Outsourcing the HR Function for IT Industry & Tech Companies

It is relatively expensive and time-consuming to manage administrative tasks together with many other projects, especially if yours is a company that unites your in-house and offshore teams. Moreover, not every business can or necessarily should utilize a separate HR department. Having one may lead to added time and expense in getting the right staff, as well as resulting in the loss of personal control and giving the responsibility of making important decisions to other people.

These people may lack the experience to correctly make those critical decisions. Therefore, over 70% of IT companies decide to outsource their HR functions and get all the benefits that this decision can bring. What are these advantages, and how do outsourcing HR functions work in reality? Let’s discover now.

What is HR Outsourcing?

Outsourcing HR is a business practice when all or some HR-related responsibilities and functions are delegated to a third-party service provider so as to let you focus more attention on growth-related goals. HR outsourcing functions in different ways, allowing customers to order a full range of hiring and management services, as well as outsource some separate processes like:

• Payroll Processing;
• Talent Search and Recruitment;
• Workers’ Compensation;
• Monitoring the Organizational Structure;
• Administration of Employee Benefits, etc.

Who is HR Outsourcing for?

If you’re puzzled by the question of who decides to outsource their HR in the modern business world, both the trends and market analysis show that any type of business can benefit from this. If you look at small businesses and startups, HR outsourcing is a good business decision for them, since they can’t afford having their own powerful HR teams. Only large and global companies find it reasonable to establish such HR departments. However, there are some other reasons why they opt for using the services of an outsourcing human resource department as well:

• HR tasks take a lot of time and energy that negatively impact achieving other business goals;
• Probability of being exposed to lawsuits and liability connected with employment;
• Inability to maintain an in-house HR department financially or because of any other reasons;
• Employees of other departments have to cope with HR functions in addition to their primary duties;
• Lack of professional HR staff who can achieve balance in both hiring tasks and staff management.

Any company that faces these or any other related HR problems comes to the conclusion that it is more cost and time-efficient to use the benefits of HR outsourcing. So who can cope with these tasks better than an in-house HR team? Here are some examples to consider.

Administrative Services Organizations (ASOs)

When it comes to administrative HR services, including payroll processing, tax reports, and performing tasks such as direct deposit, all of these are provided by ASOs, so-called outsourced payroll companies. They also deal with legal issues, insurance, employee benefits, compensations for workers, and compliance. 

HROs (Human Resources Organizations)

Large companies with personnel of over 1,000 people look for HR assistance in HROs. These organizations can fully replace a traditional HR department or cope with some specific HR functions via developing a shared or co-management HR relationship model. Even if a large company has its own HR team that deals with strategic functions, it can be preferable to have both tactical and administrative roles outsourced to a separate HR department outside of it.

Professional Employer Organizations (PEOs)

Mid-sized and small companies with under 200 employees prefer outsourcing HR functions to PEOs by entering a co-employment relationship. The PEO becomes the employer of record and takes responsibility for tax payments, wage garnishments, and payroll, as well as dealing with the rest of the HR functions connected with compliance, performance management, employee relations, policies, etc.

Staffing & Recruiting Agencies

If you need to recruit the best talent with the appropriate skills and do not need any extra services, it is best to turn to a staffing or recruiting agency. The process of finding top professionals is really challenging, costly, and tiring. With a staffing agency, getting a skilled and experienced professional for both short and long-term positions is possible. They have an extensive database of candidates from around the world, so finding a necessary expert does not take much time. Agencies like StaffingPartner save businesses time and money and provide them with talented IT and tech professionals on request.

Types of HR Outsourcing

When you decide to outsource your HR functions, there are two basic options: human resource outsourcing (HRO) and personal employer organization (PEO). Both types provide similar services, but there is a difference in how they work. The HRO model doesn’t employ staff of another company, leaving them on the books of the business holder, but it can easily handle one or more HR tasks outsourced to it.

The HRO model doesn’t employ staff of another company, leaving them on the books of the business holder, but it can easily handle one or more HR tasks outsourced to it. At the same time, it continues to manage them in terms of workload and quality, promotion, and firing. 

What HR Functions May Be Outsourced?

One of the main advantages of outsourcing HR functions is the possibility to decide what elements don’t work within your business well enough to entrust them to your own professionals.

There is no need to outsource your entire HR department if you really need some of them kept in-house. It is possible to choose several main directions you need to be outsourced and focus on growing your business instead.

Let’s see what the most popular outsourced HR functions are:

1. Employee Relations & Compliance

One of HR’s main tasks is to keep your business compliant with the current labor laws. They should deal primarily with employee relations, including addressing their employees’ job-related concerns and making reports about possible issues that happen at work (like cases of discrimination, for example).

2. Payroll Processing

Every employee works for wages, and one of the HR team’s responsibilities is to pay them properly and on time. It means that salary should be calculated accurately, taking into consideration the number of working hours and the taxes withdrawn, processed within a stated period of time, and more. It is also important to comply with the laws connected with wages and hourly work adopted by the state.

3. Employee Benefits

There are over 25 employee benefits and perks, and the majority of them should be handled by the HR team. They include medical and life insurance policies, specialist services, retirement planning, paid vacation and sick leave, and many more. All this leads to an enormous amount of paperwork and one needs to be an expert in this dicipline. HR teams need to cope with opening and closing enrollments, and suggesting, renewing, or terminating some benefits. They should also be responsible for planning for a year in advance, and analyzing the completed period, etc.

4. Workers’ Compensation

A popular outsourced HR function is connected with handling claims regarding compensation. Every employee should receive fair treatment from the company, especially if he or she is injured on the job or got sick at work. The HR team should keep track of such employees and ensure that enough medical care is given to this person. 

Another important point to be considered by HR is keeping the company’s policies up-to-date and performing the necessary renewals and audits in this sphere. They should also check whether or not the rates it gets are reasonable and make sure your company is being charged correctly.

5. Employee Relations

It is common that the HR team is responsible for solving any conflict that arises between employees and managers, as well as developing special company policies on this topic. No wonder many businesses decide to outsource everything connected with employee relations to third parties and let professionals bring about effective solutions to such problems. They also often ask them to make changes to existing company policies that can reflect the concerns of their employees better, or develop new and better ones. Some businesses can even ask them to create employee handbooks for every person in the company.

6. Performance Management

When you run a business, you have to prepare annual reviews, negotiate salaries with your employees, and discuss lots of other topics connected with your company’s performance. Of course, it is great if you have a team to complete these tasks, but in most cases, the lack of time and expertise in this field encourages business owners to outsource these areas of responsibility to specialists. These specialists will make a careful analysis of the performance results and institute ways to improve them. 

7. Risk Management

One of the advantages of outsourcing your HR is the possibility to minimize employee-related risks by having them managed by experienced teams. It is an effective approach to reduce and often prevent the number of conflicts and lawsuits at work. Another advantage It also includes is handling all types of risks connected with hiring, retaining, and managing employees. The HR risk management team will contemplate likely scenarios and their outcomes and find adequate solutions to them as well.

8. Staffing & Recruitment

One of the key outsourcing human resource functions is finding new talent with the appropriate set of skills and experience to fill vacant positions in your company. This multi-stage process includes various tasks such as placing ads, collecting and analyzing job seekers’ resumes, conducting candidates’ interviews, and completing the hiring process. It helps to get the right candidate who will meet the company’s objectives and contribute to its success in a time-efficient and much more cost-effective way.

9. Pre-Employment Skills Testing

Taking into consideration the other benefits of outsourcing human resources, realizethat you can forget about the necessity of making insights into the way candidates are going to perform their job responsibilities, interact with people, and follow the company’s culture if you hire them. The wrong fit can cost your company over $17,000, so it is more reasonable to entrust professionals with this task. If you give this function to a separate HR team, you can expect that every candidate will complete a test on his or her skills, experience, and being a potential fit for your team. As a result, you will get a faster data-driven recruitment process with smarter HR decisions.

10. Background Screening and Reference Checks

A vital function of the HR team is conducting screening and reference checks of a job applicant before hiring him. This procedure helps to clarify whether this person is a good fit for a vacant position and whether he or she can be trusted. An HR expert will surely look up the criminal, commercial, and financial records of a candidate, and protect the company from any potential repercussions of hiring a bad performer. Since this procedure is time-consuming and exhausting, it is often outsourced to third-party vendors. 

What are the Pros and Cons of HR Outsourcing?

There is no doubt that the benefits of outsourcing your HR are impressive. However, there are companies that have faced some negative (effects or: results or: consequences) from this experience. Let’s see how outsourcing HR benefits businesses and why it may sometimes be an ill-conceived decision to look for recruiting assistance from third-party companies.

Conclusion

Outsourced HR functions are a reality of the modern fast-moving world since it is a logical and financially sound decision to have experts working for you in all the realms of HR. You get the functional capabilities of an entire HR team and the benefits of an easier and more organized business life, all with lower expenses. It is a good way to leverage years of experience to benefit your company and staff, so it makes sense to delegate your HR functions to offsite companies and let them improve your recruiting and human resource activities.

Staffing Partner is a global recruiting agency that hires talented specialists all around Europe and the USA. We have an extensive database of tech candidates for you to find your ideal employee. Create a dream team and get a professional consultation on hiring from industry experts!

FAQ

Hiring vs. Outsourcing: What Works Better for IT Businesses?