5 Pros and Cons of Outsourcing Small Business HR

Fast-growing businesses need the ability to hire and onboard new employees quickly. Too many small businesses invest hours on a new hire, only to slowly discover the person is not the right fit.

What if you could save yourself that time and effort and hire the right person and free yourself up to focus on strategy instead of paperwork? Those are a few of the benefits of partnering with an HR expert, but many small business owners have reservations about outsourcing HR functions.

This post will cover the ins and outs of outsourcing human resources: pros and cons, how it works, and when it’s right for your business.

Human Resource Outsourcing Examples

What does outsourcing HR look like? It depends which functions you choose to outsource. Recruiting is the most commonly outsourced HR function, but HR professionals also offer services like:

• Customized employee handbooks
• Orientation materials 
• Performance management documents and assistance
• Job descriptions 
• Performance reviews 
• Help with termination and onboarding

Human resources experts can be consultants, firms, or companies. You might choose to work with an HR representative on an as-needed basis, or you may decide to outsource all human resources responsibilities. It’s all about finding the right match.

5 Pros of Outsourcing HR

1. Free up your time to focus on strategy

Managing human resources is a time-intensive process. Even just bringing on a new employee involves:

• Writing job descriptions
• Filtering resumes
• Conducting multiple interviews
• Onboarding and training
• Crafting agreements and contracts 

By working with an experienced HR professional who offers recruiting services, you have more time to focus on big-picture initiatives like operations, productivity, and leadership. 

2. Gain value and save money 

While working with a professional comes with additional overhead costs, hiring the wrong person can result in much greater losses. In 2010, Tony Hsieh, CEO of Zappos, estimated his own bad hires to have cost the company well over $100 million. 

The right hire is someone who: 

• Possesses the skill set you’re looking for
• Has a passion for the business
• Fits within the culture of your company

Outsourcing your HR to a specialist increases the chances that your employees will add long-term value to your company. 

3. Greater expertise

As HR professionals, our specific skill set lies in employee recruiting, hiring, orientation, and performance management. We also have a network of industry resources and a database with excellent candidates we can call on. Our expertise relates to:

• Employment trends
• Recruitment practices 
• Job knowledge
• HR industry standards

4. Better productivity and morale

Good HR leads to happy, motivated employees. Conversely, a bad hire can have a lasting negative impact on current employees who invested time and energy into training someone new. It can be frustrating and exhausting to find they have no future with the company. 

Investing in HR allows you to cultivate an environment where employees are committed and productive.

5. Risk management

Running a business comes with inherent risks. Every business should be prepared for an unexpected workplace accident or legal dispute, even if such an event seems unlikely. Outsourcing HR functions can ensure that:

• Policies are in place to protect your business, including an anti-retaliation policy
• Your company is handling any issue legally and within employment law guidelines
• You are in compliance with the latest employee regulations, tax issues, and OSHA requirements
• Your employee handbook is comprehensive and legally sound

5 Cons of Outsourcing HR (and How to Overcome Them)

1. Choosing the wrong HR professional

This is an understandable concern. Just as hiring the wrong employee damages profit and productivity, so does choosing the wrong HR company. Follow these steps to find the right fit:

1. Define HR’s role in your company. What does an HR professional need to achieve for you?
2. Decide which HR functions you want to outsource and which (if any) will remain in-house.
3. Make a list of questions for all the HR companies you are considering.
4. Reach out to one or more of the HR company’s current clients as a reference. 
5. Choose an HR professional who knows how to listen and understand your business goals and strategic direction.
6. Make sure they are able to tailor your HR package to the specific services you need.

2. Losing the human factor

Many small business owners worry that outsourcing will depersonalize employee interactions. The truth is, if you choose the right HR partner, this will not be an issue. We can take responsibility for time-intensive tasks, like making performance review templates and assembling onboarding packages, saving you hours of valuable time that could be spent interacting with employees. 

We also offer coaching and consulting on HR-related issues so you can get the most out of meetings with your team.

3. Additional overhead costs

Outsourcing HR sometimes comes with an initial investment. For the vast majority of small businesses, the value added more than makes up for the additional overhead cost.

Hiring an HR professional can be very affordable depending on the HR company’s fee structure. Some HR consulting firms charge by the employee, by the month, or require a minimum 1-year contract. While others charge hourly fees as needed, or on a project basis, which can cut down costs especially for smaller companies.

Rush Recruiting & HR uses an hourly fee structure with no contractual obligations or minimums. See our related blog post: How Much Does It Cost to Outsource Human Resources?

4. Delayed communication

Many business owners worry that, once they outsource HR, addressing employees’ problems will become a slow, convoluted process. 

This is why it’s so important for HR professionals to be responsive and proactive. By staying engaged with your business and making use of virtual communication tools, good HR professionals can address your needs quickly.

5. Fear of losing control

Many business owners prefer to stay in control of day-to-day operations. For some businesses, the in-house approach makes sense, but for most, it eventually becomes unmanageable. As your business grows, delegating important tasks to specialists gives you more control over other domains where you can have the greatest impact. 

At Rush Recruiting & HR, we take the time and energy burden off your plate, but you are still the decision maker. Take recruiting, for example: We handle the arduous search and resume review process, and then present you with the top candidates. This ensures you have all the resources you need to make important decisions.

How to Know When It’s Time to Outsource HR

When should you outsource HR? In general, outsourcing HR makes sense when outsourcing becomes more efficient than trying to complete HR tasks internally. This is typically when your HR needs become specialized enough that no one in your company has the time, skills, and expertise to complete them. It’s possible to ease into Outsourced HR by choosing to outsource a specific project or specialized task. Examples include:

• Updating or creating an employee handbook
• Developing job descriptions
• Crafting agreements and contracts
• Winnowing down a long list of job candidates
• Handling employee conflicts with minimal workplace interruption

These seven questions can help you decide if it’s time to consider outsourcing your human resources responsibilities.

Looking for an HR professional who knows how to deliver results?

Since 2009, Rush Recruiting & HR has provided award-winning services throughout the Portland metro area. We would love to help you with your business’s HR needs. Contact us today for a complimentary consultation!