What are the pros and cons of outsourcing your HR Department?
Finding the top talent for your business is a challenge, and so is keeping them happy. The core goal of a human resources manager or department is to keep employees engaged and productive while ensuring your organization operates in accordance with federal, state, and company policies. Your human resource (HR) department is the engine that powers your workforce; however, it requires labor, time & resources to get it done right! In this article we discuss how outsourcing some or all parts of the process can be beneficial.
Are businesses required to have human resource departments?
The human resource department is a vital resource for businesses large and small alike. The function of HR is to provide the support and care your workforce needs to maintain a healthy and productive work environment. If a business doesn’t have the right HR to address complex and ever-changing employment policies, the company can be fined or even shut down. Without HR, your business will be at risk of losing money due to lost work hours, poor company performance, and potentially the mismanagement of funds.
In the modern age, HR departments have become indispensable. If you are debating whether or not you can afford to hire a department, the truth is you can't afford not to.
The good news is that you have some flexibility with whether you choose to outsource your HR department or hire an in-house HR manager.
Should Hire my HR Team In-house or Outsource it?
You may think that you'll save money in the long run by employing an in-house HR team. However, this all depends on the size of your company. If you have a small company with only a few in-office employees, outsourcing your HR needs may be more economical. But if you're running a larger company with many employees, hiring an internal HR department may be more viable, with the option to outsource special projects to HR consulting companies such as diversity, equity, and inclusion (DEI) initiatives while in-house managers focus on the day-to-day functions of an HR role.
HR In-House Costs
While in-house HR teams can be more hands-on with your staff, it comes at a cost. Your HR manager or department will incur all employee-related costs. Below is a list of common costs that come with having an in-house human resources department.
Employee Workers Compensation Insurance
With a growing company, you may need a full-time HR manager to manage your needs. However, it might be more economical for you to outsource this job to an HR consultancy that charges hourly or monthly rates instead of employing someone on salary. You'll want the cost benefits of having full-time employees to match the return on investment and business protection.
HR Outsourcing Costs
One major benefit to outsourcing your department is being able to fully deduct the expenses associated with your HR needs. As an independent contractor or external company, your outsourced HR department is considered a business expense and thus tax-deductible. This also means that many employee-relevant expenses are also not applicable to an outsourced HR department. (Yay savings!)
There are drawbacks though—the opportunity for stronger relationships is diminished and employees may not have a sounding board for problems and advice. Smaller teams, however, may make this easier to handle. The HR consultant can partner with the onsite manager to create strong company cultures.
To Outsource or Not To Outsource
Both outsourced and in-house HR departments have their benefits and downsides, but the costs of each differ. As a medium-sized or small-sized business, you want to choose a good HR company that has your best interest at heart. Look for a company that has a competent team and leadership to guarantee optimal operations of your company while avoiding issues with litigation, negative employee relations, and fines.
If you want to decide between hiring an in-house HR team and outsourcing your HR needs, you now have an idea of which one to choose. Consider the size and needs of your business and opt for an HR team that has got your back and understands your organization's core needs.
When it comes to HR, the hybrid model is a perfect way to deal with the often overwhelming needs of your company. Your in-house HR manager is often faced with a never-ending list of tasks, and an endless list of policies that they need to stay on top of in their role. It can be hard for them to tackle the day-to-day duties of their role while also keeping big-picture initiatives in mind that nurture and support positive company culture.
If you are a small business and you are interested in taking care of your HR needs in-house but are not sure what the next step is, or if you want to outsource your needs until your company grows, we can help. Schedule your free consultation with our HR experts today.