Human resource outsourcing involves hiring an external HR provider as your HR department. It’s a smart move for growing companies or those looking to save costs, improve compliance, and get expert HR advice. Partnering with an HR provider lets you focus on your core business while ensuring your HR needs are professionally managed.
What Is HR Outsourcing?
Depending on the services you are seeking, HR outsourcing encompasses a wide range of services. Companies can choose to outsource their entire HR department or select services to manage their operations. Some common HR functions included payroll processing, recruitment, workforce planning, HR infrastructure and compliance. Whether you are a small business or a large corporation, outsourcing your HR functions can be a cost-effective and strategic decision that helps your organisation grow.
Benefits of HR Outsourcing
Choosing to outsource your HR can bring several benefits to your organisation. While it might seem better to have an in-house team, outsourcing offers support, accountability, and expertise that you might not achieve internally. Here are some key benefits:
1. Cost Savings
Hiring an HR outsourcing company can greatly reduce overhead costs as it eliminates the need for a full-time HR department. Businesses can selectively pay for the services they need, making it a profitable choice.
2. Access to Expertise
If your organisation chooses to have an internal HR team, you will miss out on getting expert HR advice that is educated on compliance and labour laws. This is why it is increasingly beneficial to choose to outsource your HR rather than relying on internal HR teams to look after your organisation.
3. Scalability
If you are looking to scale, HR outsourcing allows companies to scale services up or down based on their specific needs. This flexibility is particularly beneficial for companies with fluctuating staffing requirements.
4. Improved Compliance
In Australia, labour and compliance laws are continually changing so outsourcing your HR to HR professionals, ensures compliance. This is essential in Australia as there are harsh consequences for organisations that do not comply.
5. Enhanced Focus
By leveraging human resource outsourcing companies, organisations can focus on their core business activities, helping to increase productivity and growth.
Types of HR Functions that Can Be Outsourced
The benefit of outsourcing your HR functions is you do not have to take on all the functions that an internal HR department would look after. So, if for example, your organisation can handle some of these functions internally then you will only need to outsource the remaining functions. Here are the different types of HR functions that HR outsourcing experts can look after:
Payroll Processing
This includes managing employee compensation, tax deductions and compliance with payroll regulations. It ensures that payroll is accurately distributed and compliant with payroll regulations.
Recruitment and Staffing
HR outsourcing companies look after sourcing, interviewing, hiring and onboarding new employees, ensuring that they find the right talent to suit an organisation’s culture and work requirements. When you outsource your talent acquisition to an HR outsourcing company such as E.L Blue, you will never have to pay for recruitment as an additional expense again.
Employee Relations
HR outsourcing departments can handle employee grievances and take disciplinary action.
Compliance and Legal Issues
Outsourced HR functions ensure HR compliance by adhering to labour laws and regulations.
Employee Benefits Administration
This includes looking after health insurance, retirement plans and employee benefits. Outsourcing HR companies can devise a plan and strategy for your organisation so you have a guide to follow.
Employee Relations and Performance Management
Outsourcing employee relations and performance management can enhance employee satisfaction and productivity by providing an unbiased, expert approach to conflict resolution and effective performance management across your organisation.
How to Choose The Right HR Outsourcing Partner
It can be confusing and overwhelming to choose an HR outsourcing partner that not only fits your organisation’s HR functions needs but also understands your cultural and overall business goals. Here are some considerations and questions you can ask yourself to make sure you make the right choice:
What is their reputation and experience?
Choosing an organisation that has specialised in HR outsourcing for many years showcases their extensive experience and proven track record. Client testimonials and industry reviews also provide insights into the quality of their services.
What services do they offer?
Before you can select an outsourcing HR company, you will need to determine which services you are seeking. Alternatively, selecting an organisation that offers a comprehensive suite of HR services ensures that your organisation will be able to add additional services as you continue to grow.
What are the costs involved?
Opting for an HR outsourcing company that offers flexibility in service selection can be advantageous for organisations with fluctuating needs. This approach often influences the associated costs and is the most cost-effective way to outsource your HR functions.
Do they understand my business goals and cultural fit?
Ensuring that the HR outsourcing provider aligns culturally with your organisation and understands your business goals is crucial for a smooth working relationship. Proper communication is key to this alignment. One way to assess compatibility and quality before committing is by signing up for a free health audit, such as those offered by E.L Blue. This preliminary evaluation helps determine if the partnership will meet your needs and expectations.
Challenges & Considerations for HR Outsourcing
Although outsourcing your HR services has a range of benefits there are also challenges you should be aware of before considering the partnership. For example, outsourcing HR functions could lead to a perceived loss of control. Although this may not be the case, it is important to choose an outsourcing HR company that works closely with your organisation to ensure your business goals and HR strategies are aligned.
Secondly, you may need to consider confidentiality concerns. Ensuring that the external provider you have selected has efficient data security measures in place to protect company and employee data and information. This can look like in-depth confidentiality contracts or a review of what programs they use.
Lastly, to ensure the quality of service it is important to pre-establish a service level agreement and conduct quarterly reviews to ensure the provider meets your performance expectations and standards. By considering these measures, you will be able to reduce challenges that are related to HR outsourcing.
HR Outsourcing Case Studies and Examples
Case Study 1: OTC Pharmaceuticals Company
The Challenge
A leading company in the OTC pharmaceuticals sector in Australia faced rapid growth but lacked a structured salary and career advancement framework, causing inconsistency in employee compensation and conditions.
The Solution
E.L Blue addressed this by benchmarking positions against industry standards, developing a clear remuneration philosophy and policy, and training leadership accordingly. They also implemented a system for adjusting salaries based on performance and market conditions, alongside a structured review process for remuneration.
The Outcome
These measures attracted top talent, enhanced employee loyalty, and ensured fair and practical remuneration throughout the organisation. This initiative reduced turnover, lowered costs, and increased productivity, significantly benefiting the company.
Case Study 2: Rapidly Growing Retail Business
The Challenge
A retail chain with multiple outlets in key Australian cities experienced robust sales growth but struggled with profitability due to unoptimised staffing costs. Store managers had significant autonomy in staffing decisions, which led to inefficiencies.
The Solution
E.L Blue analysed historical sales and staffing data to determine optimal staffing levels and introduced standardised rostering patterns. Over several months, they trained their retail team on budgeting for labour costs and implementing new rostering procedures, ensuring consistent adherence through strong management oversight.
The Outcome
Store managers successfully adjusted to the new rostering system, resulting in sustained sales growth and a substantial reduction in labour costs from 20% to less than 15% of revenue. This initiative significantly improved financial performance and operational efficiency.
FAQs about HR Outsourcing HR
How much does HR outsourcing cost?
It depends on how many HR functions you take on board and the scope of work outsourced. Fees can also range from a monthly fixed fee to a specific charge for services.
When should you outsource HR?
Organisations should consider outsourcing HR when they lack industry knowledge or expertise, need to reduce costs or want to put their attention towards core business goals.
Does HR outsourcing work for small businesses?
Yes, no matter the size of your organisation it can be valuable to have an HR outsourcing team of experts as they will be able to provide you with strategies and compliance guidance to operate your business and employees.
What is the difference between HR consulting and HR outsourcing?
HR consulting involves providing expert advice and strategic HR guidance, while HR outsourcing involves handling day-to-day HR tasks and processes.