Why is it Necessary for Companies to Outsource Their HR?

written by Laolu Olowo

Human Resources (HR) according to the Business Dictionary can be defined as;

 ”the division of a company that is focused on activities relating to employees. These activities normally include recruiting and hiring of new employees, orientation and training of current employees, employee benefits and retention.”  The human resources division was formerly referred to as the personnel division.


“To send away (some of a company’s work) to be done by people outside the company. “ – As defined by the Merriam-Webster Dictionary, 2018 edition

According to an article in Personnel Today, the United Kingdom’s leading free-access HR website, HR out-sourcing, sometimes referred to with the acronym HRO, is the process of subcontracting human resources functions to an external HR service provider.

An organization’s human resources division is responsible for a number of functions including filing of taxes, overseeing health administration, employee benefits, and payrolls. In addition to that, human resources divisions also manage legal compliance for the company, maintain files and records and supervise training and development of employees. It is obvious that this is a lot of work, requiring a lot of employees who could have been otherwise utilized for more productive and profitable company activities. For the purpose of stability, a need to achieve maximum productivity from its workers, and the natural urge to stay ahead in business, many companies have taken to reviewing business processes and sub-contract some or all non-core company HR activities to specialist HR service providers.

When it comes to out-sourcing, there are basically two kinds of companies that provide HR support and administrative relief allowing you, the business owner or manager more time to concentrate on business initiatives. They are structured to either work with your company’s internal human resources department or division if you have one, or meet your human resources needs, if you don’t have an internal human resources division of your own. The two basic kinds of HR service providers are 

PEOs (Professional Employer Organizations):

PEOs take over the entire HR responsibilities for your company, are responsible for all HR functions and may act as a co-employer of your company. Such agencies handle everything from payroll to training, worker’s compensation, benefits, hiring and more. They practically act as an extension of the firm, maintaining and requiring all of your HR data. PEOs shoulder taxes as well as worker’s legal issues and liabilities for your company. Small businesses and start-ups benefit the most from this arrangement as it helps to offset the need for the creation and maintenance of an internal HR unit.

HRO (Human Resources Outsourcers):

HROs serve as separate bodies that are responsible for all or some human resources services of clients. A HRO service provider helps you with your HR tasks, payroll, benefits, training and compliance based on your needs. You can choose services to be assigned to the third-party company while you retain control of major HR management and administrative decisions. These service providers are often utilized by big companies who already have their internal HR units and only need assistance with tedious HR responsibilities.
There are many ways and means of out-sourcing HR functions and they include:

1. Business Process HR out-sourcing (BPO):
An external HR services provider manages discrete HR activities such as payroll administration or recruitment of new employees, and at times, may be sub-contracted to handle the entire HR functions. 

2. Shared Services HR out-sourcing:
In this arrangement, only the transaction or administrative elements of the HR division’s activities are subcontracted to an external supplier. This may or may not include the personal interface with employee data.

3. Application (and facilities) service HR out-sourcing:
In this arrangement, external providers cater for the technological and physical infrastructure to support human resources activities and functions.
This may look like a lot of information to hand out to another company, so before explaining why it is necessary for any upwardly mobile company to out-source the activities of its HR division, let us first examine certain difficulties that may arise as a result of out-sourcing to an undependable HR services provider, shall we?

So as a company manager or a Small and Medium scale (SME) business owner, you have finally made the decision to out-source your HR division’s activities whether completely or in part, to an HR services provider. Why not just pick up the phone and call any firm for help?
One. Because the employees are the lifeblood of the company and must be properly catered for and managed to ensure optimum organizational performance.

Two. Because picking an HR services provider without careful consideration of its track record and visible success rate is a recipe for disaster. Outlined below are a few of the difficulties that may arise from a poor choice of HR services providers:

1. A negative impact on the employer-employee relationship: 
A happy worker is a productive worker, and an unhappy worker unsatisfied with his current working conditions is a worker most likely to go on strike or to do a shoddy job, actions which will negatively affect the company’s productivity and lead invariably to a loss.

2. An inexperienced HR services provider  may not be able to handle certain situations properly:
Employees in the human resources division are highly trained individuals who are capable of digging into a difficult situation to see what is not working, what adjustments need to be made, ensure amity amongst employees and nip potentially dangerous office situations in the bud completely before they escalate. These are highly delicate tasks and to ensure they are handled properly, you want a HR services provider with a team of professionals who can work at a higher level of capability and competence than regular HR staff.

3. Loss of control and flexibility:
Out-sourcing to an HR services provider is like creating a subsidiary, a little cog that must fit in and run smoothly, with the rest of the machinery that makes up the company. If the firm you have just out-sourced to cannot blend in seamlessly with the rest of your workforce, you risk losing control of both administrations of day to day activities of the company, and the flexibility and adaptability that distinguishes successful companies.
Having read all of this, the notion of out-sourcing HR may seem like a huge risk. You’re probably asking yourself
“Out-sourcing. What’s in it for me? How does it help my company or business?” 

Benefit of Outsourcing

A research conducted by the Yankee Group, an independent technology research and consulting firm, in the year 2004, estimated the worth of global HR out-sourcing to be worth £27.3bn, and it was expected to grow to £42.8bn by 2008. 

A report written by Sola Fajuna, Oluwakemi Owoyemi, Tunde Elegbede and Mariam Gbajumo-Sheriff, lecturers of the Department of Industrial Relations and Personnel Management, Faculty of Business Administration, University of Lagos, and published in the Journal of Management and Strategy, Volume 2, No 2, June 2011 had this to say on the issue of HR out-sourcing in Nigeria:

 “Most organizations in Nigeria now offer a continued education and training to help its people cultivate the right skills and expand their career within a truly global/collaborative workplace. However, in recent times, Nigerian workplaces are introducing different HR ideologies adopted from foreign organizations. For instance there has been a tremendous increase in the level of contract or temporary employment and most of these activities are contracted out to consultants, via out-sourcing, thereby reducing the number of personnel in its (the company’s) payroll”.

The 2017 Human Resources Out-sourcing (HRO) trends report compiled by PRISMHR, a payroll, benefits and HR software provider for PEOs, containing the results of surveys of HR service provider professionals about key issues and trends conducted in late 2016, recorded a 27% growth rate for the year 2016. It was also recorded that small scale HR providers are growing, as the total number of HR service providers with 1,000 work-site employees or less has decreased by 20% while those with 1,001 - 5000 work-site employees have increased by 32%.
Beyond doubt, the HR service provider industry in Nigeria is a growing, healthy one. So, what’s in it for you? What are the benefits you stand to gain by out-sourcing to a tested, reputable firm?

1. Reduction in company expenses:
Rather than regularly doling out the huge amount needed to pay and maintain HR staff, the company can out-source and with a considerably smaller amount, still have the work done quickly and effectively. An out-sourcing firm handles most of the HR functions off the company premises which in turn means more time for the company’s workforce to spend on other items like strategic planning, marketing efforts and sales tasks, activities that would boost company/business revenue.

2. Recruitment and training:
Out-sourcing certain HR functions can help businesses attract top talent, and increase the skill level of the already existing workforce. As any company would know, recruitment is not just about hiring a job candidate, it is about hiring the right candidate to meet a specific need. An out-sourcing firm can help cut down on the work needed to find that right candidate by dealing with the interview process, reviewing applications submitted by prospective employees, evaluating candidates and handling any other time-consuming tasks, allowing you to speak to the most qualified candidates and make an informed decision with ease.

3. Increased efficiency and the release of HR staff and resources:
With the bulk of the workload now conveniently handled by an external body, HR staff can be easily reabsorbed into the main workforce to increase productivity levels and as such, raise the company’s profit margin. Furthermore, previously utilized office space and equipment can be redirected to meet other business needs.

4. Access to improved HR Information Technology:
In an increasingly digital business environment, HR firms invest substantially in attaining high levels of expertise in information technology, aiming to stay ahead of competitors. This expertise then reflects directly on the way they manage, train and conduct orientations and re-orientations of employees, which the company then benefits from.

5. Employee monitoring and development:
Out-sourcing firms occasionally evaluate and monitor employee performance and report their findings to the management. They also implement performance management plans among the workforce to ensure compliance with company policies and procedures, as well as attain business goals. This substantially minimizes the workload of the company managers who now have more time and resources to focus on other administrative responsibilities.

Now to address the question, as an upwardly mobile company or business owner, it becomes necessary for you to out-source HR functions as needed to reliable HR service providers on Proville.net in other to free up time and resources that can be further invested to yield even more revenue, which in turn helps your company to stay afloat in the fluid global business environment we have today.

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Why is it Necessary for Companies to Outsource Their HR? Why is it Necessary for Companies to Outsource Their HR? Reviewed by Obiora Okafor on 12:21 pm Rating: 5

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