Effective management of the Human Resources function is critically important to the health of every organization. CEOs in small organizations often complain that ‘people issues’ are their number one priority. Unfortunately, due to competing demands and staff shortages, HR is often ignored or under-resourced. Human Resources Outsourcing (HRO) may be the answer.
What is Human Resources Outsourcing?
Human Resources Outsourcing (HRO) is a tool used to manage small organizations. Instead of having internal staff perform HR activities and functions, HRO delegates HR to an outside service provider. The HR tasks are performed by a professional service provider on a part-time (e.g. 1-2 days a week) contract basis, although the organization retains responsibility over these tasks.
When Should HRO Be Used?
HRO should be used when:
- Senior management finds that they have neither the time nor expertise to deal with HR activities such as recruiting, staffing, compensation, training and development, retention, and employee relations.
- High quality HR services are required for properly managing internal human capital.
Why Should Organization’s Outsource HR?
More efficient, effective, and cost reducing!
HRO allows internal staff to spend more time and energy on tasks that utilize their primary competencies in order to better manage the organization. The organization can benefit from costs savings as a result of the outsourced HR functions, which are of higher quality and timelier than if completed internally.
The external service provider can assist by replacing staff in HR competencies they do not excel in and can provide superior knowledge, innovation, an outside viewpoint, and legal compliance .
What is the HRO Process?
The HRO process includes, but is not limited to, the following steps:
- Assign a lead who will be responsible for managing the human capital of your organization. This is often the COO or Director of Finance and Administration.
- Compare current in-house processes and costs against the processes and costs of outsourcing.
- Determine your expectations for outsourcing in order to achieve goals and objectives.
- Identify HR activities or functions that can and should be outsourced.
- Prepare a Request for Proposal (RFP) to help qualify service providers.
- Review the RFP’s and research / reference check potential vendors.
- Select a vendor that is the best fit with your organization and your needs.
- Negotiate the contract terms with the chosen vendor, including timeframe of contract.
- Develop a transition plan that considers the impact on current staff and operations.
- Monitor, manage, and evaluate the performance of the service provider.
What Are the Concerns With HRO?
A common concern with outsourcing is the challenge of implementing the transition to an external service provider as well as maintaining proper relations with them. Organizations may fear the service provider lacks confidentiality or knowledge regarding your sector.
A common fear among organizations that are new to outsourcing is the loss of internal knowledge and capability to perform the HR activities or functions after the outsourcing contract has expired. A final common concern is that the cost savings will not occur as expected.
How to Overcome HRO Concerns
- Talk to other organizations that are currently using HRO about their successes and issues (if any.)
- Carefully check the references of your service provider and the assigned resource.
- Ensure that contract terms and conditions are clearly spelled out.
- Give yourself an ‘out’. Include a clause for immediate termination of the contract on your part for any reason without cancellation penalties.
- Provide early and effective communication to all employees and stakeholders in order to discuss the reasons for the change and the importance of cooperation.
- Carefully introduce the HRO service provider to employees and explain their role.
- Have the service provider conduct an initial HR Diagnostic study and prepare a report on the state of HR programs within your organization. This will help them focus on immediate priorities and address areas of greatest need.
HRO is simple, accessible and affordable. It can be a beneficial tool for any organization as long as it is a good fit, and planned for and implemented properly.
For information on how your organization can benefit from HR Outsourcing, please contact:
Tim McConnell, MPA, SPHR