HR Outsourcing: Pros and cons

When companies want to reduce costs incurred by certain tasks and processes, they often decide to outsource these processes. Then external service providers take care of them. Outsourcing can also be tempting for HR processes, as they are often associated with a high administrative effort.

But is HR outsourcing really worthwhile for your company or are there sensible alternatives you can turn to? Read on to be able to answer these questions.

Table of contents

1. Definition
2. Pros
3. Cons
4. The alternative

What is HR Outsourcing?

HR outsourcing refers to the complete or partial outsourcing of HR processes to external service providers. Outsourcing saves companies a lot of work. Since the respective service providers are specialised in certain processes, costs can also be reduced.

HR processes that are often outsourced by companies are, for example, recruiting, payroll accounting and performance appraisals.

Pros

• Cost reduction: As external service providers are specialised and perform the same processes for many companies, you benefit from economies of scale. As a result, costs are lower than if companies were to carry out their processes themselves.

• High reliability: When you outsource your processes, you do not have to worry about possible sick leave and the resulting loss of staff, which can lead to great difficulties in handling important administrative activities. An external service provider can offer you a lot of security here.

• More time for strategic tasks: By outsourcing certain HR processes, your HR managers are relieved and can thus concentrate more on the activities for which they did not have time before. In this way, employees can be promoted and supported in a more targeted manner and, for example, more time can be invested in employee retention.

Cons

• Effort through preparation: If outsourcing is to succeed and be worthwhile, it must be carefully prepared. You should be aware of which specific tasks are to be outsourced. Compare different service providers with each other and find one that suits your company. Calculate exactly what internal costs are incurred by the tasks and how much outsourcing would cost in order to get an idea of whether outsourcing is actually worthwhile. Once you have found a suitable service provider, they need to be thoroughly briefed and given all the necessary information to understand the processes. Last but not least, you should also inform your staff about the outsourcing and what it means for them in concrete terms.

• Dependency: Once you have chosen a service provider and the outsourcing is complete, you enter into a relationship of dependency that is not easy to end. If you are unsatisfied with the service or if there are price increases, you will not lightly decide to switch to another service provider. This is because the new provider would first have to reacquaint himself with your company and the exact procedures, which involves a lot of effort. In addition, it is possible that you used software from the previous service provider for the transfer of data and now have to completely change over and re-enter the data into another system.

• Loss of control: When you hand over your processes to a service provider, you also hand over control over the processes and have to rely on the service provider to perform the tasks properly. If errors occur, you will be less able to track them because you lack transparency.

• Communication effort: Since the employees of the service provider are not in your company, the communication channels are longer. It may also not always be clear who the right contact persons are for certain issues. You need to be prepared to invest a lot of time in communicating with the service provider so that there are no misunderstandings about your requirements.

The alternative

HR outsourcing undoubtedly offers some advantages, but there are also disadvantages. If you want to save time and costs, but at the same time keep control over your HR processes yourself, you should consider implementing HR software.

With a suitable HR software, you can digitise numerous administrative processes such as time recording, personnel files, leave planning or payroll accounting. If you reduce the workload for routine tasks, you simultaneously give your HR managers more time for strategic tasks. In this way, the changeover is worthwhile without outsourcing any processes. In addition, you increase the satisfaction of your employees and avoid mistakes if the software also has an Employee Self Service (ESS).

When you work with HR software, there is no need for the high communication costs that would arise from outsourcing. Your company defines all processes itself so that they are individually adapted to your needs and you create 100% transparency for your HR department and employees.

Some packages can be cancelled on a monthly basis, so you are not dependent on the HR software provider. A customer access manager can also assist with data import to ensure a smooth implementation. With kiwiHR, there are no implementation costs: The prices are transparent.

If you're interested in trying kiwiHR out for yourself, sign up for a 14-day free trial. We know that you'll love it.