The Disadvantages Of Outsourcing HR Functions (+How To Avoid Them)
If you're overwhelmed with administrative HR tasks or worried about compliance, you may be considering outsourcing HR as a way to ease your burden. This can be a viable solution for many companies, offering specific knowledge and expertise to help reduce risks associated with employee relations issues, wage and hour disputes, and regulatory compliance.
However, before you take this route, it’s essential to understand the potential disadvantages of outsourcing HR functions. In this article, we’ll explore these downsides and offer practical tips to help you navigate them effectively.
Loss of Control Over HR Functions
When you outsource HR, you inevitably give up some degree of control over these critical functions. Your HR team is often the heart and soul of your organization, deeply embedded in the company culture and well-versed in the intricacies of your workforce.
Outsourcing these functions can create a disconnect, leaving you feeling out of touch with your team’s needs and dynamics.
Keep in mind, the primary reason for outsourcing is to leverage the expertise of HR professionals who can help streamline your processes and ensure compliance. However, you remain the decision-maker. You can still choose whether or not to follow their recommendations.
This means you need to stay actively involved in the decision-making process to maintain a sense of control over HR matters.
Impact on Company Culture
For many employees, company culture is a significant motivator. When an external party handles HR functions, it can disrupt the existing culture and affect employee morale. Employees may feel disconnected from a crucial aspect of their workplace, especially if HR has always been a face-to-face function.
According to a study, around 70% of businesses contract out at least one HR task, aiming to streamline operations and reduce costs (Engagedly, n.d.). However, this can pose a challenge to maintaining a cohesive company culture if not managed carefully.
One way to mitigate this is by selecting an HR provider who respects and understands your company culture. Look for references and follow up with their clients to see if there were any cultural impacts when they outsourced their HR. Additionally, reassure your employees that the HR vendor is there to support the management team, not to replace the personal touch they value.
Higher Costs Than Expected
Outsourcing HR functions can sometimes be more expensive than anticipated. While it might seem cost-effective initially, various service levels and add-ons can drive up prices. The median pay for an internal HR Manager might be high, but outsourcing can also come with hidden costs that add up.
A benefit here is that you have control over what you spend by choosing the specific services you need. Start small and add services as your needs and budget allow. Alternatively, inquire if your provider offers bundled pricing if you use them for multiple services such as payroll and HR. This approach can help keep costs manageable.
Risk of Data Security and Privacy Issues
One significant concern with outsourcing HR is the risk of data security and privacy breaches. HR departments handle highly sensitive information, and entrusting this data to an external party can be daunting. Increased cybersecurity threats make this a valid concern.
“Privacy and confidentiality are paramount in HR. If you're used to keeping all your sensitive company or employee information in-house, you may worry about putting that highly personal information in the hands of another company,” notes a report from Engagedly (Engagedly, n.d.). This highlights the importance of thoroughly vetting your HR vendor’s security measures.
To minimize these risks, thoroughly vet the reputation of your HR vendor. Ask about their security measures and how they prevent data breaches. Ensure that your contract spells out specific protections for your sensitive information. This will help you feel more secure about the safety of your data.
Turnover and Continuity Problems
Another potential downside is the turnover rate within the outsourced HR provider’s team. You may build a relationship with a representative who understands your company’s nuances, only to have them leave and be replaced by someone new. This can lead to continuity issues and things slipping through the cracks.
To avoid this, evaluate potential vendors thoroughly. Ask for references and inquire about their team’s stability. Ensure that all members of the vendor’s team have the same level of expertise, so you receive consistent service regardless of turnover.
How to Retain Control and Oversight
Maintaining control and oversight is crucial when outsourcing HR functions. One effective strategy is to keep an internal HR employee on staff. This person can act as a liaison between your company and the HR vendor, ensuring that outsourced tasks align with your company’s values and culture.
Additionally, ask your outsourcing company about customization options. Many top-rated HR platforms can be tailored to meet your specific needs, providing a balance between outsourced efficiency and in-house oversight. This approach allows you to retain a level of control while benefiting from the expertise of external professionals.
Maintaining Company Culture and Employee Morale
To maintain company culture and employee morale, it’s essential to communicate openly with your employees about the outsourcing decision. Reassure them that the HR vendor is there to support the management team and won’t disrupt their daily interactions with HR.
Choose an HR provider that aligns with your company culture. Ask for references and follow up to see if other clients experienced any cultural impacts. By selecting a vendor who respects your culture, you can minimize potential disruptions and maintain a positive work environment.
Managing Costs Effectively
Managing costs effectively requires careful planning and ongoing monitoring. Start by outsourcing only the most critical HR functions and gradually add services as needed. This allows you to control costs and avoid unexpected expenses.
Another strategy is to look for bundled pricing options if you use the HR provider for multiple services. This can help lower overall costs and provide a more comprehensive solution. Regularly review your outsourcing agreement to ensure it continues to meet your needs and budget.
Ensuring Data Security and Confidentiality
Ensuring data security and confidentiality should be a top priority when outsourcing HR functions. Vet potential vendors thoroughly and ask about their security measures. Ensure that your contract includes specific protections for your sensitive information.
Consider conducting regular security audits to verify that the vendor is maintaining the agreed-upon security standards. This proactive approach can help prevent data breaches and protect your company’s and employees’ sensitive information.
Dealing with Turnover in Outsourced HR Providers
Dealing with turnover in outsourced HR providers requires a proactive approach. Start by thoroughly evaluating potential vendors and asking for references. Inquire about their team’s stability and how they handle turnover.
Ensure that all team members have the same level of expertise so that you receive consistent service regardless of who your primary contact is. Maintain open communication with your vendor and address any concerns promptly to ensure a smooth transition if a turnover occurs.
Conclusion
Outsourcing HR functions can offer significant benefits, but it’s essential to be aware of the potential disadvantages. By understanding these challenges and implementing strategies to address them, you can make informed decisions that benefit your company.
Retain control and oversight, maintain company culture, manage costs effectively, ensure data security, and proactively deal with turnover to make the most of your outsourced HR partnership. With careful planning and the right approach, you can navigate the complexities of HR outsourcing and position your company for growth.
For more insights on managing HR functions, you might find our article on Which Employment Laws Apply to Remote Workers particularly useful. Additionally, understanding Overpaying Employees: Solutions for Employers can help you avoid common pitfalls in employee compensation. For those considering a comprehensive approach to payroll, our 11 Best Outsourced Payroll Services Companies for 2024 might provide valuable guidance. Lastly, if you are looking to hire talent, our guide on Top 16 Remote Recruitment Agencies to Hire the Best Remote Talent could be an excellent resource.
