Human relations outsourcing can save money and time.
Human resources outsourcing is when a company gets an outside party to perform some or all of their HR functions. Outsourcing can be used for a number of different HR related activities. According to an August 2008 study conducted by the Society of Human Resources Management (SHRM), the most commonly outsourced HR functions are background checks, employee assistance programs, and flexible spending accounts that allow employees to use pre-tax dollars to cover medical expenses. HR outsourcing is on the rise. In the same SHRM study, 33 percent of HR professionals who participated believe their company will increase their use of outsourcing within the next five years.
Function
In large companies, outsourcing is typically used for specialized functions. Pension and health plan administration are two good examples. The third-party vendor is much more experienced and able to assist the employees with their questions. This allows the HR employees to focus their energy elsewhere and can make for a more productive workforce. Some smaller companies choose to outsource the entire HR department. In this case, the outside vendor handles everything from recruiting to health care administration. This can be an effective solution, especially when the company is starting up.
Advantages
According to the August 2008 SHRM study, cost savings is the top advantage to outsourcing. Nearly half of the companies surveyed, reported cost savings as a direct result of outsourcing. Companies will outsource to a vendor that specializes in the particular service, thereby cutting costs and processing time. Outsourcing also reduces workloads and allows the company to reduce headcount if needed. Many companies also will outsource the tedious processing work, so their employees can focus on the core business values instead. Another outsourcing advantage is the matter of accountability. If you are paying for a specific service, the vendor is more likely to do a better job in order to maintain the business relationship.
Disadvantages
While cost savings is considered an advantage, cost also can be a disadvantage. In the same August 2008 SHRM study, 28 percent of the companies reported their costs had increased due to outsourcing. Another disadvantage is the loss of face-to-face interaction. Outsourcing can deplete the ability to develop the company's in-house employees. This, in turn, can lower employee morale. Many of the companies who participated in the survey, stressed the need to maintain the "human factor" when dealing with HR issues. The overuse of outsourcing can change a company's culture.
Warnings
According to SHRM, be weary of any outsourcing contract that does not include certain key components. These include: statement of work, pricing details, service-level agreements (SLAs), a transition plan, governance requirements and an exit plan. A detailed contract will outline what the company will do for you, how much it will cost, what type of quality control is in place and reasons for termination. It is important to request proposals from multiple vendors for a good comparison of services.
Considerations
Outsourcing has remained strong during the recent economic turmoil. Even though work forces are being reduced, HR still has the same issues with which to deal. According to SHRM, outsourcing service providers have not been immune to the downturn. However, they have resorted to reducing sales and marketing staff, rather than lay off employees who meet customer needs.
Tags: August 2008, cost savings, SHRM study, 2008 SHRM, 2008 SHRM study
