization of special events, such as a Christmas party (or a remote Christmas party), which will engage the employees and make them more likely to recommend the company to their peers.

As you can see, there are quite a lot of HR outsource services you can consider — and although not all of them might be a good fit for your specific needs, knowing they exist might help you.

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The Step-by-Step Guide to HR Outsourcing

HR outsourcing won't wipe out every issue your organization has, but it will definitely make your Human Resources department happier and more efficient.

To get there, however, you first need to make sure you're taking the right HR outsource steps.

Step 1: Assess your HR Functions

What are some of the functions your HR department is currently responsible for? Do a quick audit and list everything out. Once you have a good understanding of what your HR team is currently doing, you can start to identify which HR tasks would be good candidates for outsourcing.

Step 2: Determine your Goals

What are your specific goals for HR outsourcing? Perhaps you want to reduce HR costs, or maybe you want to free up HR resources so they can focus on more strategic initiatives. Or maybe you may want to hire for very specific needs — like a Ruby on Rails team, a very senior Java Developer, or an Android developer with experience in a particular niche.

Whatever your goals may be, make sure you're clear about them from the start. This will help you choose the right HR outsourcing partner later on.

Step 3: Assess the Efficiency of your HR Functions

Once you've determined which HR tasks you want to outsource, it's time to assess how efficient your HR team is currently in executing these tasks. This will give you a good sense of whether or not HR outsourcing is actually the right solution for your organization.

There are a few things you'll want to look at here:

  • Are your HR processes streamlined and efficient?
  • Do you have the right HR tools and technologies in place?
  • Is your HR team properly trained on how to use these tools and technologies?

If you answered "no" to any of these questions, HR outsourcing might not be the best solution for you at this point.

Step 4: Establish a Budget

HR outsourcing can be expensive, so it's important to establish a budget for your HR outsource project before you start talking to vendors. When determining your budget, make sure to factor in the cost of HR software, hardware, and other tools and technologies you might need.

Step 5: Do Market Scouting

Now it's time to start looking for HR outsourcing vendors. To find the right HR outsource partner, you'll want to do some market scouting and research. Here are a few things to keep in mind as you're searching for vendors:

  • Make sure the vendor is a good cultural fit for your organization.
  • Choose a vendor that specializes in your industry.
  • Look for a vendor with a strong track record of success.
  • Get recommendations from other businesses in your industry.

Step 6: Evaluate the Shortlist of HR Outsourcing Providers

After you've done your market research, it's time to start evaluating HR outsourcing providers. To do this, you'll want to request proposals from the vendors on your shortlist and then compare these proposals side by side.

When evaluating HR outsourcing proposals, make sure to pay attention to the following:

  • The services each vendor is offering.
  • The price of each vendor's services.
  • The experience and expertise of each vendor's team.
  • The location of each vendor's team.
  • The communication and collaboration tools each vendor is using.

Step 7: Negotiate and Sign the Contract

Once you've chosen the HR outsourcing vendor that's right for your organization, it's time to negotiate and sign the contract. Make sure you're clear about the scope of work, deliverables, timelines, and payment terms before you sign on the dotted line.

Step 8: Implement the HR Outsourcing Solution

After the contract has been signed, it's time to implement the HR outsourcing solution. To do this, you'll need to work closely with your HR outsourcing vendor.

During the implementation process, make sure to keep the following in mind.

Set realistic expectations for your HR team, provide them with adequate training, and give them the time they need to adjust to the new HR outsourcing solution.

Step 9: Provide Continuous Feedback

After the HR outsourcing solution has been implemented, it's important to provide continuous feedback. This will help you ensure that the HR outsourcing solution is meeting your needs and helping you achieve your HR objectives.

Conclusion

Outsourcing your HR functions can be a great way to improve efficiency and save money. However, it's important to do your homework before you outsource HR. Even more importantly maybe, it's important to understand that outsourcing services (HR, software development, or any other type of service) is not a band-aid you can just slap on your organization, nor is it a magic wand you can wave problems away with.

By following the tips and steps outlined in this article, you can ensure that you find the right HR outsourcing partner for your organization.

Looking to outsource web development (such as Java development or Python development)? At Pangea, we have brought together some of the best web development, mobile development, and software development teams around the world — check them out and start working with real pros who will deliver nothing less than excellence for your project!

FAQs:

Q1. What HR functions should not be outsourced?

Many services can be outsourced to an external HR team, but at the end of the day you cannot outsource more personal functions such as creating a healthy work culture, terminating employees, and handling de-escalation matters. You can outsource HR to help with administrative tasks, but you should not be leaving personal services that affect company culture to a third-party.

Q2. Why is HR outsourcing important?

HR outsourcing is important because it can help organizations save money and improve efficiency, remove human error, and give HR teams more freedom to be strategic, rather than tactical and operational. Additionally, HR outsourcing can help businesses free up internal resources so they can focus on more strategic HR initiatives.

Q3. What is HR outsourcing in simple words?

HR outsourcing is the process of hiring an external company to handle HR functions and responsibilities on behalf of your organization. Some companies may choose to only outsource a few services and handle the rest internally.

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