Outsourcing HR may sometimes be resisted because of an organisation’s cultural preferences or internal policies, but there are also some misconceptions about cost.
Cost should rarely be a reason for NOT outsourcing. In fact, there are very good financial reasons FOR outsourcing HR. Below are five of the main ways it can improve the bottom line of a business.
1. Reduce recruitment costs
For many industries the cost of hiring a single employee can be over $5000. A Harris Interactive poll also found that 25 percent of businesses put the cost of a bad hire at over $50,000.
Recruitment involves job ads, interviews, background checks, and more. It’s easy to see how these costs add up. If you have a high employee turnover, it worsens the problem considerably, having to recruit more people at such a high individual cost and significantly adding to the business outgoings.
Outsourcing to the right HR professionals with the necessary recruitment and workplace culture experience can help in both areas; reducing staff turnover AND reducing the individual costs of hiring.
In some cases, specialist outsourced recruiters may only charge when a hire is made. This can work out far more cost-effective than employing people to recruit all year-round, even when not required.
2. Reduced salaries & benefits
Of course, outsourcing HR may be an opportunity to remove some of the burden of high salaries from the wage bill too. According to Payscale, the average Australian Human Resources Manager earns a salary of $88,146 per year.
By outsourcing all or some of the HR functions, you are not only saving such salaries, but also removing the significant cost and administrative burdens of annual leave, sick pay, superannuation, and so on. If you consolidate all HR functions with one supplier (for instance recruitment, payroll, compliance, conflict management, administration), you may be saving on this several times over each year.
Add to this the savings made in the office space no longer required to accommodate your in-house HR team and you may be talking about a very considerable figure.
3. Lower training costs
In-house HR personnel must be hired, trained, and replaced when they leave. They must be kept across all the latest developments in HR and attend industry-related events for up-to-date information. This also has associated costs that mount up.
By outsourcing, you remove the need to hire and replace employees in the HR department. It is also incumbent upon any professional HR outsourcing company to ensure they stay across all compliance requirements. They must not only train themselves; depending on your agreement with the outsourced company, they can ensure that management and employees in your business better understand how benefits, payroll, and other functions operate. They may even have their own automated software to manage this, thereby saving you from the costs involved with purchasing software and licenses.
4. Less chance of employment tribunals
Employment tribunals can be costly.
Employment law can get complicated and mistakes are common; even large HR departments like Deloitte can get caught out so, for smaller HR departments, keeping across the necessary regulations can be difficult and high risk.
Outsourcing HR places the burden of keeping across compliance laws and the latest regulations on the contracted company, whose job it is to keep up to date.
5. Staff freed up to focus on profit-generating
HR is a cost; there is no getting around that. It does not help you sell more directly or make more profit. It is time-consuming, sometimes technical, and it’s often difficult to find the right specialists for it.
It’s also true that your people are your greatest asset. So, rather than tying employees up with time-consuming tasks that add to the bottom line, why not release them into activities that help the business make money?
It sounds simple – and, you’re right, it’s not quite that easy – but changes to the way you approach HR can affect the entire culture of your company and help it become more productive.
Financial concerns are not the only reasons to outsource HR. There are also other advantages in tapping into a greater pool of professionals with expertise in specific HR areas. However, as you can see, taking HR functions outside the business to external professionals has major benefits for the bottom line.
This is why it is now estimated that around 50 percent of large companies outsource all or part of their HR… could your business be next?
Looking for more information on the possibilities of outsourcing your HR? Email me at: firstname.lastname@example.org.