One of the most important aspects of your business is how you manage human resources. At the end of the day, no matter how good your product or service is, you have to take care of the employees who are on the front lines, interacting with your clients and customers.
With this in mind, you need to decide if you want to keep your human resources in-house or if you want to outsource operations to a human resources company. Learning more about the pros and cons of each allows you to make an informed decision that’s best for your business.
Keeping HR In-House
An in-house HR department is made up of employees on your payroll who are responsible for managing HR functions internally. For companies that value a hands-on approach and constant interaction with staff, this is the most obvious choice.
The major benefit of keeping human resources in-house is that it gives you more control over day-to-day operations. By keeping your HR department on-site, you can be more involved with the daily decisions that take place. This method also allows you to create tailored policies that govern everything that goes on within your business.
Internal HR teams also have the potential to create customized policies that meet the needs of the company at the time. Your company’s values are the driving force behind every decision, and being able to modify policies to meet those values is certainly important.
Of course, some potential drawbacks are associated with in-house HR departments — costs being the most notable. Investing in hiring, training, salaries, HR software, and other aspects can quickly add up. These costs are especially problematic for small and mid-sized businesses.
If the business experiences periods of rapid growth or change, keeping the HR department running smoothly can be challenging. In many cases, the only way to resolve this issue is to add human resource specialists.
Finally, in-house HR departments often lack the specialization that’s necessary to meet all the needs of your business. Unless you hire a large, diverse staff, you may not have people in place who are familiar with labor law, administering benefits, payroll compliance, and other aspects of human resources.
Outsourcing Your Human Resources Department
Outsourced HR involves partnering with a third-party company that manages some or all of your HR needs. According to studies, 62% of companies outsource some or all of their human resources functions. This method has become increasingly popular among businesses that want to find ways to streamline operations and reduce administrative overhead.
Perhaps the most notable benefit associated with human resource outsourcing involves cost. Instead of spending money on searching for HR specialists, training them, and paying their salaries, companies that use outsourced HR pay the third party to manage those functions. This also allows them to save on human resources software, which can become quite expensive.
Many of the companies that decided to outsource their human resources departments did so to save money. In fact, 58% of companies say they outsource HR to reduce operating costs, and they report an average of 22% savings.
It’s also hard to beat the expertise that you’ll find by choosing an outside human resources company. By working with companies that exist solely to provide these services, you can reap the benefits of years of experience in labor law, payroll, benefits, and more. This ensures that your company operates according to the law and alleviates a lot of stress.
Finally, human resources outsourcing provides a great opportunity to scale your business. If your goal is to eventually turn your single-location business into a chain, outsourcing HR operations allows you to grow the company without hiring additional HR staff members.
Perhaps the only drawback of working with an outside human resources company is the lack of operational control. This is why it’s so important to research the company that you’re considering. Learn about the company’s services, mission statement, and other factors to ensure that you’re choosing a company that aligns with your vision.
Choosing the Best Option for Your Business
Ultimately, the decision about outsourcing human resources depends on a number of factors. You’ll need to consider the size of your business, the resources you have available, and your goals.
There are a few questions that you can ask to help you decide if outsourcing is right for you. They include:
- Do you have room in your budget to build and sustain a comprehensive human resources department in-house?
- Are you operating in an industry with heavy regulation that focuses on employee safety and requires compliance expertise?
- Is your business projected to grow so rapidly that you’ll need to bring in more staff to keep things running smoothly?
Additionally, when you’re deciding if human resource outsourcing is right for you, remember that you don’t have to outsource everything. Most third-party HR companies allow you to choose a package that’s right for your business.
For instance, if you want to outsource benefit administration but keep payroll in-house, you can do that. This allows you to maintain control of some aspects of your human resources department without taking on more than your company can handle.
Making the Right Choice
Choosing between keeping HR in-house and working with a specialized human resource company isn’t just a matter of preference. It should be a strategic decision that focuses on both your current business and your projections.
With 62% of companies acknowledging that they outsource at least some of their HR needs, it’s a growing trend. For many companies, especially those that want to take a strategic approach to scaling, outsourcing their HR needs is the best option. As you make your decision, think about the present and future of your business.
