HR outsourcing (also known as HRO) is the process of sub-contracting human resources functions to an external supplier like Loyalty HR that helps you develop HR initiatives and align to the overall mission and strategic goal of your organization.
The reviews of business processes have led many organizations to decide that it makes business sense to sub-contract some or all non-core activities to specialist providers like Loyalty HR.
HR, as a non-profit centre, is an obvious candidate for outsourcing.
There are many ways in which human resources outsourcing can be done with Loyalty HR:
- Business process HR outsourcing (also known as BPO), where an external supplier like Loyalty HR manages discrete HR activities, such as payroll administration or recruitment, or perhaps the whole human resources function.
- Shared service HR outsourcing, where only the transaction or administrative elements of HR’s activities are subcontracted to an external supplier like Loyalty HR. This may include the personal interface with employees.
- Application (and facilities) service HR outsourcing, where external providers look after the technological (and physical) infrastructure to support human resources activities.
Outsourcing human resources or some of its processes to an external provider is a major business decision as, while it may be cost-effective, it introduces new elements of risk, including:
- Loss of control
- Impact on the employer/employee relationship
- Loss of flexibility
- Failure to deliver cost benefits
- Legal or regulatory requirements
- Industrial relations issues
Loyalty HR ensure that the operation of any HR outsourcing arrangement should be governed by a service level agreement. This will define the required standards of performance by both parties and any penalties for non-compliance. A service level agreement is a crucial document and must be negotiated with great care to mitigate the above risks.
People management plays a crucial role in delivering organizational performance. In today’s modern, knowledge economy this is truer than ever before. The decision to outsource human resources is therefore not to be taken lightly.
There are many circumstances in which our outsourcing HR services can deliver tangible benefits to your organization, for example by freeing business owners or HR professionals to devote more time to a strategic role supporting organizational performance.
Potential benefits of doing HR outsourcing:
- Reduced cost
- Increased efficiency
- Access to improved HR IT systems
- Improved management information (including human capital metrics)
- Access to HR expertise not available internally
- Increased flexibility and speed of response
- Philosophical reasons (for example the organization is outsourcing a number of its support functions, of which HR is just one part)
- Reduced risk
- To free HR resources to operate more strategically.
Potential pitfalls of HR outsourcing:
- Don’t outsource what you don’t understand. The HR outsource provider will only have to subsequently solve the problem (at a cost) and the provider’s solution might not be most suitable from your organization’s perspective
- HR outsourcing does not absolve the organization of good people management practices nor of overall responsibility for the provision of HR services
- Increasingly, HR outsourcing arrangements are often long term (five to 10 year contracts are not unusual). An understanding of the organization’s current and future business strategy and potential changing business (and hence risk) profile is important before entering into any contractual arrangement. This helps to avoid being tied into unfavorable contractual arrangements
- Loss of local knowledge and processes which instead reside with the outsource provider
- Standardization of processes in line with outsource provider not organizational preferences.