HR outsourcing isn’t a new idea. It started in the 80s and 90s, when businesses first began hiring dedicated companies to handle “system input, paperwork processing, benefits management, compensation, and performance management.
It’s also a trend that’s here to stay. According to Small Business Chron, outsourcing has become “a major component” of many HR departments, covering several important areas including:
- Payroll services. This includes paycheck withholdings, asset distribution and reporting, as well as funds administration for matching programs and incentive plans.
- COBRA administration. COBRA administration is complex, and subject to changes from the Affordable Care Act. Noncompliance is also costly, which is why many companies choose to outsource rather than risking big fines.
- Retirement plans. Retirement savings plans require an immense amount of record-keeping. HR outsourcing shifts that burden into more efficient hands.
Why do businesses decide to outsource HR? Four reasons stand out.
1. Pick one: Core competencies, or necessary evils?
Time constraints are a fact of life. It’s simply impossible for a business to focus on everything.
As a result, executives have to decide which business area gets more emphasis: their core competencies, or the fundamental processes that are required to keep a business running.
The vegetarian food producer Beyond Meat answered that question by outsourcing its HR department.
Brent Taylor, VP of corporate development, told the Fiscal Times the company owes its rapid growth to that decision. Outsourcing allowed Beyond Meat to do what it does best “without getting bogged down in such necessary time sucks as payroll, benefits and vacation time.”
2. Stay abreast of laws that are changing all the time.
Easier said than done: Keeping up to date is a second important reason that many companies make the move to HR outsourcing. Given how frequently the requirements in this area evolve, it takes a significant effort to maintain current HR expertise, particularly since the Affordable Care Act was enacted. Your HR department may be able to pull that off – but not without dedicating focused time and effort that you could leverage elsewhere for greater benefit.
3. HR outsourcing makes better financial sense.
Given the complexity of HR processes, the frequency of changing regulations, and the high cost of inadvertent non-compliance, it requires a significant investment of time, energy and money for a company to cover its bases. Not all businesses have room in the budget to bear this burden single-handedly – and not all businesses want to. In most cases, it makes more sense to trust an external source to bring focus, passion and expertise to these processes, instead of trying to reinvent the wheel. While a full-time HR specialist may not be affordable, a dedicated HR company can provide the same services for much less.
4. In many cases, internal HR departments aren’t panning out.
A report from the Economic Intelligence Unit, titled “The Role of HR in Uncertain Times,” made it clear that internal HR departments are struggling to do their jobs. “The practice of doing ‘more with less’ has become the modus operandi in most businesses and business areas, perhaps nowhere more so than in human resources (HR) divisions,” the report said. “HR is being stretched and pulled every which way to meet challenging goals within unprecedented resource constraints.”
In these “uncertain times,” HR outsourcing makes a lot of sense.
As you can see, there are many reasons that finding an external partner for HR support is a business necessity in this day and age. To find out how BeaconPath can assist with your HR outsourcing needs, click here.