Should Small Businesses Outsource the HR Function?

Tags – Benefits of Outsourcing HR 

HR (Human Resources) is an essential function for every business; no matter how big or small.

Typically, the HR department is responsible for every aspect of employee management, such as recruitment, wages, managing benefits, handling complaints and much more.

Because HR is both comprehensive and complex, many small businesses do not have the resources available to set up an efficient HR department in house, which is why it can be beneficial to outsource some of the HR functions.

And with a growing focus on company culture and employee wellbeing, outsourcing HR functions can create a unique structure tailored to your business. After all, no two businesses are the same and HR needs will differ.

With that in mind, let’s take a look at 5 benefits to outsourcing HR.

1. Cost Effective

One of the biggest benefits to outsourcing HR is the cost savings it can bring. And everyone wants to save money!

It may sound obvious, but the more employees you start hiring, the more HR staff you’ll need to recruit too.

Plus, you don’t really want to give each HR staff more than one responsibility. For example, if a single HR staff member was to focus on payroll, compliance and recruitment, there will be too much to handle and mistakes can happen.

Although it would be better to recruit HR staff specific to each function, it means you will be paying more in salaries to them and you may need to move your business to a bigger space to accommodate them.

And for a department that doesn’t really bring in any revenue, maintaining a HR department can require a lot of resources that your business may not have access to.

On the other hand, outsourcing HR functions can be cost effective in several areas:

  • Spend less on salaries
  • Reduced costs for benefits
  • Reduced costs for hiring 
  • Avoid fines from non compliance
  • More time to focus on core business functions

2. Expert HR Talent

As you can imagine, HR staff are often required to juggle a lot of responsibilities. And this cannot be avoided, especially if you do not have enough budget to grow an internal HR department.

Sometimes, small businesses will have very little HR staff to manage all HR functions. But, by outsourcing specific HR functions, you can rest easy: knowing that each responsibility is handled by an expert who specialises in that function; employee contracts and policies, for example.

In addition, outsourcing HR means that they’ll be solely focused on the HR function and have the correct processes in place to provide the service. They will streamline all HR processes and as a result, you’ll have more efficient and effective HR administration and management.

To put it simply, outsourcing will overall improve the quality of your HR.

3. Time Efficient 

As previously mentioned, HR departments are responsible for varied functions; and you imagine how difficult it can be to manage all of the admin paperwork to maintain those.

By no fault of its own, these varied tasks performed by an HR department can be super time consuming, especially if you don’t have any HR staff and you have to do this on your own.

And rather by focusing on core business processes, like sales and marketing, your valuable time will be used up ensuring HR is running smoothly.

As such, outsourcing HR functions is more time efficient as you can focus your energy on more important matters that are directly related to growing the business, whilst HR is left in expert hands.

We cover this point further in our video below:

4. Better Hiring Process

Generally, outsourcing HR will mean hiring better staff.

Unfortunately, more and more job seekers are searching for jobs that not only pay them well but also include a benefits package. And some small businesses lose out on recruiting the top talent as they cannot compete with other businesses. In fact, research reveals that 22% of small businesses reported losing out on hiring top talent as they could not match a competitor’s benefits package.

However by outsourcing HR, it’s possible to offer a better benefits package which includes insurance and training, for example.

Secondly, outsourcing HR can streamline the hiring process making it better for everyone. A HR expert can develop an efficient process that ensures every aspect, from the job description to the interview process; so you don’t have to waste time talking to unpromising candidates.

5. Improves Compliance 

Every so often, employment laws will change and all businesses need to adhere to these rules – there’s no way around it.

Ensuring the business is compliant is one of the many major functions of any HR department, and failing to comply can have serious ethical and financial consequences.

However, outsourcing HR can help prevent that as they can ensure employee practices are aligned with the law.

For instance, when dealing with any employment issues like harassment claims or termination, there are particular standards that must be followed, otherwise you could face potential lawsuits or fines.

But, outsourcing this to an expert can ensure they handle these issues, taking action that are compliant with the law, and ensuring all employment policies are clear, legal and more importantly, fair. 

The Bottom Line

Overall, whether you outsource some or all of your HR functions, you should be able to understand now how it can especially help small businesses. Outsourcing allows the business to focus on HR responsibilities that provide the most value, whilst saving costs and time and benefit from specialised experts outside of the business.

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